Investor's Business Daily, June 6th, 2007
Business aviation is taking off -- and demand for pilots is along for the ride.
As a result, CAE CGT, a supplier of flight simulators and provider of flight training services, is set to open its first business aviation training center for the northeastern U.S. It will be its fourth such center worldwide. It has another 20 centers that train military or civilian pilots and crews.
The company has been flying high. Last week, the company said per-share profit from continuing operations, excluding one-time items, jumped to 14 Canadian cents a share from 9 cents in the year-earlier quarter. Revenue rose 19% to C$337.3 million. Its U.S. shares have risen more than 65% in the past year.
CAE's SimuFlite North East Training Center is located in Whippany, N.J., near Morristown Airport in the northern part of the state. It is slated to open on Thursday.
Each year, St. Laurent, Quebec-based CAE trains more than 50,000 pilots. CAE was founded as an aviation training company in 1947. Military, commercial, business and private pilots all are part of its mix.
"We're being responsive to a very bullish market," said Jeff Roberts, CAE's group president of innovation and civil training and services. "Corporate profits are up. GDP globally is continuing to accelerate. This is fueling the demand for business aircraft and the pilots and crew members to operate them."
CAE's training centers include its key products, full-motion flight simulators. The insides of its training modules are replicas of aircraft cockpits. The replicas are mounted on jacks that duplicate plane movements to give pilots the actual feel of takeoff and landing. The FAA-approved gear also uses advanced software, satellite imagery and virtual reality effects to train pilots.
Roberts says CAE's simulators are intended mostly for certified pilots who want to experience unfamiliar planes or new types of aircraft.
Roberts says CAE chose Morristown for its new center because of its location. It is within 500 miles of 40% of all U.S. business aviation fleets. CAE says U.S. companies operate about 60% of the world's business jets.
Standard & Poor's said in an industry survey of the aerospace and defense sector in late 2006 that new orders for executive jets keep exceeding deliveries. The threat of terrorism and delays at major airports caused by security screening is prompting many companies to use private planes, as is the general trend toward more globalized business operations.
S&P analyst Richard Tortoriello says the fractional ownership market, in which firms buy shares in business jets with other companies, lowers costs and boosts demand for small jets.
Trends in aircraft also help. Some new planes are called very-light business jets. VLJs carry just a few passengers but cost about $2 million or less -- about half the price of regular business jets. One example is the Eclipse, a small executive jet made by Eclipse Aviation, that costs about $1.5 million and carries six passengers.
The new VLJs being produced will require plenty of pilots. Merrill Lynch said in a report this year that 925 VLJs will be delivered to customers by 2010.
Larger business jets also are popular with clients. One example is the Falcon 7X aircraft made by France's Dassault Aviation. The plane carries 2 pilots and 19 passengers. It has computer-run flight controls and long, slender wings that allows the plane climb quickly.
The 7X costs about $41 million, but that's cheaper than many similar planes. Dassault is expected to begin delivering the 7X this quarter.
CAE is an exclusive training provider for the Falcon 7X. It also offers training simulators for other popular exec jets such as Dassault's Falcon 900EX EASy, Falcon 20000EX EASy, as well as General Dynamics' GD Gulfstream IV and United Technologies Corp.'s UTX Sikorsky S-76 commercial helicopter.
CAE's new flight training center in New Jersey will have six simulators that cover all the above aircraft models.
Demand for business-jet pilots is part of larger worldwide demand for commercial pilots of all types. Rapidly expanding airlines in China, India, Southeast Asia and the Middle East are facing acute shortages of qualified pilots. Staff poaching by air carriers is said to be common.
In some cases, airlines are getting deliveries of new planes but don't have pilots to fly them.
Aircraft makers Boeing BA estimates global demand for new commercial pilots, of all types, at 17,000 a year through 2024. Roberts says this means increased demand for flight training simulators.
He says CAE offers training simulators for Boeing 747 jumbo jets and Airbus superjumbo A380s, to name a few. It also is providing training simulators for Boeing's new midsize 787 Dreamliner, which will begin full-scale production this summer.
"CAE's the only company that addresses every segment of aviation," Roberts said. "That includes training for large commercial jetliners."
Researcher Frost & Sullivan estimates that revenue for the North American commercial and military flight simulation market will fly to $2.78 billion in 2012, up from $2.01 billion in 2005.
