CAE Inc. (CAE) Q4 2020 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Welcome to the CAE Fourth Quarter Conference Call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Mr. Andrew Arnovitz. You may now proceed, Mr. Arnovitz.

Thank you. Good afternoon, everyone and thank you for joining us today. Before we begin, I would like to remind you that today’s remarks, including management’s outlook for fiscal ‘21 and answers to questions contain forward-looking statements. These forward-looking statements represent our expectations as of today, May 22, 2020 and accordingly are subject to change. Such statements are based on assumptions that may not materialize and are subject to risks and uncertainties. Actual results may differ materially and listeners are cautioned not to place undue reliance on these forward-looking statements. A description of the risks, factors and assumptions that may affect future results is contained in CAE’s annual MD&A available on our corporate website and in our filings with the Canadian Securities Administrators on SEDAR and with the U.S. Securities and Exchange Commission on EDGAR. On the call with me this afternoon are Marc Parent, CAE’s President and Chief Executive Officer and Sonya Branco, our Chief Financial Officer. After remarks from Marc and Sonya, we will take questions from financial analysts and institutional investors. And following the conclusion of that Q&A period, we will open the call to questions from members of the media. Let me now turn the call over to Marc.

Thank you, Andrew and good afternoon to everyone joining us on the call. I will first discuss some highlights of the quarter and the year and then Sonya will review the detailed financials and outline some of the measures that we have put in place to protect our financial position and preserve liquidity in the face of the pandemic. I will come back at the end of the presentation to comment on our outlook. We were leading CAE to what would have been another record year when the COVID-19 pandemic hit and unfortunately it impacted us during what is normally our strongest quarter. More importantly is the risk this suddenly posed to people’s well-being and our first response was naturally to ensure the health and safety of our employees and customers and this continues to be our top priority. We wasted no time assembling a COVID-19 pandemic taskforce and putting our business continuity plans in place. I am extremely proud of CAE’s employees worldwide, who daily through even the most extreme conditions, take to heart the continuity of our customers’ most critical operations and earn the privilege of being their training partner of choice. What makes me even more proud is the way our employees went beyond the call of duty in the fight against COVID-19 by bringing forward the idea to develop a critical care ventilator. It took just 11 days for 12 CAE engineers and scientists to develop a prototype and now some more than 500 CAE employees are delivering on a contract with the Government of Canada to manufacture 10,000 ventilators to help save lives. The CAE Air1 ventilator, as we have called it, is in the final stages of certification by the health authorities. We are in the business of safety, after all and in this humanitarian gesture is a true testament to the kind of social impact that CAE and its employees have. It also underscores the company’s agility and our culture of innovation. Now, turning to our results, notwithstanding COVID-19 impacting us during our biggest quarter, we still had a strong performance overall in fiscal ‘20, with double-digit revenue growth, 21% operating income growth and 7% higher earnings per share. I am especially pleased with our 98% conversion of net income to free cash flow, which underscores the cash-generative profile of CAE’s world leading training solutions. In Civil, we exceeded our annual outlook, with 37% operating income and annual orders totaling $2.5 billion, including additional airline training outsourcings and 49 full-flight simulator sales. Civil finished the year with a record backlog of $5.3 billion. Again, this year, we delivered more than 1 million hours of training, underscoring CAE’s position as the largest civil aviation training company in the world. In the fourth quarter specifically, Civil booked orders for $469 million, including the sale of 12 full-flight simulators. Civil saw a significant decrease in training services demand as a result of the reduction in airline and business aircraft operations globally and the disruption to the global air transportation environment itself. In addition to much lower demand, travel restrictions and local self isolation measures worldwide resulted in several civil aviation training location closures. By the end of the March quarter, 19 of our over 60 training locations had suspended operations and a further 10 locations began operating at significantly reduced capacity. In addition to disruptions to our global training network, we also had to suspend the installation and delivery of civil simulator products and under local public directives, our Montreal manufacturing plant suspended manufacturing of civil simulators during the last week of March. Despite these disruptions, we still managed to deliver an otherwise impressive 56 civil full-flight simulators for the year. In Defense, we expected a strong fourth quarter in order to reach our annual outlook for modest growth, but it too was impacted by the pandemic. We achieved modest revenue growth, but we came up short on operating income, which was down 13%, mainly on lower than expected progress on program milestones and delays securing new orders. A range of programs with defense and OEM customers globally saw project advancement delays due to travel bans, client access restrictions and supply chain disruptions. Also, we had delays to contract awards as government acquisition authorities followed directives in their respective countries to shelter-in-place and eliminate travel. In the Middle East, the new realities brought about by the pandemic and low oil price has led work on certain programs to be halted and new contract awards to move to the right, with customers focused on their new fiscal realities and mitigating the pandemic itself. Despite these headwinds, we still booked $1.2 billion of orders during the year, for a $4.1 billion Defense backlog, which gives CAE an additional measure of diversification. Key wins include a contract for KC-135 aircrew training services and simulator upgrades for the United States Air Force and a contract to provide the German Navy with a comprehensive training solution for the NH90 Sea Lion helicopter and to upgrade and modify the German Army’s NH90 full-mission simulators. For the quarter, we received Defense orders and contract options totaling $277 million. Notable wins included a contract with Leonardo to provide M346 training devices and upgrades, an order from BAE Systems to supply our CAE Medallion MR e-Series visual system and an order from Babcock France to provide a Pilatus PC-21 full-mission simulator for the French Air Force. And finally, in healthcare, we were tracking expectations for double-digit annual revenue growth when it too was negatively affected by COVID-19, as medical and nursing school customers came under lockdown protocols and hospital customers focused attention on the healthcare crisis. CAE Healthcare did however succeed to bolster its position during the year as the innovation leader in simulation-based healthcare education and training. It won the EMS World Innovation Award for CAE AresAR, the Microsoft HoloLens application for Healthcare’s emergency care manikin. Healthcare also launched innovative products, including new Anesthesia SimSTAT modules, screen-based simulation approved by the American Board of Anesthesiology for maintenance of certification credits and multiple custom simulators for OEMs and leading medical device companies, including Baylis Medical and Edwards Lifesciences. And on the humanitarian front, in addition to our ventilator initiative, healthcare provided complimentary training seminars on how to prepare healthcare workers in the fight against COVID-19. We also launched simulation-based training solutions to train personnel in the safe practice of ventilation and intubation, which is key to saving lives. Additionally, we leveraged our global supply chain to supply some 600,000 N95 masks to the Quebec and Manitoba governments in support of frontline health workers. With that, I will now turn the call over to Sonya who will provide a detailed look at our financial performance. I will return at the end of the call to comment on our outlook. Sonya?

