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The Globe and Mail

CAE announces more than $100-million in military contracts

CAE president and CEO Marc Parent.

Graham Hughes

CAE's diversification plans were strengthened Wednesday as the pilot trainer landed military contracts worth more than $100-million (Canadian) with defence industry heavyweights Eurocopter, Airbus Military and L-3 Communications.

The Montreal-based aircraft training and flight simulator giant did not disclose specific financial details of the contracts.

CAE said it will upgrade two aircraft for Eurocopter, provide transport devices for Airbus, and provide software support and management services for L-3.

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"One of our strategic priorities has been to establish close relationships with major defence prime contractors and original equipment manufacturers," Martin Gagne, president of CAE's simulation products group, said in a statement.

"Contracts with Eurocopter on major upgrades to the German CH-53 training systems and Airbus Military on two A330 tanker programs are perfect examples of CAE working closely with prime contractors to support military forces around the world."

CAE has moved to bolster its military presence in a bid to diversify its operations. With civil aviation heavily impacted by the economic slowdown and global financial crunch, the military side of the business has gained prominence in terms of revenues and profits.

In the first fiscal quarter of 2010, military revenues increased to 48.3 per cent of CAE's total sales, up from 43.6 per cent for the total fiscal year in 2009.

Incoming CEO Marc Parent recently told shareholders the company is well-equipped to manage the challenging aerospace market.

"We expect this fiscal year to bring its share of difficulties, but our diversification and our worldwide presence will allow us to weather the storm."

Chris Murray of CIBC World Markets said the contracts were expected as CAE already has a strong military presence and is increasingly benefiting from higher Canadian military spending.

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"The problem with CAE really comes back to concerns about what the civil business is going to look like," Mr. Murray said in an interview.

The company is affected as airlines consider deferring or cancelling plane orders. The latest came Wednesday from Europe's third-largest discount airline as Air Berlin said it is reviewing an order for 25 Boeing 787 Dreamliners, the first of which is scheduled to be delivered in 2013.

CAE is widely expected to win additional military contracts in coming months involving such programs as maritime patrol, search and rescue, along with a contract with Boeing for 15 Chinook heavy-lift helicopters that could be worth about $300-million to CAE.

The climate for military orders in Canada is also strengthened by political interest in the Far North.

"When you see every leader of every political party head into the north talking about sovereignty, they've got to put something up there," he said in reference to a heightened military presence.

CAE employs more than 6,500 people in 20 countries around the world, including thousands at its Montreal operations, and generates annual revenues of more than $1.6 billion.

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