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CAE Inc.: Minor Turbulence On A Long Flight

Jun. 01, 2020 10:47 AM ETCAE Inc. (CAE), CAE:CA


  • CV-19 has decimated the air travel business, with many airlines fighting to stave off bankruptcy.
  • CAE Inc. (CAE) is a global leader in aviation training, with ~60% of revenues from civil aerospace training, and ~37% from highly stable defense aviation training.
  • Short-term industry headwinds have resulted in a substantial decline in CAE shares and a significant reduction in valuation to levels from around two years ago.
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Cowritten by Geoff Phipps

Aviation is the branch of engineering that is least forgiving of mistakes. ― Freeman Dyson

Along with most parts of the aerospace supply chain, shares of CAE have declined significantly as a result of CV-19 impacts. Shares are down nearly 55% from late-February levels. While CAE does have exposure to commercial air travel, the nature of their business carries some unique attributes that may allow for attractive entry points in coming months.

Below is a one-year share price performance of CAE’s NYSE listed shares:

A screen shot of a computer Description automatically generated

Source: Bloomberg

The near-term outlook for the commercial aviation industry carries substantial uncertainty as a result of CV-19. The new challenges faced by airlines has been highly publicized, with numerous carriers seeking bailouts and debt relief across the globe.

For investors that are interested in taking a longer-term view of the aviation industry, there are places to look other than airlines and aircraft manufacturers, some of whom may not emerge unscathed from short and mid-term decreases in global aviation activity.

CAE Inc. (NYSE:CAE) presents an opportunity for investors to gain exposure to the aerospace industry without taking on the degree of restructuring and bankruptcy risk faced by airlines or aircraft manufacturers. Founded in 1947, CAE boasts the world’s largest aviation training network. The Company trains more than 220,000 civil and defense crew members annually, including over 135,000 pilots. This is a highly regulated business, and with most pilot training entirely outsourced, possessing status as a preferred training partner is a highly attractive attribute.

CAE’s Defense and Security division is a major partner to North American and European militaries, claiming over 50 defense agencies as partners. This division primarily provides training to operators through the use of simulator technology platforms. This business provides a stable, recurring business, and represents a critical component of the mission readiness doctrine

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This article was written by

Michael A. Gayed, CFA profile picture
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Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

This writing is for informational purposes only and Lead-Lag Publishing, LLC undertakes no obligation to update this article even if the opinions expressed change. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. It also does not offer to provide advisory or other services in any jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Lead-Lag Publishing, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

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