Thank you, Marc and good afternoon everyone. In view of the pandemic-related challenges ahead, we implemented several flexible measures to protect our financial position and preserve liquidity, including a significant reduction of capital expenditures. Our current expectation is for approximately $50 million of CapEx deployed in the first half of the fiscal year and we will assess the level of deployment as market conditions developed. We are also significantly reducing R&D investments and we have introduced strict cost containment measures, salary freezes, salary reductions, reduced work weeks and approximately 2,600 temporary layoffs. We have since been able to recall approximately 1,500 temporarily laid off employees in Canada through the Canada Emergency Wage Subsidy program, for which we must qualify on a monthly basis. We have also accessed and are working to access government support programs in other countries where we operate. Other cash preservation measures we introduced include a suspension of our common share dividend and share repurchase plan. Additionally, we are working with our defense customers to secure more favorable terms for milestone payments, as well as offer contract modifications to increase work scope and working with suppliers for optimal payment terms. CAE’s training operations are inherently highly cash generative. However, the combination of sharply lower demand and the COVID-19 related disruptions to our operations are expected to result in negative free cash flow in the first half of the fiscal year. Adding to this, we normally see an increase in non-cash working capital investments in the first half. And I would add that while collections are timely with Defense customers, we expect collections to be slower with civil customers. Based on our current view, we expect to generate positive free cash flow in the second half as markets begin to inflect more positively. Now looking at our results, consolidated revenue for the fourth quarter was down 4% to $977.3 million. Quarterly net income before specific items was $122.3 million, or $0.46 per share, which is also down 4% compared to $0.48 in the fourth quarter last year. As Marc noted, COVID-19 began to negatively impact our results during our biggest quarter. On average, we typically generate upwards of 20% of our annual operating income in the month of March alone. For the year, consolidated revenue was up 10% to $3.6 billion and segment operating income before specific items was up 21% to $590.4 million. Annual net income before specific items was $359.7 million or $1.34 per share, which is up 7% compared to $1.25 last year. Specific items in fiscal 2019 include the costs from the acquisition and integration of Bombardier’s BAT Business. Specific items in fiscal 2020 also include the impacts of Defense and Security’s reorganizational costs and the impact of a goodwill impairment charge recognized in healthcare. We generated $185.1 million of free cash flow in the quarter and $351.2 million for the year, for an annual cash conversion rate of 98%, which is right in line with our annual average conversion target of 100%. During the year, we generated higher earnings, which converted into higher cash provided by operating activities, which more than offset our higher investment in non-cash working capital. Uses of cash involved funding capital expenditures for $84 million in the fourth quarter and $283.4 million for the year mainly for the deployment of new simulators to our global training network in support of customer-led growth opportunities. Other uses of cash included the distribution of $110.9 million in dividends for the year. In addition, we repurchased and cancelled approximately 1.5 million common shares under the NCIB program during the year, for another $49.6 million. In all, between dividends and share buybacks, CAE returned $160.5 million to shareholders during fiscal 2020. Looking at capital returns, return on capital employed, before specific items and excluding the impacts of IFRS 16, was 10.9% compared to 11.6% last quarter and 12.9% last year. Net debt was $2.4 billion at the end of March for a net debt to total capital ratio of 47.8%. This compares to $1.9 billion or 43.9% of total capital at the end of last year. Since we adopted IFRS 16 effective April 1, 2019, net debt also includes obligations on capital leases which were previously accounted for as operating leases and therefore not included in debt. Excluding this impact, the net debt to capital ratio would have been 44.2% this quarter. Subsequent to year end, we concluded a new 2-year $500 million senior unsecured revolving credit facility and expanded our receivable purchase program from US$300 million to US$400 million. These transactions provide us access to additional liquidity and further strengthen our financial position. All told, between cash and available credit we have upwards of $2 billion of liquidity, which we believe in addition to the cash we expect to generate from operations is a solid position to manage through the period ahead. Income taxes this quarter were $26.9 million, representing an effective tax rate of 25% compared to 13% for the fourth quarter of fiscal 2019. The tax rate in the fourth quarter last year would have been 20% before certain elements and in the fourth quarter this year, the income tax rate before the goodwill impairment charge for healthcare would have been comparable at 19%. Now, turning to our segmented performance, in civil, fourth quarter revenue was up 1% year-over-year to $601.9 million. Operating income before specific items was up 26% to $153.6 million for a margin of 25.5%. For the year, civil revenue was up 16% to $2.2 billion and operating income before specific items, was up 37% to $479.4 million for an annual margin of 22.1%. Double-digit organic growth and the successful integration of the Bombardier BAT business contributed to these record civil results, notwithstanding the pandemic impact. The civil book-to-sales ratio for the quarter was 0.78x and for the year it was 1.14x. In Defense, fourth quarter revenue of $341.8 million, was down 12% over Q4 last year and operating income before specific items, was down 21% to $40.2 million for an operating margin of 11.8%. For the year, Defense revenue was up 2% to $1.3 billion and operating income before specific items was down 13% to $114.5 million, representing a margin of 8.6%. The Defense book-to-sales ratio for the quarter was 0.81x and for year it was 0.92x. And in Healthcare, fourth quarter revenue was $33.6 million, down 17% from $40.7 million in Q4 last year. Operating income before specific items was $0.1 million in the quarter compared to $4.2 million in Q4 of last year. For the year, Healthcare revenue was $124.5 million, up from $121.6 million and segment operating loss before specific items was $3.5 million, representing a decrease of $8.3 million compared to a segment operating income of $4.8 million last year. The lower operating income was mainly because of the negative impacts on COVID-19, which took us off our double-digit top line growth trajectory. Also, in Healthcare, we recorded an impairment charge of $37.5 million relating to goodwill, after considering the general economic conditions and performance specifically, the deterioration in the global economic environment from uncertainties of COVID-19 pandemic as part of our annual goodwill reviews. With that, I will ask Marc to discuss the way forward.

