CAE's civil aviation training solutions segment led performance with double-digit growth in the first quarter of Fiscal Year 2019, the company announced during an earnings call on Tuesday. Civil revenue for the first quarter was C$430.9 million, a 16 percent increase compared to last year, while segment operating income was up by 14 percent, to C$78.3 million. The company’s revenue during the quarter stood at C$722 million, compared to C$656.2 million a year ago. Revenue from CAE’s defense segment was C$268.3 million, indicating a 3 percent year-over-year increase, but segment operating income fell 10 percent, to C$21.5 million.
In civil the civil sector, training center utilization was 80 percent during the quarter and signed training solutions contracts were valued at C$499.3 million. Joint ventures included pilot training agreements and contracts with Singapore Airlines, Jetstar Japan, Asiana Airlines, Avianca Airlines, Volaris, and OJets. The civil segment sold 18 full-flight simulators (FFSs) during the quarter and signed for eight additional FFS sales after the quarter ended, marking 26 sold year-to-date.
“These wins serve to give CAE increased recurring revenue and cash flows and the opportunity to make accretive growth investments right in our core market of training,” said Marc Parent, president and CEO of CAE. “We continue to have solid momentum in business aviation as well and we are well positioned to provide customers with an excellent experience and to continue gaining market share.”
CAE reported training demand in business aviation remains aligned with business jet travel as the FAA reported a 2.5 percent increase in total business jet flights over the past 12 months. According to CAE, demand for training solutions in the civil market is driven by pilot training and certification regulations and growing demand for trained aviation professionals, along with an expanding commercial and business aircraft fleet, safety and efficiency concerns, and expected long-term global air travel growth.
“We expect to continue to lead the simulator products market this year and for civil overall; our outlook for low double-digit percentage operating income growth this year remains unchanged,” said Parent.
In the defense sector, the company booked orders for C$166.9 million during the quarter. Contracts included U.S. Navy training contracts, Brunei Ministry of Defense simulator training, upgrading of German Air Force Tornado simulators, and support for the Royal Canadian Air Force’s CF-18 aircraft. At the end of the quarter, CAE acquired Alpha-Omega Change Engineering (AOCE) in an effort to expand its capabilities as a training systems integrator in the U.S.
“The acquisition of Alpha-Omega Change Engineering expands our position in the U.S. defense market. Much like our acquisition a few years ago of the NATO Flying in Canada, or NFTC, program, this acquisition enhances our core capabilities as a training systems integrator and grows our position on enduring platforms such as fighter aircraft,” said Parent.
Sonya Branco, vice president of finance and chief financial officer for CAE, explained the timing of milestones and the product and service mix contributes to quarterly variability in the defense segment. “In the first quarter, we incurred a relatively higher level of R&D expenses on active programs,” said Branco. According to Parent, CAE expects the defense segment to generate mid to high single-digit percentage operating income growth in Fiscal Year 2019.
CAE is continuing to focus on advancements in digital technology aimed at enhancing aviation training solutions. “Our latest digital innovation, CAE Rise, is a revolutionary new training system that enables the objective assessment of pilot competencies using live data during training sessions. The system harnesses the power of cloud-based computing and analytics to provide CAE with deep insights that bring our customers’ aviation training experience to new levels,” said Parent. CAE launched Project Digital Intelligence with the governments of Canada and Québec to develop next-generation training solutions. “By seizing new technologies such as artificial intelligence, big data, and augmented reality, and applying them to the science of learning, CAE will continue to revolutionize our customers’ training experiences,” said Parent.
