Flight-sim­u­la­tor maker CAE pre­dicts de­fence surge

The Hamilton Spectator - - BUSINESS - FRED­ERIC TOMESCO

CAE Inc. ex­pects de­fence spend­ing in the United States to ramp up un­der Pres­i­dent Don­ald Trump, which should drive de­mand for its flight sim­u­la­tors and train­ing ser­vices.

“The United States will be look­ing to in­crease their force readi­ness,” said chief ex­ec­u­tive of­fi­cer Marc Par­ent. “It’s go­ing to hap­pen fast, just like ev­ery­thing else is hap­pen­ing pretty fast. There’s no doubt in my mind.”

Trump has not only promised to in­crease the U.S. de­fence bud­get, he has pub­licly pres­sured fel­low mem­bers of the North At­lantic Treaty Or­ga­ni­za­tion to ful­fil prom­ises of spend­ing at least two per cent of gross do­mes­tic prod­uct on de­fence. Al­to­gether, 19 of NATO’s 28 mem­bers have boosted mil­i­tary bud­gets in the past 18 months, ac­cord­ing to a Bank of Amer­ica Mer­rill Lynch re­port.

“The mil­i­tary busi­ness, for us, will be a growth busi­ness for years to come,” Par­ent said in an in­ter­view at com­pany head­quar­ters near Mon­treal’s Pierre El­liott Trudeau In­ter­na­tional Air­port. “For the first time since the Cold War, you have a level of global un­cer­tainty that’s go­ing to drive an in­crease in de­fence ex­pen­di­tures pretty much ev­ery­where we see. For us, it stim­u­lates more po­ten­tial for bids.”

The de­fence and se­cu­rity unit ac­counts for about 40 per cent of com­pany rev­enue. On Mon­day, CAE won an 11-year con­tract from Air­bus Group val­ued at more than $200 mil­lion to sup­port the Royal Cana­dian Air Force’s Fixed-Wing Search and Res­cue pro­gram. Last month, CAE an­nounced more than $1 bil­lion in train­ing ser­vices con­tracts with the U.S. Army and the Royal Cana­dian Air Force.

“We’re bid­ding for much big­ger con­tracts th­ese days in de­fence,” Par­ent said. “We used to bid on sim­u­la­tors. To­day we bid as a train­ing ser­vices in­te­gra­tor.”

CAE wants to hire at least 400 en­gi­neers in North Amer­ica, about half of which would work in the States the com­pany’s largest mar­ket at more than one-third of rev­enue, the CEO said. The five per cent in­crease in CAE’s work­force of 8,000 world­wide will han­dle a grow­ing back­log of more than $7.4 bil­lion in work.

“If you know some soft­ware en­gi­neers, we are hir­ing,” said Par­ent, a for­mer Bom­bardier ex­ec­u­tive who has been CEO since 2009. “We will hire them as soon as we can get them. All this work that we have won, we need to ex­e­cute it.”

On Tues­day, CAE re­ported ad­justed earn­ings of 26 cents a share for the fis­cal third quar­ter, beat­ing the 23-cent av­er­age of an­a­lysts’ es­ti­mates compiled by Bloomberg. Rev­enue rose to $682.7 mil­lion, top­ping the $667.3 mil­lion an­tic­i­pated by an­a­lysts.

The United States will be look­ing to in­crease their force readi­ness. MARC PAR­ENT CAE INC. CEO

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