Thanks, Sonya. The COVID-19 pandemic is a crisis of obviously unprecedented speed and magnitude with respect to the disruption it has caused to our daily lives. The global air transportation environment and air passenger travel have been hit especially hard with a vast proportion of the global commercial and business jet fleets grounded and according to IATA’s latest forecast commercial passenger traffic is expected to be down nearly 50% this year. And compounding this already dramatic situation is the material disruption to CAE operations that we continue to experience. We face this pandemic however from a position of strength, with a global leading market position, a balanced business with recurring revenue streams and a solid financial position. We have taken decisive yet flexible actions to help to protect our people and operations and to give us the necessary agility to resume long-term growth when the pandemic is behind us. We realize that it may take some time before things get back to normal. In the meantime, we are managing the things we can control and we are continuing to identify opportunities for cost savings that we expect to endure long after COVID-19 has passed. In keeping with the notion of hoping for the best and planning for the worst, we are confident in the precautionary measures we are taking and that we have the liquidity to weather the storm. The global leadership team and I have monitored the daily evolution of the pandemic to evaluate the measures being put in place by local and national governments and the resulting impacts on the company and to implement necessary contingency plans in real-time as the situation unfolds. So far, the processes that we have put in place to manage through the pandemic are running smoothly and they are effective. We remain focused on protecting employees’ health and safety; supporting our customers’ critical operations; and ensuring business continuity. At the same time, the management team and I are looking forward to the future and are already envisioning what the post-COVID-19 era will be like. More specifically, we are imagining how we will be different and what kind of expanded role that CAE is likely to play. There is still much uncertainty with respect to the duration and severity of the market downturn, but we do know that global air travel will eventually return and that training will continue to be essential. We don’t expect a quick market rebound, but we don’t need to see a complete market recovery to be highly successful in the period following the pandemic. The ability to continue to find growth in that context will define great companies and I have every confidence that CAE, the global leader in training is such a great company. We are continuing to invest in innovation to enhance our customers’ experience and as the industry’s thought-leader we are leading the way to modernize the various fundamentals of training in Civil, Defense and Healthcare. For this reason, I have recently appointed a new member to our executive team, Heidi Wood, as CAE’s Executive Vice President, Business Development and Growth Initiatives. I created this role specifically to put focus on partnering with our business unit leaders to identify and drive new avenues of growth across the company, maximize synergies across the businesses and drive our entry into adjacencies and leverage artificial intelligence and digital technologies. The long-term outlook for the company remains compelling, with increased potential for long-term partnerships and outsourcings and the resumption of above-market rates of growth. In the short-term, however, we expect the pandemic to have a significantly negative impact on our performance. As we look to the year ahead, we believe it will be a tale of two halves, with the first half of the year defined by sharply lower demand and major disruptions to our operations. For the second half of the year, we expect performance to potentially be more positive as markets begin to reopen and travel restrictions ease. For the year overall, we expect a material decrease in operational and financial performance and given the lack of specific visibility, we are going to refrain from providing our customary growth guidance for the fiscal year. Looking specifically at Civil, currently, 8 of our over 60 civil aviation training locations have suspended operations and 17 are operating at significantly reduced capacity. These statistics change on a nearly daily basis as local restrictions continue to evolve. The Montreal manufacturing plant, which suspended manufacturing operations for Civil simulator products on March 25 is now gradually ramping up operations. In terms of backlog so far, we have only received 1 full-flight simulator order cancellation from a small third-party training company and we have received several requests from airlines for deferrals. Demand for new civil full-flight simulators is closely linked to new aircraft deliveries, which according to the aircraft OEMs, are expected to be down significantly. While the total market will undoubtedly be much smaller this fiscal year, we expect to maintain our leading share of the available simulator sales. When air travel eventually resumes, we expect to continue building on our previously positive momentum in training, increasing market share and securing new customer partnerships with our innovative training solutions. In the meanwhile, it’s important to distinguish that civil aviation training is highly regulated and for the pilots to remain active, they must train at a minimum frequency of every 6 to 9 months just to keep their certifications. And while airlines globally have suspended the operation of the majority of the commercial fleet, this doesn’t imply a proportionate impact on training demand. Dispensations have been given in major jurisdictions, including Europe and North America to extend the deadline of various time-bound training obligations to compensate for travel restrictions and border closures. But however, these training requirements will ultimately need to be fulfilled for pilots to retain their licenses and resume flight duty. And looking beyond that, we are confident that CAE will increasingly be part of the solution going forward and that more airline training partnerships and outsourcing opportunities could materialize as the industry looks for ways to gain greater agility and resiliency in the post-COVID-19 era. In business aviation, while growth-driven training demand is also being negatively affected, our business is largely based on servicing the regulated training needs of the already active global business aircraft fleet and the delivery of large-cabin business jets. In Defense, we benefit from a large backlog of contracts with government customers to provide training solutions and operational support services that are considered essential to national security. To that extent, our training and support services and manufacturing operations should continue to be relatively unaffected by COVID-19 travel-related restrictions. Our Defense business has been under new leadership since February when we appointed Todd Probert as its Group President and he has been in the process of bolstering operational efficiencies and effectiveness and expanding its addressable market. In the short-term, COVID-19 related issues are expected to continue to complicate our efforts towards reaching program milestones on product programs, including for some of our most complex contracts in our backlog. The COVID-19 impact on order flow should ultimately abate as restrictions are eased. However, the additional realities of a low oil price environment in the Middle East will likely cause expected contracts in that region to continue to move to the right. That being said, we continue to see good bidding opportunities overall, with over $3.6 billion of current bids and proposals submitted and pending decisions by customers. And beyond the current year, the long-term outlook for Defense continues to be for growth, supported by a large addressable market for our innovative training and mission support solutions and the realization of the benefits of our new leadership and bolstered organization. And finally, in Healthcare, we think the business looks well positioned to experience a change in the appreciation of the importance, relevancy and benefits of healthcare simulation and training to help save lives at a steady state and in a healthcare crisis. With its innovative products and demonstrated agility, we are confident Healthcare will become a more material part of the company over the long-term. In summary, we are going through a very challenging period in CAE’s history and our performance will reflect that reality in the current fiscal year. We have taken the most appropriate measures to protect the interests of the company, its employees and all of our stakeholders. The fundamentals of CAE remains solid with our global leadership position, high degree of recurring business in regulated markets and balanced business, across markets and geographies. CAE is a highly innovative company with over 7 decades of industry firsts under its belt. And at the same time as we manage through this pandemic, we are focused on the future and I expect we will ultimately be stronger for it. Before we conclude, I would like to welcome General David Perkins to the CAE Board of Directors. General Perkins served in the U.S. Army for over 40 years and commanded at all levels to include Major Army Command at the 4-star level. His career culminated as the Commander of the United States Army Training and Doctrine Command, where he led the Army’s concept of Multi-Domain Operations, which has become a driver for future changes in operations and training. We are very fortunate to have someone of General Perkins’ profile on the CAE Board and we look forward to his strategic counsel as we navigate the way forward. With that, I thank you for your attention. And we are now ready to answer your questions.

