The video features an insightful conversation with Mark Perant, discussing CAE’s role in the aviation and defense sectors. CAE focuses on pilot training through both simulators and in-aircraft experiences and operates globally. The company markets itself as having one unified business model, with about 60% of its revenues coming from civil aviation and 40% from defense. It manages a sprawling international presence, with the majority of its operations exported from Canada, and highlights its impact on the global aviation and defense training industries.

Given the challenges facing the aviation industry, including recent supply chain hurdles faced by manufacturers like Boeing, CAE remains poised for growth. The company is addressing industry fluctuations by emphasizing its established market position and the consistent demand for pilot training. Notably, the civil aviation industry is expected to continue expanding, spurred by increasing passenger traffic, particularly in regions like India and China. This need for trained pilots presents both an opportunity and a challenge for CAE, pushing them to forecast a demand for 284,000 new pilots within the upcoming decade.

Main takeaways from the video:

Please remember to turn on the CC button to view the subtitles.

Key Vocabularies and Common Phrases:

1. aviation [ˌeɪ.viˈeɪ.ʃən] - (n.) - The science, design, or operation of aircraft. - Synonyms: (aeronautics, flying, air travel)

This means we get to talk about airplanes, aviation, flight simulators, all the good fun stuff.

2. simulator [ˈsɪm.jəˌleɪ.tər] - (n.) - A device that imitates the conditions and experiences of real-world processes for training purposes. - Synonyms: (model, trainer, mimic)

We sell simulators. We're number one in the world.

3. backlog [ˈbækˌlɒɡ] - (n.) - An accumulation of uncompleted work or matters needing to be dealt with. - Synonyms: (excess, accumulation, arrears)

And they have a huge backlog.

4. metropolis [mɪˈtrɒp.əl.ɪs] - (n.) - A large and densely populated urban area; often the capital of a region. - Synonyms: (city, conurbation, urban area)

Pretty much in every major metropolis where you'll have airplanes, you'll find a CA training center.

5. outsource [ˈaʊtˌsɔːrs] - (v.) - To contract work out to an external party instead of doing it internally. - Synonyms: (subcontract, assign, delegate)

Think about it, outsourcing, I kind of make akin our business to that, convincing airlines around the world to outsource their training to us.

6. synthetic [sɪnˈθɛt.ɪk] - (adj.) - Made by chemical synthesis, especially to imitate a natural product. - Synonyms: (artificial, man-made, non-natural)

There's nothing more ecological than training in a simulator. And why do I say that? Because there's still opportunity to grow the amount of training that's done synthetically through simulators.

7. supplemental [ˌsʌplɪˈmɛntəl] - (adj.) - Provided in addition to what is already present or available. - Synonyms: (additional, extra, added)

So we ourselves are converting our airplanes. We're doing the STC, the supplemental type certificate ourselves.

8. license [ˈlaɪ.səns] - (n.) - Official permission or recognition to perform an activity. - Synonyms: (permit, certification, authorization)

Is CAE doing anything to try to mitigate that to help the social license part of the aviation sector?

9. noble [ˈnəʊ.bəl] - (adj.) - Having or showing fine personal qualities or high moral principles and ideals. - Synonyms: (virtuous, honorable, righteous)

And that we believe it is our noble mission in defense.

10. deleveraging [ˌdiːˈlɛv.ər.ɪdʒ.ɪŋ] - (v.) - The process of reducing debt by selling off assets or paying off obligations. - Synonyms: (debt reduction, downscaling, liability minimization)

We reached the deleveraging targets that we set in the past year

CAE CEO Marc Parent on Innovating For Global Safety

All right, Mark Perant is here. Welcome. Thank you. Good. Be here. This means we get to talk about airplanes, aviation, flight simulators, all the good fun stuff. All my favorite subjects. So CaE is really two businesses. You've got a civil aviation side and the defense and security side. And so maybe for those in the audience who aren't as familiar with the company, maybe kind of give an overview and also a bit of an outlook for growth for each of those.

