CAE turns a corner

The last five years have been a struggle for CAE.

The company is the world’s largest maker of flight simulators used to train civilian and military pilots. Civil aviation accounts for 60% of its revenue, military is 35% and healthcare 5%. About 90% of revenues come from outside Canada.

The pandemic cut demand for air travel which meant less demand for is pilot training. It also created supply chain problems for the parts that go into its flight simulators. This forced CAE to eliminate its dividend. As inflation rose, it ran into more trouble with unprofitable fixed-price military contracts. It was losing money on these contracts and unable to pass on higher labour and material costs.

But CAE (TSX:CAE) seems to have finally turned a corner, cleaning up its books and drawing the attention of an activist investor.

In May, it reported a net loss of $325 million for its 2024 year writing down the value of its defence business by $568-million and writing off another $126-million in contract adjustments to clean up its books. CEO Marc Parent called it a disappointing, but necessary step. Several top executives left the company.

 In its latest quarter, reported in November, CAE reported adjusted earnings per share of $0.24, 7% lower than a year ago. That was ahead of analysts estimates. Revenue of $1.14-billion was 7% higher.

CAE’s shares are 4% lower year-to-date at the current price of $34.92, but 30% higher over the last 12 months.

The company also announced that Mr. Parent is retiring in August after 15-years as CEO.  That drew an announcement from Los Angeles activist fund manager Browning West. It disclosed it owns 4.3-per-cent of CAE said wants a role in the company’s affairs. CAE has not responded.

In the meantime, CAE’s outlook has brightened with rising demand for its flight simulators and training services. At the end of September CAE’s order backlog was $18.04 billion, a record which is 61% higher than the $11.7 billion at the end of 2024.

This article appeared in a recent issue of the Internet Wealth Builder.  For information on how to reprint this article please view this page.