Thanks, Marc. Operator, we will now be happy to open the lines. Members of the financial community, you may ask questions.

Thank you. [Operator Instructions] Our first question comes from the line of Fadi Chamoun with BMO. You may proceed with your question.

Okay, thank you and good afternoon everyone.

Good afternoon.

I am looking at your Civil Aviation segment you have improved the operating margin quite substantially this year versus the prior year. Although utilization went from 76% to 70%, which is I guess good news. I am just trying to understand kind of the path forward for this utilization rate. You are probably going through the bottom in that utilization rate right now. If you can share with us where are you bottoming out, if you can share with us, what is kind of a breakeven level for utilization rate for this business as we kind of move into the next 6 months to 12 months?

Well, I think maybe I could start that and maybe shift it over to Sonya, Fadi. But look, I think you are right in terms of – in terms of seeing a bottom, I think we have seen it, I am pretty confident of that. And that bottom is pretty bottom right we hit about just – in the month of April we hit about 20% utilization. And when you think about that’s pretty understandable because not only with 90% of the fleet of commercial airliners ground across the world, you also have the fact that even people wanted to train. In lot of cases it couldn’t get to training centers because either training center was closed because you have to – because of local quarantine rules or if you think the example of the travel restrictions internationally even in some cases across states across certainly north, south here in Canada. So I think we’ve seen that bottom and yes, it is – but the good news is that as we fully expect, we don’t get to zero because we’re a regulated business in any kind of circumstance. If you look in basically business aircraft with the same kind of situation, we – reality, even though you would have seen a demand from business aircraft, but reality just couldn’t get anywhere, because you literally couldn’t flight plan, in some cases across states. So look, I think we’ve seen that bottom. We have been starting to see the recovery. And I see it’s a tepid recovery at best, because airlines aren’t flying that much more yet. We see if people are able to get into training, we’re seeing more training activity. I would tell you, at the moment, we’re hovering anywhere between 25% and 30% right now. It has been a slow steady curve up in last three, four weeks, that’s what we’ve seen. At the same time, I think I fully expect that that’s going to continue, because as I said in my brief, in my remarks, we still have a number of our training centers are closed, and a lot of them are still operating unlimited utilization. And you also have the situation that, as I mentioned in my notes as well that, for the same reason that because of the travel restrictions, pilots that would have otherwise needed to conduct recurrent training because they are running into their six to nine months expiry of their certifications, just physically couldn’t get to the training center. So you saw FAA, you saw EASA providing a delay and that if you like a dispensation of that, not – but it’s obviously – you’re not replacing it, you still have to do it, but it extended by three months, but that’s coming to an end. And so we’re seeing a pickup, and we expect a further pickup of that activity. So look, I think going forward we based when we look at utilization going forward, we base it, first of all on the fact that look long answer to your question here, but I think it’s maybe setting the tone that – look, air travel is going to come back. Principal of air travel remain unchanged. Humans will have the desirability to travel and the fact that it’s been temporarily suspended, I think the keyword there is temporary. Air travel is still the closest thing to a time machine that’s been invented. And humans will insist on their right to fly. We already start seeing that in pockets around the world. The recovery will happen. So for us it’s just a question of time, when we think – again we certainly think we have seen the worst. We wish – we are using IATA’s forecast for long-term planning purposes. That’s how we have set our expectations for the year, when we talk about a tale of two halves. We fully expect that this recovery is probably, people say V shape, it’s not going to be V shape, we are pretty sure on that. We are basically assuming like a – probably a saw 2 f recovery. Because I think it’s realistic to expect based on all the expertise you see out there that you may see a resurgence in the fall and you might see some hot spots in the world. There is still, I guess some debate what or not, this is seasonal and whether or not, if that’s the case, that affects us maybe in the fall or the winter. But the south of the equator, they’re going to be turning to winter months in the coming months. So maybe there’s a restriction there. So we’re fully expecting and banking that in to our forecast. So for us, I think that we will see an increased utilization as good going forward. Now, we don’t fully – we don’t need all of that utilization to come back to do well. I think, you started to saying in your comment there that we had – we achieved pretty good margins like about 25% are similar network based on lower overall utilization. Now some of that is mixed. We – it’s the – the revenue comes from different sources. But in a large part it’s trained. So the fact that we were able to do that at much lower levels of utilization, tells you a couple of things, one is the impact of for example, business aviation, the acquisition that we did that last year, largest in our history of Bombardier’s business aircraft training network, which basically gives us nearly 6,000 airplanes out there to deal, but also the fact that we’ve been working on our effectiveness and our cost structure. So we’ll imagine that we don’t necessarily do have all of that utilization come back. Because our breakeven points, we’ve been working on that, and are better than they were. And that was your question. And of course from a cash point of view, they are much lower than that we’ve – than that was numbers because the bulk of our cost, the largest part of the costs are not in the training network are mainly depreciation on the assets themselves is of course is non-cash. So – and – maybe I’ll just leave it over to you at this point. Sonya?

Yes. Well, I’ll just, I guess, maybe tag on to the breakeven part of Fadi’s question. So, as you know, the training business is a higher fixed cost business. So, two of the biggest cost of the instructor base, which is scalable, up or down because we have a base of contingents instructors. So that helps on the cost structure and of course like, Mark just mentioned, non-cash depreciation is one of the larger expenses. So, we’ve taken measures to size cost to the new volume and we continue to review cost management on that front. The last Black Swan event that we saw in the financial crisis utilization went down to the low ‘60s. And we still generated double-digit margins and cash generation. Now, this pandemic is much worse, but what’s key to highlight is, like Marc said, we don’t have to necessarily go back to the same levels to be back to very healthy levels, and even most importantly that the utilization could be a quite low levels for this business model to be cash positive. And on the product side of the business, it is a bit more balanced between fixed and variable costs and we have the ability to adjust demand and production levels with the variations in our backlog.

Last thing I’ll say, maybe I think, what will probably drive things, Fadi, is – I’m pretty sure that there will be a lot of pent-up demand and that pent-up demand will probably initially toward narrow-body aircraft, because that’s the way the industry will probably move at least in the short to medium term point a pandemic. And you’ll know that the majority – great majority of the assets in our training network are geared toward narrow-body. So I think, that could be disproportionately better for us as the recovery occurs.

