GRAHAM WARWICK / WASHINGTON DC
Revenues from training venture grow enough for it to become self-financing and compensate for simulator decline
CAE's civil flight training venture, launched three years ago, has grown to the point where it can finance its own growth, reducing the drain on the simulator manufacturer's resources. Training generated revenues of C$180 million ($118 million) in the nine months to 31 December, almost half the total sales of CAE's civil unit.
While CAE's commercial flight simulator sales have declined with the airline downturn, to just eight orders in the first nine months of the company's 2002-3 financial year, revenues from training have grown rapidly through the acquisition and opening of new centres. By year-end, CAE had 75 simulators in service.
The price has been increased investment, CAE spending C$43 million in the third quarter and C$160 million for the year to date - the bulk of the company's C$183 million capital expenditure over the first nine months. As a result, CAE's debt has ballooned, increasing C$61.5 million in the third quarter to just over C$990 million.
With the civil training venture now "positioned to generate sufficient cashflow to finance its growth going forward", according to CAE, the company is tapping the value represented by its growing simulator fleet to raise financing. The sale and leaseback of two simulators is to close this quarter, raising C$35-40 million, and CAE plans to raise up to C$150 million next year through similar sale and leaseback deals.
Initial growth of the civil training venture was accelerated by acquisitions, and is slowing as CAE fills out its worldwide network of simulator centres. The fleet will reach 90 machines by the end of the 2002-3 financial year and is expected to grow next year at about half this year's expansion rate, adding 10-15 simulators. About a third of the installed base will be on sale and leaseback by the end of next year, says CAE.
Rapid growth, and an "unexpected" reduction in short-term demand for airline training, prevented CAE reaching its 65% occupancy target in the first nine months, with simulator capacity use running at around 60%. The company is expecting to achieve 65% and a "significant increase" in training revenue this quarter.
CAE's training venture has overtaken its major rival, FlightSafety Boeing Training International, which had 72 full-flight simulators in service by the end of last year. Boeing, which bought out FlightSafety International's 50% stake in the joint venture late last year, is to rename the subsidiary Alteon.
Other major players in the commercial training centre business, GE Capital Aviation Training (GECAT) and Pan Am International Flight Academy (PAIFA) grew modestly last year
Source: Flight International
