A CAE employee works on the cockpit that will go in a CAE simulator in the CAE manufacturing plant in Montreal.Andrej Ivanov/The Globe and Mail
CAE Inc. CAE-T is cutting 280 jobs and potentially selling three facilities in Europe as the aviation and defence training company braces for a downturn in spending by its civilian airline customers.
On Wednesday, Montreal-based CAE announced it will lay off approximately 2 per cent of its employees, including engineers and software programmers.
The cuts are part of its new executive team’s strategy to align its work force with falling demand for simulators and aircrew training from civilian airlines. Rising geopolitical instability is reshaping defence and opening new sales avenues for that part of CAE’s business as well, but much of the government spending driving the growth won’t kick in until years from now.
To cut costs, CAE also put training centres in Barcelona, Brussels and Stockholm under review, and could sell or close the properties. The company has approximately 20 training facilities in Europe and remains focused on expanding its sales to European civilian and military customers.
In recent months, CAE announced plans to close facilities in Orlando, Fla., and Broken Arrow, Okla.
“These actions are intended to better position CAE for the future, while ensuring we remain focused on the areas where we are strongest and most differentiated,” the company said in an internal e-mail to employees reviewed by The Globe and Mail.
CAE is offering early retirement packages to Canadian employees as part of the layoff program. The company is also introducing a work-sharing program in its manufacturing operations “to adjust capacity while helping retain skills and jobs.”
“These measures reflect our intent to balance today’s realities with our responsibility to our people and our future,” the employee memo said.
Last August, CAE hired aviation and defence industry veteran Matthew Bromberg as its new chief executive officer.
CAE chief Matthew Bromberg sees boom years ahead for Montreal aviation training giant
Mr. Bromberg, a former submarine commander in the U.S. Navy, is pushing to sharpen CAE’s business and boost profits and cash flows after a decade of expansion. Fund manager Browning West, a significant CAE shareholder, said last year the CEO should be able to double the company’s earnings per share over the next three to four years.
That effort is well under way, with a transformation plan that includes revamping CAE’s network of civil training centres, tightening spending and selling assets not central to the company’s long-term strategy.
“We overbuilt the network,” Mr. Bromberg told analysts in February, speaking of the civil aviation business. “It’s too large for the demand that we see today. And so we’re going to reduce the size of the network to accommodate today’s demand and the expected growth we see.”
Mr. Bromberg is set to announce more details and financial targets during a business update in May. CAE has 13,000 employees in 40 countries.
CAE runs two separate business lines. Its civil aviation unit is the market leader in flight simulator development and sales, and the unit operates the biggest independent training network in the world.
The company also has a growing defence business that instructs pilots and crews on military equipment for Canada and its allies. Over the past year, CAE announced partnerships to build training facilities for the German and South Korean companies bidding to supply submarines to the Canadian navy. The winner of the $20-billion-plus contract is expected to be announced in June, with the first submarines delivered by 2032 at the earliest.
Though CAE’s long-term fundamentals are positive as demand for travel climbs, the civil aviation industry is now passing through a complex series of challenges. War in the Middle East and conflict elsewhere has forced airlines to reroute flights and pay more for jet fuel, among other problems.
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Meanwhile, the sector continues to deal with major supply chain and regulatory issues that are delaying deliveries of new jets. That in turn is making it harder for airlines, as the customers buying those planes, to plan their operations.
Airbus SE and Boeing Co. each have order backlogs representing roughly 10 years of production, at their current production rates. Brazil’s Embraer SA, too, has record orders for aircraft not yet delivered.
“The support services are there but if the airplanes aren’t delivered, what are you training the pilots for?” said Ernest Arvai of U.S. aerospace consultancy AirInsight. “If you plan on higher capacity and that capacity doesn’t show, you’ve got excess capacity. And I think that’s what’s happening right now.”
That pain was evident in CAE’s most recent quarter. Revenue in the business unit fell 5 per cent year-over-year to $717-million, while adjusted operating income fell 6 per cent to $142-million. The company sold fewer simulators in the period and its training centres were used to 71 per cent capacity, down from 76 per cent a year earlier.
Defence performed better, with a 14-per-cent increase in revenue to $535-million, while adjusted operating income increased 38 per cent to $54-million. It was the first time in more than six years that the unit’s profit margin topped 10 per cent.