Canadian Manufacturing

Montreal’s CAE bets more airlines will outsource pilot training

Company anticipates recent joint venture with Japan Airlines will help convince other carriers to outsource their own training

MONTREAL—CAE Inc. anticipates that its recent joint venture with Japan Airlines Co., Ltd. pilots will help to convince other carriers to outsource their own simulator training.

“It (sends) a pretty strong statement to other airlines,” CAE chief executive Marc Parent said during a conference call.

The Montreal-based company formed a joint venture with the Asian carrier in October to provide flight crew training for the airline and other customers across northeast Asia starting in April using 12 simulators.

Japan Airlines has been a CAE customer for 30 years and last year outsourced its cadet pilot trading to CAE.

“I don’t see a sea change in behaviour of airlines so far but there’s definitely more interest and certainly in the next year or two I certainly see one or two of these a year coming up,” Parent told analysts.

The company said its net profit attributable to shareholders increased 12 per cent to $42.9 million in the second quarter of its fiscal year on improved results in all of its operating segments, which provide flight simulators and training services to military and commercial customers around the world.

Revenues increased 11 per cent to $529.4 million from $478.2 million a year earlier.

CAE said its continuing operations earned $41.6 million or 16 cents per share for the period ended Sept. 30.

That compared to $38.1 million or 15 cents per share a year earlier.

It was expected to earn 16 cents per share on $508.9 million of revenues in the quarter, according to analysts polled by Thomson Reuters.

Parent said the results were in line with its expectations as the civil aerospace and healthcare sectors grew and defence was resilient thanks in part to contract extensions.

The company continues to expect a stronger second half for its 2014-15 fiscal year, which ends March 31, 2015.

“We remain highly encouraged by the civil aviation market and our opportunities for growth,” Parent said. “Market fundamentals remain robust with commercial OEM aircraft backlogs and delivery rates at historical levels and global passenger traffic continuing to grow at a healthy pace.”

He added that the business aviation market is showing signs of a broad recovery, with the number of business jet flights increasing three per cent over the last year in the United States, including a 5.7 per cent increase in September.

Although CAE only sold two simulators during the quarter and 13 year-to-date, it continues to forecast about 40 sales during the fiscal year.

In civil simulation and training, operating profits increased 16.4 per cent to $45.4 million as revenues grew to $296 million from $269.3 million a year earlier despite the seasonally slow second quarter.

Its civil backlog was $2.4 billion, before the joint venture with Japan Airlines.

The company also expects a stronger second half in defence, which earned $25.6 million, up two per cent from the prior year.

Segment revenues grew nine per cent to $209.1 million.

“We have a solid backlog and a robust bid pipeline which gives us the confidence to maintain our view that defence will remain resilient for the year overall,” Parent said.

Healthcare revenues grew 37 per cent to $24.3 million compared with $17.8 million in the second quarter of last year, pushing operating income to $1.8 million compared to $400,000 in the year-ago period.

CAE said it hopes to sell its mining segment, which employs about 200 workers, including more than 50 in Montreal, by the end of the fiscal year after receiving some expressions of interest from potential buyers.

Benoit Poirier of Desjardins Capital Markets described the results as “decent” but slightly negative due to a weaker civil margin and lower than expected free cash flow.

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