Okay. Just one clarification, I realize that a lot of the cost are non-cash cost in the training centers, I guess. So is it – at this 25% to 30% is the business cash flow neutral like, on a cash flow basis, cash flow neutral or cash flow positive? Can it operate at a cash flow neutral or positive at this 25% to 30%?

So what I’ll say is, like I mentioned, we can be cash flow neutral and positive at very low levels of utilization. We won’t necessarily share the ranges, but at relatively low levels. So you can imagine at 60%, we were still in double-digit SOI territory and definitely cash positive. Then I think you can infer that at much lower levels, we could be cash neutral.

The other thing I’ll say, Fadi, is that if we thought that we’d stay at that level, we obviously would adjust and because our training centers and our training footprint is made any assumption of much higher training demand, which we – as I mentioned, we fully expect to come back. So if we – and so even today, when we look at 25% to 30%, I mean, some training centers are operating a much higher than that. It depends where you are. I mean some training centers are closed. And that factors, when I talk about 25% to 30%, I’m factoring in there, summer is zero. So basically, that’s – we factored all of that those training centers come back online and in our expectation that in large part those training centers should be back online in June. So – and the ability to once that opens up obviously, we’re going to materially move up. So, I think although it would be hard to make money at this level of 25% to 30%, we are not going to stay there.

Okay. And one clarification Sonya, I think in your comment talking about the free cash flow in the first half of the year being negative. And then you mentioned that working capital is seasonally negative. Are you saying, free cash flow negative before working capital in the first half and ultimately you have the seasonal working capital issue that you have to deal with as well?

So in the free cash flow guidance that we’re giving you, I include the impact of non-cash working capital. So what we’re seeing is, as Marc just described the impact on the operations and disruptions, that will drive negative free cash flow, but that’s including what we see as some slower collections and some pressure on the non-cash working capital. On the Civil side, solid collections continue on the Defense side. In fact, many governments are actually accelerating collections, as support measures. And, of course, we’ve put an extensive measures to monitor and manage our working capital closely, and measures on inventory and suppliers and such. So as we work through this period, we’ve obviously implemented the cost reductions and cash preservation actions that flies to the lower volume and reduced the level of expenditures. So, the guidance that we’ve given on CapEx, which includes, growth and maintenance that we expect to spend about – guiding to about $50 million for the first half of this year, that’s a third of what we spent last year, as well as reducing the CapEx – the R&D and the funding, the dividends and the NCIB. And so ultimately, it’s – the combination of all that within our regular free cash flow definition, and we expect that to inflect positively as the markets reopen and so on in the second half of the year.

Okay. I promise this is my last question. But I want to go back to the comments you made Marc about, kind of, you don’t need to go back to kind of pre-COVID-19 to get the profitability to improve again. But if I look at your aviation side, like you had $2.2 billion of revenue here, $480 million of operating income for the last 12 months. Like, do we need to see traffic – passenger traffic return to 2019 level to kind of see the scope of this – the business to go back to that last 12 months kind of levels, as we move forward? Are there levers that you think could make you get to those profit level even with airlines that are 75% the size of what they used to be?

I think I’ll start the comments because I don’t want to give into providing guidance when I said I won’t. But the – I think what I’d tell you, I fully expect travel come back. And going back to what I said in the beginning, people want to travel, that’s not going to change. We’re talking about timing. We talk about that. You pick your time, I mean we – I would – my own guess is about two years, okay, before it gets back to levels we’ve seen before. But, be it as – be that whatever it is, you pick whatever, if you think it’s going to be later than that it will get back to those levels. And I think we will do well as demonstrated. But I think that, if you look at things that we’re coming out of this crisis, you learn from everyone, right? Like, first and foremost, go back to training is regulated, and that basically ensures, if you like, perennity of the business model itself. Our customers out there – our customers out there, we made a whole – whole growth that we’ve had in large part of the past few years has been to convince customers to outsource in whole or in part there training operations to us. You can all imagine that we think because of our capability, because of the service that we brought, because of the unique insights that we can derive for customers, and the cost and cost benefits that we can provide to our customers. You can all imagine that we will have, we are already having conversations with people to be able to gather more market share in the training itself, in both Civil and Business Aircraft. So I think that will help. The other thing that will help is that again, you learn lessons that you out of this. And you can see we are already operating, as we’ve been forced to operate in a different environment. So you see, well, how can we maintain some of the cost savings that we see, now they’re forced upon us, obviously. But we are being forced to innovate in how we deliver services to our customers. So you can expect that we have a very strong initiative under way to make a lot of those cost saving measures structural, so we can benefit from them. So we’ll have – we don’t have to have all of that revenue come drive profits. And of course, if we do raise to back at all, we eventually will back to the airline traffic levels that we’ve seen in the past, we will disproportionately benefit from that. Last thing, I would tell you is Business Aircraft. Half of our business is Business Aircraft, right. And to that end to that I’m bullish personally, as we do see opposite forces at play because business aviation is historically correlated to GDP, the U.S. corporate profits. But, well, obviously that’s probably going to be trending down. But to me, business jet travel may – to me, they become preferred for business continuity health and safety reasons, less frequency of airline of traffic into airports, other than the hubs, of course, a bit early to tell, but we’re watching this carefully.

Great. I appreciate it. Thank you.

Thank you.

Our next question comes from the line of Konark Gupta with Scotiabank. You may proceed with your question.

Thanks, and good afternoon, everyone.

Hi.

Hi. Just wanted to clarify to the last question on utilization, you mentioned 20% for April, 25% to 30% today. Are those utilization numbers based on the centers that are open or they include the ones that are closed as well?

They include of all, everything.

Okay. So it’s 0% for obviously the closed ones, and then there is some lower utilization for the ones that opened.

Yes.

Okay. That makes sense. Thanks. So yes, my first question is on, on the recovery. So, like if you look at Airbus, Boeing and some of the bigger airlines have suggested they are anticipating a recovery in the market or their travel demand from anywhere from three years to five years. Now if you don’t need, let’s say, as much or as many training centers and manufacturing capacity over the next 3 years or 5 years, wherever this recovery shape takes place. Would you anticipate removing our suspending some of the capacity for longer or permanently?

