Good day, ladies and gentlemen. Welcome to the CAE Third Quarter Financial Results for Fiscal Year 2026 Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Mr. Andrew Arnovitz. Please go ahead, Mr. Arnovitz.

Good morning, everyone, and thank you for joining us today. Today's remarks, including management's outlook and answers to questions, contain forward-looking statements, which represent our expectations as of today, February 13, 2026, 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 and MD&A for the 3 months ended December 31, 2025, which is available on our corporate website and on our filings with the Canadian Securities Administrators on SEDAR+ and the U.S. Securities and Exchange Commission on EDGAR. On the call with me this morning from CAE are Calin Rovinescu, Executive Chairman; Matthew Bromberg Matthew, the company's President and Chief Executive Officer; and Constantino Malatesta, our Interim Chief Financial Officer. After formal remarks, we'll open the call to questions from financial analysts. Let me now turn the call over to Calin.

Thank you, Andrew, and good morning, everyone. Before Matt and Constantino take us through the Q3 results and discuss the transformation plan, I want to briefly add my perspective. Q3 was a solid quarter, all things considered, despite the Civil business experiencing a somewhat softer order activity than expected. Defense, on the other hand, had a stronger quarter than expected, and we're increasing our outlook for that segment. In my view, a quarter like this reinforces why we firmly believe that having two strong businesses with leading positions in attractive markets like our Civil and Defense segments makes so much sense for CAE. As you'll hear from Matt, we're starting to implement the several phases of our multipronged transformation plan with a focus on sharpening our portfolio, disciplined capital management and capital allocation, and improved performance through operational excellence and cost transformation. We expect this plan to lead to increased earnings and cash flow and long-term sustainable value creation. We've already made certain important organizational changes to several areas of our company. We've identified several opportunities for network rationalization and potential noncore divestitures. We've reduced capital expenditures and are building a plan for improved utilization and returns from our simulators. Specific targets resulting from the transformation plan are expected to be made available after next quarter so that you will be able to more closely monitor our progress. As we said on the last call, CAE's culture over the last years has centered primarily on growth, and it's now time to harvest that growth. The Board and I are strongly supportive of the disciplined data-based approach that Matt and the leadership team are undertaking, challenging the status quo while protecting what is core to CAE. We are closely aligned with both the direction and pace of the transformation and fully recognize that some of the actions required to strengthen the business will have some near-term revenue impact. We're comfortable with that trade-off as we position the company to become more resilient and to deliver stronger returns with more disciplined capital allocation. And with that, Matt, over to you.

Thank you, Calin, and good morning, everyone. Q3 was a solid quarter despite the softness in Civil. Our performance reflects a more balanced portfolio, improved cost discipline, a focus on program management and better cash flow collection. I'm very proud of the team for delivering these results ahead of our expectations, especially while advancing the transformation plan. Even in the planning phase, the transformation plan is influencing our decisions with respect to portfolio focus, capital discipline and performance. For instance, focusing our capital on core opportunities is further reducing our fiscal 2026 CapEx outlook, and our focus on working capital has improved free cash flow. Combined, we've achieved our full year deleveraging target ahead of schedule and further strengthened our balance sheet. While there is still much to do, these early improvements give us confidence in the strategy and in the opportunity ahead. Over the past 90 days, I've met with over 100 investors to discuss CAE's performance and to review the transformation plan. In these discussions, 4 themes resonated. First, CAE competes in an industry with strong tailwinds. We operate at the intersection of Civil Aviation and Defense, two markets with durable long-term growth drivers. We have world-class technology. We have unparalleled customer relationships. And most importantly, we have exceptional employees across the organization. In our Civil segment, we are the market leader in simulator development and sales, and we operate the largest independent training network in the world. In Defense, we operate around the world locally and with a strong core of capabilities in simulation, training and mission rehearsal. In this segment, we are the largest independent Defense training company in the world, and we have unparalleled breadth of platforms and capabilities. These are strategic assets that give us long, consistent runway. Second, we developed simulation and training…

