CAE's flight simulator assembly plant in Montreal.Ryan Remiorz/The Canadian Press
CAE Inc. CAE-T is exploring a potential sale or other options for its Flightscape aviation software business as the company pushes to reshape its asset base after a decade of expansion.
Montreal-based CAE, which builds flight simulators and trains military and commercial pilots, said Monday the move is aimed at positioning Flightscape for its next phase of growth while CAE refocuses on the company’s core capabilities. Options for the business include a sale, strategic partnerships or outside investments, CAE said.
Flightscape is “a strong, differentiated business that may be better positioned for its next chapter through alternative ownership or partnership structures,” CAE chief executive officer Matthew Bromberg said in a statement.
Mr. Bromberg, a former submarine commander in the U.S. Navy who took over last year from long-time CEO Marc Parent, is working to boost profits and cash flows after a 15-year expansion left the company on solid footing but unable to generate high returns from some of its assets. Shareholder Browning West says Mr. Bromberg should be able to double the company’s earnings per share over the next three to four years.
CAE chief Matthew Bromberg sees boom years ahead for Montreal aviation training giant
The CEO last fall unveiled the first steps of a transformation plan that includes tightening spending and streamlining internal organizational structures. After reviewing CAE’s portfolio of assets, he then said in February that the company had identified several non-core businesses that represent about 8 per cent of total revenue that it would look to divest.
Flightscape is probably the biggest of those non-core assets, National Bank analyst Cameron Doerksen said in a research note. CAE bought the business – which offers flight and crew management tools and counts several major airlines as customers – from Sabre Corp. in early 2022 for an enterprise value of US$392.5-million.
CAE has subsequently invested in the business to develop and expand its product offering, but given that the unit’s margins are below CAE’s civil segment average, the company is not expected to recover that capital investment through a sale, Mr. Doerksen said. Still, “with large investment CAE has already made in the business and the potential for high incremental margins as it scales, Flightscape could be an attractive asset,” he said.
There’s been high interest from private equity players for aviation software businesses over the past three years, suggesting there should be good demand for Flightscape as well, Bank of Nova Scotia analyst Konark Gupta said in a note. He estimates that a full sale of the unit could potentially be accretive to CAE by between 75 cents to $2.50 per share.
“We continue to expect more CAE assets to come to the market over time,” Mr. Gupta said.
Mr. Bromberg told analysts in February that making changes to CAE’s civil training network represents “the most significant near-term opportunity” for improving the overall business. The company operates 373 full-flight simulators globally, including 250 for commercial airline training, and there’s a wide range in how they perform, he said.
The CEO said there’s an opportunity to rationalize training capacity and that the company will move about 10 per cent of its simulators in service to improve utilization and returns over the next two years. “The objective is a training network that is right-sized for the market and its expected growth, supported by a leaner cost structure and a stronger go-to-market execution,” he said at the time.
Last month, CAE announced it is cutting 280 jobs, about 2 per cent of its work force, and putting training centres in Barcelona, Brussels and Stockholm under review for potential sale or closure. The company has approximately 20 training facilities in Europe and remains focused on expanding its sales to European civilian and military customers.
Mr. Bromberg is expected to announce more details and financial targets when the company reports fourth quarter results next week.
“Some of the actions required to strengthen the business will have some near-term revenue impact,” CAE executive chairman Calin Rovinescu said on the company’s most recent earnings call. “We’re comfortable with that trade-off as we position the company to become more resilient and to deliver stronger returns with more disciplined capital allocation.”