Well, I think it’s too early to tell. But as I’m saying at the outset, if we structural – if we saw structural changes that are going to last for a long time than we would adopted. We’ve proven in the past that we’ve adopted. Don’t forget that it’s – we are very adept at being able to move assets around in our training network so that helps us out, because for the obvious reasons that we just mentioned. So look, if that happened, we would adapt our structure. I think inherently a lot of our costs in our training center network our variable already, so that that will help us out going forward as well. So, but as I said before, I personally believe that the air traffic will recover. Again, question one…

Right. Okay, that makes sense. And then on the free cash flow, I think maybe it was Sonya, probably more. So I understand, like the free cash flow you guys define is after maintenance CapEx, but before growth CapEx. So just wanted to make sure, let me say free cash positive in second half, do you anticipate any significant growth CapEx number there, and then would you expect the free cash to be positive, even after netting out that growth CapEx?

Well, I think right now, what we will guide to is that we expect it to inflect positive as the market opens up. Now we provided $50 million guidance on the CapEx for the first half, and really the second half will be a measure of the level of recovery and free cash flow performance that we see a growth CapEx is inherently discretionary and ultimately is deployed, if there are growth opportunities, right? So, as the market conditions evolve and develop, we’ll take a look at as it is. If growth opportunities are not there, we won’t deploy a lot more CapEx, if there are, we’ll adapt accordingly, right? So ultimately right now $50 million for the first half of the year, and then we’ll really rebaseline as we see how the first half of the year, both in terms of cash flow and capacity requirements.

It’s kind of fair to assume that there is going to be minimal or no growth CapEx in the first half, right, you already have a lot of capacity?

That’s right. So I mean it’s – there’s still will be some, it’s a balance. There’ll be some maintenance and there is some CapEx that we’ve got to our own opportunities. So, but it will be pretty low, yes, you’re right.

To say that it’s too early those CapEx, it will because we see very, very strong customer demand for that, any asset that we put obviously.

Right, right. No, that makes sense. Very last one for me, if I can squeeze in. Obviously, you’re not giving guidance, I understand, but just to kind of have the expectations right in the marketplace. Can you, can you at least suggest what kind of revenue trends or segment operating income trends have you seen so far in this quarter based on the utilization numbers that you gave us. Because I think we don’t obviously see how many – some of that you deliver and what kind of demand environment you’re seeing at this point. So if you can suggest what kind of decline rates are you seeing at least directionally that will be great. Thanks.

Well, we won’t go into that for the reasons I talked about things that are just – there’s too much, too much in flux right now that would be – to be able to answer that, that question in any degree of certainty in one way or another, just too many moving parts. And the way forward, I think you will be find itself a lot better in the upcoming weeks and months.

Okay. That’s great. Thank you so much.

Thank you.

Our next question comes from the line of Steve Arthur from RBC Capital Markets. You may proceed.

Great. Thank you. You just a couple of longer term items, first following up on Civil margins, they were very high in the quarter, I don’t think I’ve ever seen them near 25%. Just wondering if there’s any more color you can offer on what drove that step function higher, in particular where there any one-time items in there or as we look at 2 years, 3 years, 4 years of a longer term were some of the factors that drove the Q4 levels persistent and things that should indicate longer term capabilities for that segment?

Well, I can, I can start Marc, if you – if you want to jump in also. Really for this quarter, the 25% is a result of the mix. We had a higher proportion of business jets, which is at the higher level of our Civil margins. And also on the product side, the revenue was a little lower than Q4, because we had less deliveries than in Q4, you’ll remember there was a big ramp up last year at this time. But improved program mix drove higher SOI contribution on that front. So, really the mix on the programs on the product side, and also a higher proportion of the business jets, which has higher margins and for the year what that gave us is a 22% margin overall, I think a great margin and really the results show what’s achievable at steady state in a healthy environment and frankly that and itself had impacts from COVID pandemic in March. So would have been quite a bit better, how they’re not in this pandemic crisis.

Maybe just following up on that, you commented earlier though in the press release and in the discussion further opportunities for outsourcing with the airlines. And realize, obviously, you can’t get into specific discussions. But I’m just – if you could characterize your discussions there in relative to say 6 months ago, the number of those conversations that are going on about the nature and the urgency of the customers looking for solutions here.

Well, I think, I won’t comment on the urgency, and I don’t like to comment about our customers, but, definitely there is more conversations going on, the material one.

Okay. And I guess just, just final one with the healthcare situation, in particular, the opportunities there with the ventilators. Some amazing work to do, which your team has done already. Is this something that in the short term was the right thing to do and you’ve dealt with it to support the emergency situation or is this a longer term opportunity for CAE Healthcare?

Well, I think, when we started off from doing the right thing, humanitarian effort, for sure. And we thought that the notion was that with the expertise that we have in CAE Healthcare specifically, and the fact that we are in the business that its training people on incubation, that kind of using those machines. So we have a pretty good knowledge of those, of those particular devices and then we – could you dovetailed with these, the great systems engineering and innovation capability at CAE and all the skills that we have in electronics and software and manufacturing, it was just an interesting combination of all those things together to say, we pull this off. And I’ve been very, very impressed of what we’ve been able to do. I’m not surprised, because I knew we could do it, but the speed at which we do it. And I think what I would emphasize on this method, we’re not, we’re not – we haven’t undertaken a design from someone else that we’ve built a – we build-to-print that kind of thing. We designed from scratch a new device that’s going to be used in ICUs in the – on the most critically ill COVID patients or anybody else that would need a ventilator. So I think, I’ve been very impressed and so I have the people that are professional – healthcare professionals, looking at your device. So from that point of view, I mean, we haven’t built it. If you’d like to – as a device with a cost structure to be competitive in the market, you know for obvious reasons the speed is of the essence here. And the Government of Canada gave us a contract for 10,000 said, full speed ahead, get that done, so that’s how we will operate. But what I would tell you is look, I mean nothing is off the table. Nothing is off the table, would have – would take a good look at this as we’re executing this contract. And if this is an area that we could further develop to be able to provide self-sufficiency to Canada, to Quebec or any other region like that or could we build it in as a solution that we have as part of and virtually responsive we provide around the world, and we might do that. So nothing is – nothing is off the table, I would tell you. If we always look at new ideas and this – who knows this could be one. At the moment we’re building it to deliver these 10,000 units.

Great, thank you.

Our next question comes from the line of Kevin Chiang with CIBC. You may proceed with your question.

Hi, good afternoon everybody. May be I’ll start off with, earlier Marc you made – Marc about seeing opportunities and you’ve brought in a new member of the executive team there, Heidi Wood. I’d be interested in thinking about what you think about. How you see the competitive environment may be changing over the next few years here. If memory serves me correct, I think you’ve had a number of aerospace – aerospace OEMs looked at entering the field last time when there was some disruption around defense spending, such as Lockheed Martin looking into of the space. Did you see increasing competitive pressure potentially from some of your more nascent competitors who might see their core business shrinking. They may be looking at training or manufacturing full-flight simulators, and maybe a way to offset some of the other pressure?

