Canadian simulator specialist CAE is going back to its roots with a restructuring that brings its civil and military manufacturing activities back together in a bid to reduce costs. The company has also taken a C$443 million ($358 million) write-down of the value of its civil aviation training business and will record charges of C$55-65 million to cut 450 jobs, the bulk of them at its Montreal headquarters.
CAE is being restructured into three business units, effective 1 April: a civil training group operating the company's network of commercial flight simulators; a military group; and a simulation products group consolidating all engineering, manufacturing, programme management and procurement.
"We've recreated the old CAE. We've brought all of engineering back together from civil and military," says chief executive Bob Brown. "We were going in different directions and not transferring technologies from military business to the civil side." Brown, who arrived as chief executive in August last year, wants to drive down the cost of CAE's "too expensive" simulators. "Simulation products will stand on its own...that means learning how to compete and generate a decent return on investment," he says.
The write-down of assets is a result of lower estimates of future cashflows from investments in CAE's civil training business because of the continued lack of airline profitability, declining demand for regional jets and the higher Canadian dollar.
The net asset value of CAE's worldwide network of simulators has been reduced from C$950 million to around C$600 million.
To increase efficiency, the civil training group will consolidate centres, closing one of its two Dallas, Texas sites, and relocate underperforming simulators. While CAE's costly venture into training has boosted revenues, it has been at the expense of return on capital, says Brown. "It wasn't the strategy that was wrong, it was the execution...and it needed fixing right away," he says.
Training now accounts for 60% of civil revenues and is profitable, whereas the equipment business is at break-even, says Brown. He expects margins on simulator sales to improve, saying that CAE ceded Singapore Airlines' year-end Airbus A380 simulator competition to rival Thales because "the pricing did not make sense".
Graham Warwick / Washington DC
Source: Flight International
