Flight-simulator maker CAE predicts defence surge
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