I hope we will see, I don’t typically spend a lot of time looking in the rearview mirror, it’s like a competitor, not to be – to help prices on that, but we focus on our customers, we are focused on delighting our customers and staying very, very close to their needs and where they’re going in to stay in lockstep with them in providing product service we do. As you know, we are a pure-play and because of that and we’ve been able to establish a commanding market share in every one of our segments. So we – and we do a lot to make sure we maintain that right. I talked about delay in customers, I talked about the substantial amount of R&D that we do on moving into using digital and AI to differentiate our solutions. So look, I won’t comment what a competitor do. I don’t expect a higher level – a higher competitive environment, more stringent than it was. If anything, I think in this kind of the crisis, I date say that customers will remember those that were there when they more – they needed us more, and CAE is there you know throughout this and then make it – we’ve been there and to service our customers in pretty tough situations where our personnel were on site delivering because we are an essential service. And as I said before, this is a regulated market. So, the industry needs us to be around and servicing them either for simulators or providing training, I’m talking about civil now but – simulators or training in order to be able to maintain their flying operations that were critical to that. So I think that’s what customers will look at more and we provide them a service that is by design cost effective in the market. So I think we will continue to play our game. And I think, I think we will continue to win.

That’s great color. Maybe just one more from me here, and maybe this is for Sonya. For this fiscal year 2021, when I look at your contractual obligations that you – you’ve laid out in your MD&A about half of that is for purchase commitments just over $200 million. Just wonder how much flexibility you have there in the event that some of your product revenue, maybe just deferred as you mentioned – you are seeing some deferrals or cancellations. Do you have flexibility to adjust that purchase commitment for materials, also lower to reflect kind of the fluidity in that revenue line? Or is that $200 million pretty much a fixed cost for this year?

No. So that’s purchase commitment and another commitment that we’ve made with suppliers and other stakeholders. And these are key suppliers in our supply chain. So these commitments have a wider term. Obviously, we take our best view in terms of the time commitment and that’s what’s shown in the note. But there is some flexibility, should there be deferrals or elements on the timing of our execution of our backlog, then there is flexibility in partnership with our supply chain.

Perfect. That’s it for me. Thank you very much.

Thanks.

[Operator Instructions] Our next question comes from the line of Benoit Poirier with Desjardins Capital Markets. You may proceed with your question.

Yes. Good afternoon, everyone. Marc, just the – if we look in the longer term pilot shortage has been a strong rationale for training requirement. We’ve been talking about the population of 360,000 pilots demand for over 300,000 pilots over the next 10 years. So in light of the massive layoffs we see from some airlines, how would you reconcile the pilot shortage, and especially that IATA forecast to revisit the pre-crisis level somewhere in 2023? Thanks.

Well, I think the first thing I would say, by the way, is that pilot shortage has – it’s never been a strong factor in the revenue numbers and the growth of CAE itself, right. The real – what drives our training business is the active – the flying by airlines themselves and the active fleet the pilots that they have. Where we have an exposure to pilot training i.e., making pilots, going from somebody who doesn’t have a license to becoming an airline pilot is obviously in our flight training organization, our FTO network. We have a network of schools, the largest one in Phoenix, for example. I would tell you that those are operating – those haven’t missed a beat since the beginning of – actually in this pandemic, we’ve continued to fly. We’ve had to shut down and do virtual class training. But in terms of the flying activity that has stopped. And now going with future – looking at future demand for new pilots here to be trained, obviously, we’re going to look at that very closely because of the factors that you just mentioned. But I think it’s important to note that CAE by design has never been after having a very strong portion of the market in the FTO network. We’ve – that we’ve never sized our operation to be anywhere near to be able to meet the capacity needs and the pilot shortage. And we – the contracts that we have are directly with airlines. So – and so far, what we’ve seen is that the airlines that we partnered with, if anything, have reaffirmed the contract they have with us. So they – there’s – it takes about a couple of years to form a new pilot. So I think look, we’re going to have to look at this in detail. But I think the biggest thing I would say, is it’s not a primary driver for revenues in the Civil business or earnings.

Okay. That’s very good color. And when we look at Civil margin, obviously, you don’t want to provide any guidance here. But when we look back at fiscal four, fiscal five, fiscal eight, fiscal nine, how should we be looking at the current situation and your ability to probably get margin, similar to the previous levels? Would it be fair to say that this pandemic is different than the last few downturns we’ve got, even if your mix is more geared toward services?

Well, I think we’ll see nothing compares with this pandemic and this is the worst that anyone’s ever seen. I think you could derive some lessons from those. But I think the steps that we’ve taken to control, first of all, control our cost, control our liquidity and the right ones to gives us ample liquidity under to me any kind of scenario, you might want to look at that. And we’ve – in our planning in the cuts we have made we have assumed something actually worse than actually we’re seeing right now in terms of, for example days sales outstanding on payments, as just an example. So look, as I said before, we are – we don’t need all that revenue to come back to do very well. And I think the bundled solutions that we have, both simulators and training I fully expect simulator sales themselves to be much lower because there is going to be much lower deliveries of aircraft. Training, however, I think there is – we’ll have to see, I think there is going – as I said, I think Business Aviation could be a tail of – it will be a toss up, we’ll see. We’ll see it. Would it be higher or lower, depending on which wins. Corporate profits sort of fact that people need to move around, and the perceived way of moving around safely and effectively because of limited opportunities on the commercial aircraft to get there, and back in a reasonable amount of time is Business Aviation. I think that will be a factor, and again, we’re going to be adapting our costs to continue to be efficient, and be able to get some structural cost savings out of this, which means that we don’t have to get all the revenue back in order to get earnings back to a reasonable level.

Okay. That’s great. And maybe one question for Sonya. From the liquidity standpoint, you’ve been able to bolster your balance sheet with about $2 billion of liquidity. When we look at your net debt to EBITDA, where would you expect the ratio to peak at going through the next few quarter? And also, could you talk a little bit about the free cash flow expectation for the first half? How much is coming from working capital versus margin? What is driving most of the decline? Thank you.