Thank you, Matt. I appreciate the kind words. Good morning, everyone. Third quarter consolidated revenue of $1.25 billion increased 2% year-over-year. Adjusted segment operating income was $195.8 million, up 3% from $190 million in the third quarter last year, and adjusted EPS was $0.34 compared to $0.29 a year ago. During the quarter, we incurred $7.3 million of transformation-related expenses, primarily recorded in SG&A. These costs are included in adjusted segment operating income and adjusted EPS and reduced adjusted EPS by approximately $0.02. Net finance expense this quarter amounted to $54.1 million, down from $56.6 million in the third quarter last year, mainly due to lower finance expense on long-term debt due to a decreased level of borrowings during the period. This was partially offset by higher expenses on lease liabilities. Income tax expense this quarter was $29.6 million for an effective tax rate of 21% on a statutory and adjusted basis compared to an adjusted effective tax rate of 29% in the third quarter of fiscal 2025. We continue to expect a run rate effective income tax rate of approximately 25%, reflecting the expected geographical mix of earnings and ongoing tax legislation reforms from various jurisdictions. Net cash flow from operating activities was $407.6 million this quarter compared to $424.6 million in the third quarter of fiscal 2025. Free cash flow was a solid $411.3 million, above the $409.8 million recorded in the third quarter last year. This underscores continue discipline and operational strength. Capital expenditures totaled $50.6 million this quarter with approximately 75% invested in growth. Reflecting tighter capital discipline, we now expect full year capital expenditures to be more than 10% lower than last year, driven by a further reduction in Civil CapEx, which is now expected to be approximately 30% lower year-over-year. Our net debt position…

Thanks, Dino. Before turning to the outlook, I want to highlight a few recent developments that underscore momentum across both Civil and Defense segments. In Defense, we continue to see strong demand across allied markets, supported by this multigenerational increase in Defense spending. Our Defense & Security segment has unique capabilities and global reach. We operate through strong locally rooted businesses in the United States, in Canada and across key international markets. And this allows us to serve sovereign customers with credibility, proximity and trust. That combination of global scale and local presence positions us to capture international opportunities. A good example is our partnership agreement with Saab announced in November on the GlobalEye Airborne Early Warning platform. Saab is a well-established global aerospace and defense company serving government customers across many markets. Our agreement on GlobalEye underscores how leading OEMs and airframers view CAE as best-in-class at what we do as a critical enabler to the effectiveness and competitiveness of their platforms. For Saab, CAE's training and simulation capabilities enhance the operational value of the platform and strengthen its appeal to sovereign customers and operators. Programs like GlobalEye illustrate how CAE partners with leading OEMs to deliver long-tenured integrated training solutions. On GlobalEye, CAE is uniquely positioned to provide integrated training that combines the cockpit, front-end flight training with back-end mission systems training. We do so by leveraging CAE's ability to integrate simulation, mission rehearsal and system engineering across the full operational life cycle and across the entire platform. Combined with our global footprint, this enables CAE to deliver scalable training franchises deployable across allied markets. Looking ahead, CAE expects to benefit from Canada's defense spending as international platforms are selected in partnership with leading OEMs across air, maritime and multi-domain environments. Beyond Saab, CAE works with a broad…

Thanks, Matt. Operator, we'd now be pleased to take questions from financial analysts.

[Operator Instructions] Your first question comes from Fadi Chamoun with BMO.

Matt, I think you'll probably realize for us on this side of the equation, we're not known for patients. So I'm going to ask you a few questions about kind of the longer-term perspective that you're providing today. So can you kind of help us understand where the goalposts are 2, 3 years down the road? Can the Civil business generate solid mid-teen return, lower ROIC return? What is the range of kind of broadly speaking, ROIC target that you think could be achievable as you undergo all of these kind of changes over the next 24 months? And a couple of quick follow-ups. Can you share what the revenues of the 25 simulators or 10% of capacity that you intend to retire in the commercial full-flight simulator side? And when you look at, I mean, utilization in the low 70s, the orders lagging full flight simulators deliveries, can Civil grow EBIT in the next 12 months? Or is this going to be -- with the disruption that you're doing in the short term, it is going to be a bit of an off year basically as we get to the other side of this transformation. A lot there, but any quick color you can share would be great.

