New CAE chief aims to put a lid on costs, turn away from big expansions

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MONTREAL — CAE Inc.’s new chief executive Matthew Bromberg says it’s time to clamp down on costs and reap the profits from its vast flight training network, rather than hunt for big expansions.

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“We have this world-class network. It’s a field of strawberries that are going to continue to grow, and we want to harvest it,” Bromberg told analysts on a conference call Wednesday.

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“We’ll be more disciplined, more selective and more demanding in all our commercial bids, in all our capital projects, and all our research and development programs. Likewise, any acquisition would be considered only within our core markets.”

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The CEO also forecasted 10 per cent lower capital expenditures than was previously predicted for the year amid slowing demand for air travel and commercial pilots.

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Stepping into the top job in August, Bromberg launched a top-to-bottom review of the flight simulator maker’s operations last quarter and unveiled a transformation plan to analysts Wednesday, with a focus on streamlining.

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The overhaul will scrap the chief operating officer role, merge commercial and business aviation training into a single unit and consolidate the company’s three defence segments into two — one focusing on the U.S. market and the other on Canada and overseas.

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Executive chairman Calin Rovinescu, who ran Air Canada as CEO for 12 years, leaned into the farm metaphor.

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“CAE’s culture has centred primarily on growth over the last two decades, and it is time now to harvest that growth and extract even greater bottom-line profitability,” said Rovinescu, who took on the board role in February.

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The federal government’s renewed focus on defence spending bodes well for CAE, he added. Last week’s Liberal budget laid out an additional $81.8 billion in spending in the sector over the next five years.

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Even purchases that flow to companies outside of Canada could have spillover benefits for domestic firms, Rovinescu noted, pointing to aircraft contracts as an example.

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“If there’s a training footprint that attaches to that, if there’s a mission readiness footprint that attaches to that, there are opportunities for CAE and, frankly, for other Canadian companies.”

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Nearly half of the firm’s revenue stems from its defence segment, where revenue grew 14 per cent year-over-year last quarter due to a ramp-up of recent contracts in Canada and the U.S.

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In recent years, more than a half-dozen fixed-price defence contracts signed before the pandemic ate away at profits due to supply chain problems and cost inflation, but those deals are expected to fall off CAE’s plate in the next year or so, analysts say. Profit margins topped eight per cent last quarter.

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“Some contracts we can go renegotiate because we see long-term strategic value; others we have to attrit out,” Bromberg said, referring to attrition — deals that are cancelled or expire, in this case.

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In civil aviation, CAE enjoys enormous market share, executives stressed. The company churns out 80 per cent of the world’s flight simulators and trains about a third of its commercial pilots as well as 40 per cent of business jet aviators, according to S&P Global Rating.