Yes. So the level of net debt we expect will probably increase over the year, as there’s cash usage or revolving usage in the near term, and it will follow what we expect with the negative free cash flow in the first half, and then inflect positively. So as net debt increases as a bit, and as we’ve discussed, there will be some operational impact, and negative financial impact. So we expect EBITDA to be lower in the first half as well. So you’ll see those ratios increase, but we’re still, I think, in very healthy territories and well below any covenants that we have. In terms of the free cash flow, we’ll speak to it directionally. I think it will be a combination of both. There will be the impact from lower cash from us because of the disturbances on operation, and we see a higher investment on the non-cash working cap. Now we usually have one in the first half. I do expect it to be higher than usual. Now that will come mostly from AR. So on that front, our DSO, days sales outstanding, had been quite decreasing nicely quarter-over-quarter. And then we saw an uptick and we do expect that to slow a little bit. In terms of the AR and collections, you got to look at it by segments and products and services. So on the sell side, customers are mostly governments. So, of course, no risk. And frankly, as I mentioned, governments are accelerating payments. On the Civil side, the simulator orders are funded throughout production with progress payments. So that gives us a measured security in the orders and the receivable. And on the training side, terms are generally 30 days to 60 days. So we don’t have significant concentrate exposure to AR balance of any one airline, but customers are asking for some extended terms, and we are looking at each situation case by case, and incorporating this as part of our working capital assumptions and scenarios. Like we have deep relationship with all of these customers and work very closely with them through some past black swan event as we do today. So we provide a critical service to the airlines, which obviously can impact continuity of their operations. So this means that training is usually prioritized. So, realistically, I think we’ll see a bit of a higher balance on the AR side. Now obviously, we are working on the inventory side, being very, I think, judicious on any inventory efficiencies and much stricter management-owned inventory, and obviously working with suppliers. And you saw in liquidity elements, we also have shored up our AR factoring program, where we can sell some of our AR, and that just increased from $300 to $400 million also. So I think, a combination of factors. We’ll keep working non-cash working capital as strictly and monitoring it very tightly. But realistically, we do expect to start to grow a little bit.

That’s great color. Thanks very much for the time.

Thank you.

Our next question comes from the line of Cameron Doerksen with National Bank Financial. You may proceed.

Thanks, good afternoon. Just a question on the full-flight simulator business, I am just wondering, if we think about Q1 with all the travel restrictions, what is your ability to actually, I guess, deliver a simulator or have customers even travel to accept or for your own staff to go and install the simulators? Is that something that we actually need to see travel restrictions removed before you’ve been able to do that or are there some special ability for them to do that or they have approval to do that?

It depends. It depends, mostly. We operate as a essential service around around the globe. So that provides us the ability to, in most places, to be able to conduct a work. And we obviously look at things on the safety of our employees. That’s our first priority. So if we can satisfy ourselves that’s a safe situation, and they can operate in a safe manner for themselves and their customers, then by and large, we can get it done.

Okay. And maybe just one second one for me just as we think about, I mean, the next couple of quarters, we’ve seen obviously a lot of airlines furloughing pilots and taking entire fleet types out and usually when that happens, you see a lot of, I guess pilots having to change the type of aircraft that they fly, which presumably would lead to a much larger training event for them. Do you see this as somewhat of an offset if – even if the pilot population is much lower, there could potentially be some much larger training events for some of these pilots that will act as an offset. Is that your view?

Yes, absolutely. That, coupled with the pent-up demand that we have – we have 60% of the world’s fleet on the ground. So that’s not going to be something that’s going to be sustained obviously. I think a proportion of the world’s fleet will figure out that for quite a while, but sort of in that 60%. So as those airplanes start being brought up, there’s is going to be pilots need to fly them. And so the pent-up demand of training number one, and the fact that you just talked about, we’ve talked about that many times in the past. It’s we refer to as turn in the pilot population. You can expect – we, I sort of would expect that you will see retirements out of that. When people see the opportunity, I think, airlines in some case are encouraging people retire. So that – because the seniority rules that kind of tends people bumping different types of aircraft. So certainly, the amount of training demand will not be one to one with your traffic patterns, certainly or delivery pattern at the airlines, for sure, for a while.

Okay, that’s great. Thanks very much.

Our next question comes from the line of Tim James with TD Securities. You may proceed with your question.

Thank you. Just very quickly, first of all, Marc, is it correct to assume that the 25% to 30% current utilization of the simulator network that, that’s all sort of recurrent training?

No. No. There’s donors initial is going on as well. But primarily, I would say, recurrent right now. But not – if you think our business aircraft, a lot of – we’re doing a lot of initials right now.

Okay. Okay, great. And then I guess just kind of along that line of thought, what or are you getting a sense at this point from what your big commercial customers are telling you, in terms of how they’re planning out, their recurrent training. I mean, do you get the sense they’re looking out to the end of this year, maybe it’s early 2021 and they’re starting to try and estimate what capacity they will have and then determine their pilot requirements on that basis? So they’re kind of looking past the – this trough and making sure that they’ve got enough pilots that are staying current with their training even if those pilots are not be utilized for say the next two months or three months? Are you getting a sense at all for about that from your customers?

Well, again, I don’t want to get into much of what our customers are saying, because you can read what they’re saying and they report it themselves. I can just talk about our own operations. And yes, we have dialogue, just by the very nature that we have relationships, one way or another with the majority of the world’s airlines. So we expect our – what we say, by the way forward is informed by those discussions, as well as other measures like when I talked about the IATA forecast itself, and other means of input that we get with regards to the business aviation play with fractionals and doing that kind of things. I think there is, you could well imagine because of – when I gave the answer, the previous answer, with regards to the amount of training that has to occur to maintain a pilot current to be able to operate an aircraft, a commercial aircraft. And the fact that there is going to be a lot of – it has if they retire fleets and they move into different fleets, they retire pilots that there is going to be a lot of training events being – that being caused by those moves, you can imagine that the airlines are spending a lot of time looking at that. Are they looking at next year? I think, yes, next year is, a lot of cases. They did have a as little visibility as we have an be able to provide that. That’s why I wouldn’t go as far as, give you an opinion is that later on – later than a few months going forward.

Okay. Those are the only questions I had. Thank you.

Thank you.

Operator, I think we’ve gone over the – a lot of time. But I want to thank everyone for participating on the call today and remind you that a transcript of the call can be found on our website. Before we conclude, we’ll open the lines to see if there are any questions from members of the media.

[Operator Instructions] Our first question from the media is from Julien Arsenault with La Presse. You may proceed.

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[Foreign Language] Okay, operator, I think we will conclude the call now. Again, thanks to everyone from the investment community and media for joining us and remind you that a transcript of the call can be found on CAE’s website. Thank you.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.