Thanks for all the questions. Let me try and take them one by one. First, from a longer-term perspective, we're still looking at how each one of these initiatives will impact the portfolio, and that takes time, and we want to be cautious so that we don't over or undercommit to you and the other analysts. However, I go back to the longer-term fundamentals of our industry. On the Civil side, and this is what matters, the industry grows at 4% to 5% every year over the long term. There are disruptions. There are geopolitical disruptions, there are supply chain challenges. We've seen it before, and we'll see it again. But if you step back from an annual disruption, that's the long-term trajectory of the Civil market. And we CAE play a unique role. We're the world leader in full-flight sims, production, development, deployment, and we have the largest independent training network in the world. So long term, those fundamentals are strong and will continue. And on the Defense side, which I think is unique, we see the same outlook. For the first time in my career, we see 4% to 5% of long-term outlook in Defense as well, and we're uniquely positioned to capitalize on that. You asked secondly about how returns will evolve over time. Give us some time to look at it. It's a complex set of equations, and we have to look at each asset. We have to look at each strategy, and we have to make sure that we understand the impact. But I will answer your question about utilization and what the reduction in the Civil training network would do. If -- and let me emphasize this, Fadi, if I could take out all those sims immediately, and I can't. Remember, I said it will take anywhere from 12 to 24 months to do it. And if I retain all the customer volume that's in there, and that is our intention, but that requires a lot of negotiations, then Civil utilization would go up to 75%, 400 basis points. Now I can't take them out overnight, and I need to work on retaining them, but that's the impact on utilization. So when you look at those assets, the 25 simulators, they're clearly the underutilized, underperforming assets to our network, but they consume resources. They consume capital, they consume real estate and they consume inventory. And so by doing this, we'll strengthen the focus of the network, and then we'll attempt to better utilize, better sweat the other assets to improve utilization and focus. And remember, it's not just about utilization, it's about the contract. We have a variety of different contractual mechanisms. And so you need to look at the profitability and the revenue that comes out of that, all that's in front of us. So Fadi, thanks for the question.

Your next question comes from Krista Friesen with CIBC.

Maybe just to follow up on the last one there. Have you started to have these conversations with your Civil customers in terms of rationalizing the network? And how have those been going? And do they seem amicable to the consolidation of some of these changes?

Yes, it's a great question. Thank you for asking it. We have started the conversations, and each one requires a tailored approach. And I remind you, when we built the network, every full-flight simulator in the training center was built for a reason. And over years, operating strategies, airline strategies, demand for travel changes. And so taking a pause in the network and looking at it is a rational, appropriate thing to do. If we step back from individual conversations, what we're really doing is sizing the network for today's demand. We overbuilt the network. It's too large for the demand that we see today. And so we're going to reduce the size of the network to accommodate today's demand and the expected growth we see. Now each one of those conversations with airlines requires time and patience. We're a very customer-centric organization and initial conversations are positive, but we have more work to do. Thanks for the question.

And if I can just ask a follow-up. It sounds like 2027 will be a noisy year just as you go through some of these transformations. But how are you thinking about free cash flow for 2027? Is there an opportunity there just as CapEx starts to come down?

Yes. Let me turn that over to Dino.

Thank you, Matt. So definitely, our focus will be continued strong free cash flow generation. I'm really proud of what we delivered in the quarter, and we're maintaining that focus highlighting some of the things that Matt said, focus on inventory management, payable management; focus on collections of ARs. It really will be continued discipline, and we are committed and expecting to generate strong free cash flows in the future and continue to be below the leveraging 2.5x net debt to adjusted EBITDA on a continued basis.

And thanks, Dino. Let me just add, as we generate strong free cash flow and potentially proceeds from some of the portfolio actions that we're taking, the first initiative will be to invest and fund the transformation. A strong balance sheet and strong cash flow will allow us to put those resources to work. Each one has a business case, each one has to meet our expected return thresholds, but that's priority one. Obviously, second priority is to make sure we continue to delever, and that will take some time. And after that, when we have the luxury to do so, we'll revisit what to do with the free cash flow.

Your next question comes from Konark Gupta with Scotiabank.

