CAE reports loss, plans restructuring, as pandemic clobbers aviation industry

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Canadian flight-training company CAE Inc. says it bore the full brunt of the coronavirus crisis in its last quarter and sees an uneven recovery ahead as it announced plans to reshape its operations, part of a new effort to save $50-million a year in costs.

The Montreal-based company, which is among the world’s biggest flight-simulator manufacturers and that also trains pilots, on Wednesday reported a net loss of $110-million or 42 cents per share for the three months ended June 30. Revenue plunged by one-third from the comparable period last year, to $550.5-million. Some 350 CAE employees were told last month they will be laid off.

“We believe the worst of the pandemic’s impact on CAE may now indeed be behind us,” CAE chief executive officer Marc Parent said on a conference call. “However, the pace of recovery is unlikely to be linear or quick, and it will most certainly be dictated by the progression of the pandemic and the rate at which travel restrictions and quarantines can safely be lifted and economic activity improves.”

Mr. Parent is among a throng of business leaders from the travel industry and other sectors pushing the Canadian government and the provinces to ease travel restrictions they say are too broad and out of step with other countries. Among their requests, they’ve asked the Trudeau government to end mandatory 14-day quarantines for international visitors.

The CEO is now trying to steer CAE through what he calls the most challenging conditions the company has ever faced. Airlines have grounded hundreds of planes and laid off thousands of workers in recent months, sharply depressing demand for the company’s sophisticated technology and training services.

Management has responded by suspending the dividend and halting share repurchases to preserve cash while starting a new business line to supply ventilators to help save the lives of COVID-19 patients. Mr. Parent used ventilators as an example of how CAE is flexible enough to be able to design and make a product from scratch. “We have a deeply rooted culture of innovation and a proven ability to adapt quickly to dynamic market conditions,” he said.

The company furloughed 2,600 of its 10,500 people in April but has since recalled most of them, company spokeswoman Pascale Alpha said.

With demand still shaky for some of its products, however, CAE is now making an additional cost-cutting effort.

CAE said Wednesday it would introduce and speed up new digitally enhanced processes, such as remote certification and work-at-home practices. The company said it will also consolidate some worksites and relocate some training equipment, which will yield $50-million in annual savings starting in fiscal 2022. It expects to record restructuring expenses of about $100-million over the next 12 months to carry out the changes, including costs tied to real estate and employee termination benefits.

Of the 350 layoffs, 200 will be in Montreal, Ms. Alpha said. No facilities will be closed but the company will move things around to become more efficient, she said.

Part of the shift in CAE operations will also likely be an increase in the time spent training pilots off-site remotely instead of in-person, Mr. Parent said. He said the goal is to generate permanent savings.

“We’ve learned to do a few things virtually during the pandemic,” the CEO said. “The investments that we make here, the processes leveraging digital, are going to have substantial impact on how we deploy training in the classroom.”

More than half of CAE’s global training network was either closed or at reduced operations in the first quarter, resulting in a facility utilization rate averaging 33 per cent. The rate has improved as centres reopened and flight crews resumed some instruction, but remains at roughly 40 per cent, CAE said.

The company continues to win new business despite the weak aviation environment, booking a sale for a new Airbus A320 simulator for China Express and a four-year training agreement with Alitalia among other recent contracts. Its other major business – defence – experienced delays in the awarding of new contracts during the quarter but also continued to win work.

With CAE’s training centres operating at well below capacity, its financial results will continue to be soft in the near term, National Bank of Canada analyst Cameron Doerksen said in a note to clients. But results should improve in the back half of the year given that business aviation, which represents half its commercial training revenue, is recovering more quickly than the overall industry, he said.

As airlines rethink their costs and capital commitments through this crisis, more may look to outsource their pilot training needs to CAE, which is by far the world leader in the field, Mr. Doerksen said. The company’s dominant market position in simulator manufacturing is also likely to strengthen as the market slowly recovers and rivals refocus investments, he said. As an example, one of CAE’s smaller competitors in simulators, TRU Simulation, has announced that it will leave the market for building simulators for commercial airliners, he noted.

CAE shares fell 1 per cent in afternoon trading in Toronto to close at $21.70. They’ve lost about half their value since hitting a 10-year peak of $41.48 in February.

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