Sure. Well, let me talk about that. Not to correct you, the way we see it is that we have one business. I mean, we sell, basically, we train pilots. We train pilots. We sell simulators. We're number one in the world. That's selling simulators for the world's airlines. We train pilots both on the airline side, both business jet side, on the defense side. And those are really two go to markets. What you were referring to, businesses we sell in civil, which is about 60%, give or take, of our revenue of our business, about 40% is defense. But in both cases, we're training pilots. We're training them in simulators. We train them in aircraft as well, especially on the defense sector headquarters, Montreal. But we're in 40 locations around the world. Actually, 90% of what we do is exported.

Kind of basically just talking about, you know, in terms of our market position, I think the way I like to illustrate it is, and I'm very proud of that as a Canadian, is that anywhere you fly in the world, if you take an airline flight, and there's about, give or take 100,000 airline flights every single day around the world, very good chances that the pilots flying your aircraft have been trained in one of our simulators built in Montreal, or one of our 70 training centers around the world. And when you think about defense, I'll just give you one data point. All 43,000 pilots in the US military, all branches, are at some point in their career trained by CE.

So that just gives you a sense of the scale that we have in the world of pilot training. Now, we've seen, it's been a really interesting and busy year in the sector, seen Boeing has had all manner of challenges. We've seen airlines, in some cases pulling back, responding to different changes in consumer demand, in other cases expanding. Maybe start by giving us your perspective on how you think about those challenges and how does it impact your view, particularly of the civil side of the business over the medium terminal?

Yeah. Well, look, I think there's some temporary supply supply really challenges in the industry now. And really, I've seen them as short term, you talked about, I mean, Boeing has had their issues in terms of delivery of aircraft, but they're going to get over it and know the CEO very well, and then they have good people at the helm and they're a great company. How they get through it. And they have a huge backlog.

I mean, Boeing, Boeing and Airbus have over ten year backlogs of aircraft. And that's just fueled by the demand for passenger traffic. I mean, historically, civil aviation, people traveling in aircraft, airlines, basically revenue, pasture kilometers, any metric that you'll take, it grows by about typically four or 5% annually. That's been the growth rate last 2030 years, and it will be the growth rate years to come. And I think we have some catch up because typically it's in lockstep with GDP growth, and GDP has grown substantially more since 2019 and the onset of the pandemic.

And civil aviation has the ways to catch up to that trend line right now. And if you wonder where that, you know, where that's, where's that growth going to come from? Let's just give you just a couple of statistics. I mean, Boeing themselves, you talk about them, they predict that the number of civil airliners in the world will double in the next 20 years. And that means a lot of pilots.

That means a lot of pilots, just ourselves in our forecast for the industry of number of pilots are going to have to be created in the next ten years just to support retirements. And the rate of growth I just talked about, you're talking about 284,000 new pilots are going to have to be created, and half of those haven't even started their training today. And final statistic, you wonder, where's that going to come from? It's going to come from the growth that I talked about, four and a half on a global stage. But let me just give you just one statistic to illustrate the point. If you take India, for example, 1.3 billion people, there's about 50 wide body aircraft in India today. In Singapore, not the same population, obviously, there's over 260 wide body aircraft.

So just think about that. So we're seeing across the world substantial growth. And in regions like India and China and the Far east in general, I mean, the middle class is growing. There's more availability of capital to be able to travel. The airlines themselves are lowering the cost of airfare, and there is no competing infrastructure. That's what's driving growth.

So look, we have, going back to your original question, there's some temporary, what I firmly believe temporary challenges to the supply of aircraft, it's not demand. If you go to aircraft, if you go to airports, they're full. If you try to get in on an airplane, they're full. We see it. The airlines themselves are basically scrambling to get the airplanes right now. But I think that's a temporary issue on the market itself.

70 training centers around the world. What are the parts of the market or the regions of the world where you would like to have a bigger presence, and how do you plan to go about it? Well, we are where our customers need us to be, and that's really around the world, and it depends on which market and business aircraft. Let's talk about our business. If I take civil, about the training we do, it's about half airline pilot training, about half business aircraft training. If you take that half of business aircraft training, a lot of it's in the United States.

