CAE well positioned to fend off competition
August 22, 2013 By Ross Marowits | The Canadian Press
Aug. 23, 2013, Montreal – CAE is well-positioned to maintain its global leadership in the flight simulator business despite intensifying competition that is cutting prices and hurting margins, according to an industry analyst.
Aug. 23, 2013, Montreal – CAE is well-positioned to maintain its global
leadership in the flight simulator business despite intensifying
competition that is cutting prices and hurting margins, according to
an industry analyst.
Cameron Doerksen of National Bank Financial says the
Montreal-based company's large installed base of simulators, low
cost base and unparalleled ability to also offer pilot training
services position it well in the long term.
CAE Inc. has produced nearly half of all civil aircraft
simulators operating around the world.
Excluding business jets and helicopter simulators, it dominates
with a 56 per cent share of the market. Its next closest rival, L-3
Link, has only a 26 per cent share, followed by Flight Safety
International, which doesn't focus on commercial planes, at 10 per
"While CAE has always faced competition from the other major
players and to a lesser extent smaller players trying to gain market
share, the current environment may be more of a challenge to CAE
than anything it has faced in recent years,'' Doerksen wrote in a
The main commercial aircraft competition is from L-3 Link,
Lockheed Martin and Rockwell Collins, which all beefed up their
civil simulation operations through acquisitions in recent years.
L-3 bought the civil simulation and training business of France's
Thales, Lockheed Martin acquired Dutch-based simulator manufacturer
Sim-Industries, while avionics supplier Rockwell Collins signed a
joint venture in June with Chinese simulator maker Bluesky Aviation
Technology, a subsidiary of state-owned AVIC.
Small competitors include Mechtronix, whose operations are near
CAE's main plant in Montreal.
Doerksen said CAE has a "major incumbency advantage'' because
airlines or training providers are reluctant to switch suppliers.
Demand for simulators is expected to grow in the coming years as
global aircraft orders rise, particularly in China, and thousands of
new pilots are trained.
One simulator is needed for every 30 new narrow-body planes and
about 15 to 20 wide-body aircraft. Airbus and Boeing expects to
deliver about 1,250 new planes this year, while aircraft produced by
Bombardier, Embraer and others suggest that up to 60
simulators will be needed this year.
CAE recently said it expects to sell a record 40 simulators this
year, up from 35 in the last fiscal year. In the first quarter, it
sold 23 units.
While commercial simulator sales have become less important to
CAE over the past decade, Doerksen estimates the segment still
accounts for 23 per cent of CAE's total revenues and 28 per cent of
its operating earnings.
Meanwhile, the analyst said that while CAE's margins will come
under pressure, demand for simulators will remain high. He also
expects the company will benefit from improved results in its civil
training business as disruptions around restructuring in Europe last
year ease. The military market remains uncertain, but is not likely
On the Toronto Stock Exchange, CAE's shares closed down four
cents to $11.21 in Wednesday trading.
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