Matthew Bromberg, the new CEO of CAE, at the CAE office in Montreal, on Dec. 11.Andrej Ivanov/The Globe and Mail
When Marc Parent announced last year that he would retire from his role as chief executive officer of CAE Inc. CAE-T after a 15-year run, activist fund manager Browning West disclosed that it had taken a stake in the pilot training and simulator manufacturing company and asked for a formal role in picking his successor. “CAE must recruit a proven CEO with a verifiable track record of value creation,” Browning West co-founders Usman Nabi and Peter Lee said at the time.
In the months that followed, CAE shook up its board of directors. Aerospace veteran Calin Rovinescu, who led Air Canada as CEO for 12 years to 2021, was brought in as executive chairman. Browning West got a seat through a co-operation pact with the company and other major shareholders.
And the new CEO? That’s Matthew Bromberg, 55, a former submarine commander in the U.S. Navy. The executive, who most recently led Northrop Grumman’s global operations as vice-president, spent much of his career in commercial aviation but also has a strong military background. Both will be key as airlines deal with heightened geopolitical tensions and economic uncertainty while national governments increase their defence spending in the years ahead, according to Mr. Rovinescu.
Mr. Bromberg, who took over Aug. 13, is the first American to lead CAE as CEO in its 78-year history and expectations are high for his performance. Mr. Nabi has said the senior executive team should be able to double the company’s earnings per share over the next three to four years. The Globe and Mail’s Nicolas Van Praet spoke to the new CEO this month at CAE headquarters, just as he was closing on the purchase of a new home. He’s moving to Montreal.
Mr. Bromberg spent much of his career in commercial aviation but also has a strong military background.Andrej Ivanov/The Globe and Mail
Why did you decide to take this job?
I had received calls for other opportunities, but none of them piqued my interest. But when Calin Rovinescu called on CAE, I stopped. I’ve known the company for 15 years. So it really intrigued me, because first and foremost, a company has to get me excited. I have to be passionate about it. I have to wake up in the morning thinking what I do will make an impact. And many of the other inquiries I’ve had were not going to scratch that. But this did. I view it as an international company that’s in Montreal. It is extremely well respected in the commercial business, civil aviation space. We have relationships with the top 300 airlines around the world. We have relationships with every airframe manufacturer. And we sell more flight [simulators] than anyone else. But what got me even more interested was the defence side, which is where I’ve spent half my career. We’re in this generational increase in defence spending, and CAE’s got a fantastic defence business. Now having been here, I see a lot more that even further excites me about it: the team, the technology, the footprint.
A training simulator at the CAE training centre in Montreal.Andrej Ivanov/The Globe and Mail
There were a few critics who said this sends the wrong message because the company appointed an American at a time when we have a White House that’s openly musing about Canada becoming the 51st state. What’s your view?
I can tell you that CAE and safety and mission rehearsal, in my opinion, it transcends borders and transcends politics and transcends tariffs. What’s unique about the aerospace industry is that it has collaborated across borders for the past 50 years, which makes air travel incredibly safe and incredibly easy, ignoring crowded airports and things of that nature. But it is a phenomenal industry. Many industries are still trying to figure out how to operate around the world like aerospace does. So that’s what compelled me to stay in the industry. And that’s what excited me about CAE.
CAE has had trouble converting some of its assets into profit. Four months into the job now, what’s your take on what’s going right and what needs to be fixed?
The past 10, 15 years have all been about growth. And I think the performance of the civil business is fantastic. I think there’s an opportunity to improve it. I think we can improve how we apply our capital, how we spend our money. And then really drive a culture of operational excellence, performance. On the defence side, I think there’s a real opportunity to take the tool set that I’ve acquired in how you contract, how you bid, how you program manage. And I think there’s an opportunity to start to leverage that foundation as well. I think we have incredible technology. I didn’t see it on the outside. Now I see it on the inside. The military simulation devices that we make are 40, 50 times more complex [than civil aerospace training devices]. I had no idea how sophisticated those things were. And what the two businesses have done together is they’ve created a library of 220 platforms that are in service today. There’s no other training simulation company in the world that has that.