That's the biggest amount, that's the biggest amount of aircraft that there is out there for traveling in business aircraft. So you tend to have a lot of training centers in the United States, but followed very closely by Europe and places like Dubai, the far east, the Middle east. That's where the market is in terms of airlines. Well, airline is really global. And so basically, you will find our training centers around the world. Pretty much in every major metropolis where you'll have airplanes, you'll find a CA training center. Chances are if you're at an airport pretty much anywhere in the world, if you glance around, you'll probably see a CA sign.

And that's it. Training center, because training pilots, you do it locally. If airlines, and I think it's very important to understand our business, to understand the fact that what we do is a recurring business. It's one of those, I think, probably the only job where every six months you have to go back into the simulator. I'm a pilot myself, and the first time that that you fly in the real aircraft is with passengers in the back. Now think about that. Reflect on that a second. All of your training is done on the simulator. All of my training, I mean, you're a pilot already, obviously, but all of the pilot training that I had to fly the jet that I fly was in the simulator.

Consequently, first flight I had is literally with passengers in the back. Typically, the other guy's nothing, the other person, not their first flight, but you get the point. And every six months, you have to go back into that simulator. So airlines around the world have got to have the infrastructure. They either have their own infrastructure of simulators to train their pilots or what's a growing business for us, they'll outsource that training to us, just like, you know, you've outsourced any services in the industry. Think about it, outsourcing, I kind of make akin our business to that, convincing airlines around the world to outsource their training to us.

And we've been very successful at it, and we've really ourselves created the only global third party alternative to conduct that training yourself. And so, ergo, we are customers need us to be, that is, around the world. What's the acquisition pipeline look like in your industry? Are the things things for you to buy? Well, you know, I'd start by saying that we don't need to acquire anything ourselves. We are, our growth plan is very much organic, organic growth. And that's keeping lockstep with our customers, as I mentioned, as if I think about simulator sales.

simulator sales, we're number one in the world. We have a very high market share. Were essential to the world's airlines. And if you look at the driver of sales that way, it's essentially delivery of aircraft by Boeing and Airbus. Probably every 30 narrow body aircraft requires a simulator in the market. And they tend to deliver about 60 aircraft a month on either side of just narrow body aircraft. Then you have widebody aircraft. That gives you an idea of what we will get in terms of selling simulators out there in the market.

And that is basically actually negative capital because we get advanced payments for the product that we sell in the training business. Again, it's a recurring business. As I mentioned, we have odd 300 odd simulators out there around the world in our 70 training centers. And we will add simulators. And that's the organic side of things, the capex, to grow with our customers as they grow their fleet of aircraft, we will add to that capacity and incrementally. And that's the other side of acquisitions.

If there's an opportunity consolidate, do a jv or something with an airline to again, get them to outsource their training. We will do that on the defense side there. It tends to be organic itself. And in terms of jvs with original equipment manufacturers, like, I'll give you an example. I was in Sardinia two weeks ago. We have a joint venture there with Leonardo. Leonardo is considered like the Boeing of Italy, for example, Airbus of Italy, we have a joint venture there with them where we train fighter pilots, fighter pilot for literally 13 nations out there. And we own fighter aircraft trainers.

We have simulators, we have a coal training environment there. And actually these pilots there and that's really an organic play with some contribution of airplanes to support the growth of the operation. And there we're training pilots. I was interviewing some pilots there from the japanese air force that are training with us. I mean, if you look at these pilots, they're kids, really. They're going straight from our training directly into flying f. They're completing their training in January. And you think about the kind of missions that they'll be flying, and they're going to be flying combat air patrols around Japan, around Taiwan.

