GRAHAM WARWICK / WASHINGTON DC
Canadian simulator manufacturer sets sights on expansion south of the border, but further acquisitions unlikely
Canadian simulator manufacturer and operator CAE has announced a share offering and planned listing on the New York Stock Exchange. The Montreal-based company expects net proceeds of C$300-350 million ($200-230 million) from the offering, which will be used to reduce debt.
CAE is also starting to see the fruits of its move into commercial aviation training. "Two years ago we expected C$100 million in training revenues in fiscal year 2002. We are looking at triple that," says chief executive Derek Burney. The faster-than-forecast growth is a result of acquiring the Schreiner and SimuFlite training operations.
"We operate 60 simulators on the civil side. That will increase to more than 80 in this fiscal year [ending March 2003]," says Burney. "That's a one-third increase in training capacity." CAE is now the second largest training provider after FlightSafety.
CAE moved into training as it saw better prospects for growth than in simulator manufacture. The move has helped cushion the airline downturn. "The impact of 11 September was not as substantial as on the equipment side," says Burney. CAE expects commercial simulator orders to drop to 15-20 this year, but another 20 will be produced for its own training centres.
Analysts have queried the earnings CAE expects from training, and Burney admits there is price pressure on some simulators in the current downturn. "Simulators for airliners parked in the desert have faced pressure, but business aviation has not," he says. "On the whole, we have been able to hold our own." CAE is not competing purely on price, Burney says, and believes it can command a premium because of its equipment.
CAE is continuing to invest in technology, which has helped win its dominant share of the commercial simulator market, and is expanding its military simulation business. The acquisition in April 2001 of BAE Systems' US training arm was pivotal, says Burney, because it allows the company to bid as a prime contractor in the USA. Europe is CAE's largest military market, with the USA accounting for less than 30% of defence sales last year. "We want to increase our share of the US market," he says.
After four deals last year totalling C$1 billion, "acquisitions are not number one on our hit list this year", says Burney. "The challenge is to digest the acquisitions and to strengthen our balance sheet with growth." To that end, CAE has hired the former head of rival training firm FlightSafetyBoeing, Gary Scott, to run the civil group.
Source: Flight International
