CAE NYSE: CAE reported a first-quarter fiscal 2027 performance that management said was consistent with its full-year outlook, as stronger Defense revenue and free cash flow helped offset pressure on Civil margins from Middle East disruption, transformation-related spending and lower simulator sales contributions.
Consolidated revenue increased 6.8% year over year to CAD 1.2 billion in the quarter ended June 30. Adjusted segment operating income declined 7.5% to CAD 156.6 million, while adjusted earnings per share were unchanged at CAD 0.26. The company generated CAD 104 million in free cash flow, compared with negative CAD 135 million a year earlier, under its updated definition that includes all capital and intangible investments.
Chief Financial Officer Ryan McLeod said the free-cash-flow improvement reflected timing benefits as well as actions to strengthen capital discipline, allocation and performance. CAE ended the quarter with CAD 2.6 billion in net debt and a net-debt-to-adjusted-EBITDA ratio of 2.27x, which McLeod said was in line with its long-term leverage target. The company also repurchased 1.1 million shares for CAD 39 million through its normal course issuer bid.
Transformation plan remains on track
Management reiterated its fiscal 2030 transformation targets, including CAD 125 million to CAD 150 million in structural run-rate savings and CAD 950 million to CAD 1 billion in adjusted segment operating income. The company expects transformation costs of CAD 200 million to CAD 250 million, including roughly CAD 100 million of non-cash charges.
CAE incurred CAD 48 million of transformation expenses in the first quarter, including CAD 12 million of non-cash charges. Cumulative spending on the program has reached CAD 133 million, of which CAD 71 million is non-cash.
President and CEO Matthew Bromberg said approximately half of the expected CAD 150 million in savings would come from improved labor productivity, including organizational changes, outsourcing of non-core processes, automation, systems improvements and footprint consolidation. About 30% is expected to come from reduced square footage, while the remaining 20% is expected from operational improvements such as the company’s digital factory initiative and consolidation of its enterprise resource planning systems from five to two.
The company is progressing with plans to retire 25 commercial simulators. McLeod said six simulators have been removed so far, and CAE expects to have removed 13 to 15 by the end of fiscal 2027. The initiative is expected to allow the company to close four to six Civil training centers, including one additional closure by the end of calendar 2026, and reduce approximately 500,000 square feet from the Civil training network.
Bromberg said customer discussions indicate that attrition related to the capacity reductions will be less than 1% of Civil revenue, with the company expecting to retain nearly all affected contracts by moving customers to other CAE facilities.
Civil revenue rises while margins decline
Civil revenue rose 5.6% to CAD 641.6 million. However, adjusted segment operating income fell 13.7% to CAD 106.1 million, and margin declined to 16.5% from 20.2% a year earlier.
McLeod attributed the decline to higher selling, general and administrative expenses, credit-related charges on financial assets, a lower contribution from simulator sales and lower profitability from Middle East joint ventures. The company also cited spending on transformation initiatives and reduced government R&D funding.
Bromberg said roughly two-thirds of the Civil margin impact was related to conditions in the Middle East, where CAE has redirected customer training to other parts of its global network. While the company has retained revenue, moving training activity and, in some cases, instructors has raised costs. Management characterized the impact as temporary and said it does not see additional risk to its full-year outlook.
Civil training-center utilization rose to 72.2% from 68.8% in the prior-year period, reflecting improvement in both commercial and business aviation training. Commercial utilization increased in India, Europe and the Americas, partially offset by weaker Middle East activity. Civil booked CAD 838 million in new orders, producing a 1.31x book-to-sales ratio.
Among the quarter’s commercial wins, CAE finalized a 15-year training agreement with WestJet. The Alberta Training Centre of Excellence for Aviation and Aerospace is expected to open in 2028 and initially house eight full-flight simulators, with room for expansion. The company also announced a multiyear agreement with Turkish Airlines for five full-flight simulators and two flight-training devices, including options for two additional full-flight simulators.
Defense growth and expanding opportunity pipeline
Defense revenue increased 8.3% to CAD 531.8 million, while adjusted segment operating income grew 9.1% to CAD 50.5 million. The segment’s margin was 9.5%.
The gains were driven by higher profitability and activity on U.S. and Canadian contracts, as well as efficiencies tied to completion of key program milestones. Those factors were partly offset by higher bid-and-proposal spending as CAE pursues new opportunities. McLeod said elevated bid-and-proposal expenses are expected to continue through most of fiscal 2027.
Defense adjusted backlog stood at CAD 10.7 billion. Bromberg said recently announced opportunities with Leonardo, Saab and TKMS represent more than CAD 5 billion of potential pipeline value, though he emphasized that the pipeline includes opportunities at varying proposal and qualification stages and may change in timing and conversion.
- CAE expanded its collaboration with Leonardo around the M-346 Block 20 training ecosystem.
- The company signed agreements with Saab related to GlobalEye airborne early warning and control capabilities and Gripen fighter training, simulation and mission support.
- CAE partnered with TKMS on the Canadian Patrol Submarine Project and potential broader naval and maritime opportunities.
- The company also announced a partnership with Shield AI involving training, simulation and mission rehearsal capabilities for collaborative combat aircraft and other autonomy-related applications.
Executive Chairman Calin Rovinescu said he plans to transition to non-executive chairman effective Jan. 1, 2027. CAE also revised executive incentives, with short-term incentives now centered on free cash flow and adjusted segment operating income margin, and long-term incentives tied to adjusted return on invested capital and adjusted earnings per share.
Management made no changes to its fiscal 2027 outlook or fiscal 2030 targets, while cautioning that quarterly results are not expected to progress evenly through the year because of seasonality, particularly in Civil.
About CAE (NYSE:CAE)
CAE Inc is a global leader in training and simulation technologies, headquartered in Montréal, Canada. The company specializes in the design and manufacture of high-fidelity flight simulators and training systems for civil aviation, defense and security, and healthcare markets. Leveraging advanced software and hardware integration, CAE delivers comprehensive training solutions that address pilot proficiency, mission readiness and patient safety across a wide range of platforms.
In civil aviation, CAE partners with major airlines, aircraft manufacturers and flight schools to provide pilot training services, courseware development and crew scheduling solutions.
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