Training equipment at the CAE centre on Dec. 11.Andrej Ivanov/The Globe and Mail
On the civil business, the long-term outlook I think is positive. Eighty per cent of the world population hasn’t flown. The demand for pilots over the next decade, you’ve pinned at 300,000. But in the near term, we’re still seeing plane makers have serious supply chain problems. How will that impact CAE?
I’m not going to fixate on a quarter or two quarters. I’ve been doing this for 25 years and so I take an intermediate or long-term view. If you add up disruptions in the industry, we have a few today but it doesn’t change the long-term thesis. We will get through supply chain challenges. We will get through groundings. We will get through the geopolitical issues that disrupt travel. And then that’ll resume its normal course of growth because the world is urbanizing, the world is modernizing, the quality of living is going up. So in a given quarter or six-month period, there’s going to be fluctuations in the business. But given that we are the market leader in what we do, I’m not concerned about that at all. What I want to do is continue to optimize performance.
How do you get the utilization rate (of your simulators) up? I think it was 65 per cent on average in the last quarter.
The slowdown in the market is reflected in utilization rates, and so we’re looking at that. Airlines like to have training centres near them because it’s efficient, and we built them with that strategy over the past 10 years. But the reality is, as the world has evolved and airlines have come in and out of business, we need to make adjustments. So we will. Of the 360 SIMs that we operate, I know where everyone is. I know exactly how it’s utilized. I know whether it’s above or below plan. So when you quote an average, we’re grouping them all together. But I’m looking at each one, one by one by one. And that’s how we’re going to approach it.
An employee walks by a disassembled CAE simulator screen in the manufacturing plant in Montreal.Andrej Ivanov/The Globe and Mail
Some analysts have said that if CAE ever monetized its defence business, that would be a positive catalyst and generate a higher share price for the company as a pure play. Help us understand why CAE needs defence.
Traditionally, if you look over 50-70 years, defence is about a 2- to 3-per-cent growth business. We’re not in that environment right now. We’re in a 7- to 8-per-cent growth business to achieve the spending targets of Canada and other NATO countries, and the U.S. has a tremendous spending profile as well. So we have tremendous top-line growth right now. And training and simulation is 15 cents of every defence dollar that’s spent. Now, not all of that is up for CAE, but when you think about readiness, mission rehearsal, the simulators, the training centres, it’s 15 cents on the dollar. And it’s unique because we play in the R&D procurement side, but also in the operational sustainment side of defence spending. So that’s a great place to be. And put all that aside, sovereign customers are good customers. They fund a lot of their development. They’re good counterparties to work with. They pay their bills on time.
In terms of what you’ve seen from the federal Liberal government since it’s been elected, are they pursuing the right path and are they doing the right things (on defence)?
I’m a big supporter of what the administration is doing. I think it is overdue personally. And I sit here wearing four hats: I’m a veteran. I’ve spent 25 years in A&D [aerospace and defence]. I’m CEO of this Canadian company, and I’m a new resident. And so when I wear all those hats and I look at Canada, we have an economy that is one-10th the size of the United States’, but in aerospace and defence industry it’s one-30th. I want to help change that. And defence and aerospace jobs, they’re good jobs. They’re sticky, they’re capital-intensive, they’re not easy to move. And they’re generational. These programs are not five-year programs. They could be 20-, 30-, 40-year programs. Canada has the foundation, the infrastructure, the intellectual capability, the passionate work force. It’s just undersized in aerospace and defence. And I’m excited with the prospect of growing that.
A CAE training simulator.Andrej Ivanov/The Globe and Mail
What are the biggest risks for the company that you see right now?
It’s a very competitive industry. And you can imagine with the position that CAE has achieved over the past 15 years, there are many companies that are trying to come compete with us. Other companies make full flight simulators. We make 10 times more than all of them combined, but other companies can and do make them. And so I want to ensure that we continue to modernize this Montreal, Quebec, facility so that we’re the most competitive. Secondly, technology is evolving. Commercial technologies are evolving and many companies are looking at AR, VR, augmented reality, virtual reality, combining with full-flight SIM capability. And we have that technology as well, but I’ll make sure that we continue to lead that. And then the third thing is being the first to drive AI into this closed-loop, collaborative, adaptive training cycle. So I want to make sure that we lead that. We’ve been leading technology and training and simulation for the past three decades, and we need to continue leading that.
This interview has been edited and condensed.