CAE builds extra simulators on ‘pent-up’ 737 Max demand
CAE Inc. has built extra simulators for the Boeing 737 Max series as it anticipates high demand for training products once the grounded aircraft resumes flight, chief executive Marc Parent said Wednesday.
“Our assumption is that there’s obviously going to be a lot of pentup demand when those airplanes start flying,” Parent said in a conference call with analysts.
Boeing ’s Max fleet was grounded globally in March after two software-related crashes killed 346 people. Regulators are expected to re-certify the planes for flight by the end of the year, but airlines will not resume commercial flights until early 2020.
Montreal-based CAE, which provides services and simulators for civil and defence aviation customers and the health-care industry, built the white-label simulators to have on hand even though it is not clear what training will be required before pilots are allowed to use the hundreds of plane currently parked.
“We have no crystal ball on what training will be done,” Parent said. “Our experience, though, is that airlines rarely do just the minimum that their regulators will ask them.”
CAE expects airlines will buy extra simulators or require their pilots to use them at training centres. The pre-emptive build affected CAE’S working capital this quarter, but Parent “fully expects” people to order them once the Max is back.
The company said it has captured the majority of the market share for Boeing 737 Max simulators, stating it has already sold 48 and delivered 19 to date, with plans to deliver nine more this fiscal year.
CAE said it is in “lock step” with Boeing and doesn’t expect any delays in upgrading the simulators to reflect the latest approved software.
Still, pilot training presents a big hurdle for airlines whose jets have been parked for the better part of a year. For example, Air Canada said it needs to hire and train an additional 350 pilots to operate its Boeing fleet. Canada’s largest airline also said it could take up to a year to add all 50 of its Max jets to its schedule.
But Boeing’s problems are not solely responsible for the expected increase in demand for training and simulation services.
CAE’S profit rose 18 per cent to $75 million in its fiscal second quarter, while revenue increased 21 per cent to $896.8 million and it signed nearly $1-billion worth of new orders. In its civil aviation division, operating income rose 60 per cent. As such, the company increased its outlook for operating income growth to 30 per cent, from the upper 20-per-cent range.
“The market fundamentals for commercial aviation remain supportive with continued long-term passenger growth, an expanding global in-service fleet of aircraft and, significant to our business, a significant need to attract and create new pilots to meet long-term demand,” Parent said on the call. Financial Post