Pilot Training Industry Perspective: CAE Quarterly Earnings Review – Q4

Pilot Training Industry Perspective: CAE Quarterly Earnings Review – Q4

Global Pilot Training leader and publicly listed CAE released its Financial Year Q3 2021 results. The information released provides the wider pilot training industry a good overview of how CAE has been affected by the global pandemic and CAE management's view of the industry trends moving forward. You can find our summary review's of Q1, Q2 and Q3 results through the links at the bottom of this analysis.

Key points of interest for Q4 results were as follows:

  • 6% decrease in Revenue ($388.2 million) vs. third quarter and down 36% vs. fourth quarter last year
  • 55% Training centre utilization - same as in Q3
  • 4 new full flight simulator (FFS) sales vs. 3 in Q3
  • $385.8 million civil signed training solutions contracts signed
  • 14 FFS delivered vs. 21 in Q4 the year before
  • Civil Training business remains profitable
  • CAE announced it entered a definitive agreement with L3Harris Technologies to acquire L3Harris’ Military Training business (L3H MT) for US$1.05 billion
  • On March 4, 2021, CAE completed a private placement of 22,400,000 subscription receipts at a price of $31.25 per receipt for aggregate gross proceeds of $700.0 million. As at March 31, 2021, the cash proceeds from the issuance of the subscription receipts were held by an escrow agent, in a restricted account, pending the fulfillment or waiver of all outstanding conditions precedent to the closing of the L3H MT acquisition.
  • On March 12, 2021, CAE completed a marketed public equity offering of 10,454,545 common shares at a price of $34.29 [US$27.50] per share for aggregate gross proceeds of $358.5 million. The net proceeds of the equity offering are for financing a portion of the purchase price and related costs of the L3H MT acquisition.
  • Net cash provided by operating activities was $174.6 million for the quarter compared to $246.3 million in the fourth quarter last year.
  • Free cash flow was $170.6 million for the quarter compared to $224.0 million in the preceding quarter and $185.1 million in the fourth quarter last year.
  • Growth and maintenance capital expenditures totaled $50.5 million the quarter

Key points of interest for annual results were as follows:

  • 35% decrease in annual Civil Revenue ($1.4 billion) compared to last year
  • Annual Civil operating income was $6.5 million compared to $473.3 million last year, and annual adjusted segment operating income was $164.3 million (11.6% of revenue) compared to $479.4 million (22.1% of revenue) last year. Adjusted segment operating income excluding COVID-19 government support programs was $100.7 million this year (7.1% of revenue).
  • 47% Annual Training centre utilization
  • $1.3 billion of civil signed training solutions contracts signed
  • 11 FFS Sales
  • Long-term training agreements signed with Iberia, Líneas Aéreas de España, Azul Brazilian Airlines, Bundeswehr in Germany, Virgin Atlantic, Alitalia and Air France
  • 36 FFS delivered vs 56 FFS the year before
  • Forecasting to deliver 30 FFS to customers in 2022
  • Civil backlog at the end of the year was $4.3 billion, which is down 20% from the prior year period
  • 317 FFS in the CAE network vs 306 in the prior year
  • CAE Global Network changes:
    • UK: Consolidated 5 locations into 3
    • Europe: In the process of consolidating 17 locations into 13
    • South America: In the process of consolidating from 6 locations to 4
  • Growth and maintenance capital expenditures totaled $107.6 million for the year
  • CAE's capital raises enabled a succession of five highly strategic acquisitions that were announced over the course of the last six months
  • CAE expects secular trends favorable for all three of the Company’s Business Segments in the next year. Greater willingness to outsource training by airlines, expected pilot demand (attrition and crisis-induced career shifts) and strong growth in business jet travel demand are enduring positives for the Civil business.
  • "We've made very good progress in last year having signed exclusive training agreement for a supplemental training capacity on narrow-body aircraft with six customers, including major airlines in the Americas and aircraft OEMs as well, which is often an initial step toward a more comprehensive outsourcing. We've also signed exclusive training agreements with six new start-up airlines that have elected to bypass the in-source training model altogether."
  • Interesting commentary by the CAE President and CEO - Marc Parent "Business aircraft is doing pretty good. As I said, the U.S. in terms of flying activity, is pretty much back to COVID-19 levels, which is quite astounding, which is really -- yes, prior to -- going back to 2019. So you can expect that, that's resulting in some pretty good training activity in our civil training center. It's a bit slower in Europe because of all the continuing lockdowns in Europe, mainly people have less ability to fly. But even that has recovered faster than you see in commercial aviation -- sorry, in -- yes, in commercial aviation, just slower than United States.If I go around commercial aviation, it's -- we're a worldwide business. So your question, I think, is apropos, because really, the big pickup for us will be when the big pickup occurs throughout the world. But what we're seeing regionally is like, in the United States, for commercial aircraft, we're actually starting to see utilization match pre-pandemic levels. We're actually adding capacity and we're hiring structures to support -- we're training with a lot of airlines and our flight school classes are now looking to resume, and it really pulled force this summer. And with the voluntary furloughs that occurred over the past year in the United States, the airlines are seeing a higher need for future pilots, as they really need to eventually replace everyone that's left, and they can no longer be called back.We're seeing -- we talked about this training bubble before. We're starting to see that, but it depends on which geography you're in. In countries where we saw a sudden halt in operations and training, we're seeing spikes in our training center utilization, as the airlines rush to get their pilots return again. A good example of that was recently in Colombia, where we really -- we're working really hard. I'd say, we're above 100% in our training center to support specifically Avianca, that decided to get all their pilots current again. And obviously, it depends on the timing, but we're going to see this happen.

    To me, across most of the locations where there was pretty drastic lockdowns. To look at, again, going regionally, you see India. Our utilization, notwithstanding the drastic situation that you see, which is horrific in terms of the deaths coming from COVID-19, the utilization in February was over 90%, just as the domestic market was making recovery."

    While also mentioning that there were a lot of discussions going on with potential clients but not many triggers were being pulled by clients for a decision - "So I felt very good about that and I -- again, lots of conversations, but I'm a patient man, but I'm confident that, that patience will pay off."

  • With the Company’s current view of attractive market-led expansion investment opportunities, CAE expects total capital expenditures to more than double in fiscal year 2022 vs. the prior year. 

If you are interested to read the CAE Earnings call transcript for Q4 you can find it here. Above data has been sourced from earnings call and CAE Press Release of Q4 results.

Aviationfly CAE Q1 Analysis

Aviationfly CAE Q2 Analysis

Aviationfly CAE Q3 Analysis

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