SimuFlite ducks bullet in CAE restructuring

 - October 9, 2006, 9:42 AM

The restructuring program that Quebec-based CAE has adopted to improve its financial position will not affect SimuFlite, Andrew Arnovitz, director of investor relations for CAE, told AIN. He emphasized, “SimuFlite accounts for about 50 percent of our overall CAE training revenues. The restructuring will in no way affect our SimuFlite customers.”

In May CAE released its results for the fourth quarter and Fiscal Year 2005, which ended March 31. Fourth-quarter earnings from continuing operations, excluding non-recurring items, were C$14.1 million ($11.2 million), or $0.06 per share, compared with C$16.1 million ($12.8 million) or $0.07 per share in the same period a year earlier. Also excluding non-recurring items, earnings per share for FY05 were $0.19, versus $0.21 the previous year.

For the fourth quarter the company reported earnings of $9.3 million from continuing operations and a net loss of $304.7 million, or $1.23 per share, from continuing operations for the fiscal year.

The full-year results reflect a significant third-quarter loss, which included sizeable non-cash write downs related to impairment in the value of goodwill as well as to tangible and intangible assets, and set the stage for the implementation of a comprehensive restructuring plan, announced in mid-February, to enhance the company’s long-term prospects.

A Return to Core Services

“The essence of the restructuring is aimed at lowering our cost of producing simulators,” Arnovitz said. “We’re proud of our Dallas facility and have recently announced plans to open a New Jersey-area business aviation training facility to help round out our North American footprint.”

Arnovitz explained that when CAE acquired SimuFlite, the company had 50 percent of existing business aircraft types covered by simulation. “Today, we have expanded that to about 85-percent coverage,” he said.

Arnovitz said the restructuring process was “taking out overhead” in terms of CAE’s main facility. The company has combined two separate engineering and program management groups and consolidated its purchasing system under one global sourcing function. Also, CAE’s new structure now lists all simulation products under one group.

Arnovitz said several sites adjacent to CAE’s main facility in Montreal have been closed and most of the approximately 450 layoffs proposed in February have taken place. “It is true that we took out some layers of SimuFlite management, but none of them will have a significant effect on business aviation training,” he said.

The company is also moving some of the business aviation simulators around the network to optimize their use, so some of the Dallas sims will go to the proposed New Jersey facility.

The financial good news is that CAE has reduced its net debt to $285.8 million from $529.6 million a year ago and the company’s free cash flow for FY05 increased to $87.8 million from $9.8 million the previous year. The company’s backlog from continuing operations rose to $2.5 billion, and the military side of the house has shown an order intake increase of 34 percent.

The company’s Marine Controls unit took the biggest hit in the restructuring effort. As part of the restructuring plan CAE completed the major elements of the sale of its Marine Controls business to L-3 Communications during the fourth quarter, enabling the company to strengthen its financial position.