So it brings home the essential nature of what we do, the essential training that we do. Let's talk how do you finance growth? A capital question here. As you embark on this journey of five or ten years getting much bigger, how do you intend to finance it? And any thought about the dividend that you suspended at the beginning of the pandemic and has not yet been reinstated? Well, look, I start by saying our business is very cash generative. So as I mentioned, our growth plan, we're going to grow with growth in our industry, and we'll grow beyond this because we have more opportunity either with market share gains in both of our markets and again through potentially more joint ventures or more acquisitions of airlines.

But we tend to be able to internally finance our growth, and that's our plan in terms of the dividend. Look, it's an ongoing conversation that we have with the board directors. Our focus has been to deleverage, and we're still on that path. We deleveraged. We reached the deleveraging targets that we set in the past year. We'll continue to do so. So, look, I think that's a conversation that's going to continue to be active. We did some share buyback in the past period of time. So that's really where we stand at the moment.

At the beginning of this conversation, you talked about the, the longer range outlook for growth being connected to global GDP. I suppose one of the counterarguments about that rate of growth is climate, and the effect of aviation on the climate, on emissions is a relatively high emitting industry. Is Cae doing anything to try to mitigate that to help the social license part of the aviation sector? Well, absolutely. Absolutely. Look, I would just start by saying that there's nothing more ecological than training in a simulator. And why do I say that? Because there's still opportunity to grow the amount of training that's done synthetically through simulators.

And a lot of that's in the military. The military. I was in Alabama just last week where we train all I talked about how many paths we do in the US military. So we train all the US army fixed wing and vertical rotary wing pilots in Alabama every year. And although we have a huge infrastructure there in terms of simulators actually flying real helicopters, still, only about 50% of the training is done in simulators in that military operation. So room to grow there. So continuous dialogue there ourselves, specifically, I mean, we're known for simulators, obviously, but less known is we're actually the top world producer of pilots for themselves, with contracts with airlines around the world to get, take a person off the street and make them an airline pilot.

And for that, we use a lot of airplanes. So we ourselves are converting our airplanes. We're doing the STC, the supplemental type certificate ourselves, to basically transform our fleet of aircraft that we have to electric power. So we're doing that. So to go back to aviation, I mean, in terms of the amount of people using airplanes every year, about half or actually two thirds of the world's population travels in terms of numbers in aggregate, not the number of people, just the aggregate number of hours every year travel by aircraft.

So it's an essential component of, of the global economy. That's not going to change. What is going to change is obviously, is what the airlines are doing and the whole industry is doing. I don't think there's an industry that's doing more to achieve their climate growth. A lot of it has to do with sustainable aviation fuels, and that's a very strong driver. And of course, transforming the fleet of aircraft are out there to engines that produce a lot of, a lot less, or at least a lot less fuel burn, better fuel economy, which, of course, has profit potential in there.

And of course, the number one reason is esg reasons, given the defense side of the business, is war good for your business? Nobody is going to be happy about geopolitical issues around the world. If you've lived through the Cold War, a lot of us have. To me, you actually have to believe that making sure that our men and women, okay, are in uniform, are ready, have a high level of readiness to ensure deterrence. That is very important. And we're at the epicenter of that to make sure that our.

And that we believe it is our noble mission in defense, to make sure that men and women in uniform are ready to be able to accomplish their missions and return home safely. But again, nobody's going to be happy with geopolitical issues around the world.

All right, we've got time for one more question, which looks into the future. What do you think is the most important or potentially most transformative technological shift that you're going to see in your sector going forward? Well I think it's the same as everybody. I think it's AI. There's no doubt about it for us what we are doing, what we're using technology for and we're number one in the world at technology for flight training as you would expect. So what we are doing is using technology, AI being a big one to be able to make sure that the pilots coming that are flying today, they're going to be generating these 284,000 pilots that we generate over the next basically ten years.

How are we going to give them the experience to be able to know they can fly and maintain the safety record that they have and for that we're using technology like AI to give objective data assessment of the skills of those pilots. We have to wrap it up there. Mark Brown, thanks very much. My pleasure. Thank you.

Aviation, Technology, Education, Global, Flight Training, Sustainability, Bloomberg Live