Matt, I wanted to dig into the nature of the assets that you have identified, the noncore assets, 8% of revenue. Is it safe to presume that most of these assets, maybe all are in the Civil segment or they're in Defense as well? And I mean, when these assets come out of the system, have you identified how much of the margin drag these were causing? And what can we expect post divestitures?

Yes. Thank you for the question. So there are assets, businesses in both the Civil and Defense side, to be clear. And these are good businesses. These are really good businesses. But as we look at where we do well and where we want to focus our resources, these businesses will do better with another owner. And so that's what we're focused on. And each individual asset business requires us, again, as I mentioned in my comments, to have the right counterparty, the right strategy and the right economics for CAE. And so we'll give you more details on each one as we get more confidence in the future state. Thanks for the question.

I appreciate that. And if I can follow up. I think you mentioned about real estate a few times in the past. With the simulator rationalization and these noncore asset sales, are you taking out some of your real estate portfolio as well? I mean, whether it's leased or owned?

Yes, I appreciate the question. We're looking at it, and the intention is to do that. We have a very large real estate portfolio. But as I mentioned also, we have to look at leases, we have to look at the base space where the simulators go and see what the opportunities are. And that will be more of the details that will come out in subsequent quarters. But absolutely, we want to look at the real estate portfolio as well as the asset base.

Your next question comes from Cameron Doerksen with National Bank.

Maybe a question on, I guess, the market outlook. Obviously, Civil continues to be a little bit of a challenge for yourselves. Just wondering if there's, I guess, any light at the end of the tunnel here? I mean, are there, I guess, any indications that you see on the horizon that maybe some of the Civil Aviation training demand might pick up? Or is it kind of the same as what we've seen in the last couple of quarters?

Yes, I appreciate the question, and I've spent a significant amount of time with the team looking at the Civil market. I think we over-indexed ourselves looking at specific metrics. I think if you step back, you have to look at the entire market, aircraft deliveries, grounding, supply chain issues, air traffic control disruptions. It's a complex weather metrics and we all look at it. From my perspective, this is the market. We're sitting at it. We're not trying to reach some destination, this is the market. And as I mentioned earlier, we overbuilt the network. So we're going to resize the network for the market demand we have today, and that positions us well for the future. And as I mentioned just a couple of moments ago, as we resize the network and stabilize ourselves for the growth, the market will grow long term at 4% to 5%. It has for the past 20 years, it will for the next 20 years. But I'm not in a position to predict exactly what next quarter will look like. The demand that we're seeing today is softer than we expected, but this is the market, and we expect to size everything around it. So I appreciate the question.

Okay. That's great. And maybe just a quick follow-up on the, I guess, the divestitures. I mean, have you actually had early conversations with any potential buyers of some of these businesses? Just trying to get a handle on what the timing of a sale of some of these businesses might be. I mean, is this something that could happen in the next 12 months?

Yes. I appreciate the question. I've run portfolio transformations before, and we have a very experienced team. You have to move slowly through this process and you have to move cautiously to the process to make sure you get everything ready. So it's 18 to 24 months is typically what these transformations take, and we're not going to rush it. And so it's too early to talk about buyer interest or discussions or any of those details. But again, as each individual business gets more mature in its own process, we'll start to make those announcements when we're ready.

Your next question comes from Kristine Liwag with Morgan Stanley.

Just wanted to follow up on Defense. Margins were pretty good in the quarter. And so I was wondering, is this a function of the low-performing contracts finally rolling off? Are there any left? Or what did you have a particular gain on sale or -- sorry, incremental benefit from a more profitable contract. So a little bit more details on what's happening in the Defense margin would be great.?

Yes. Look, I appreciate the question. It's a combination of things. It is good focus on existing programs. And going forward, we're going to talk about growth. We're going to talk about margin expansion. There's still some of the legacy programs left to wind down, but I'm confident that the team continues to maintain its focus on execution. In addition, it's been really good focus on cost controls inside the Defense business, and that is also helping performance. The Defense business has an infrastructure and cost base just like the Civil business and focusing on those cost controls is paying dividends. In addition to that, as we look forward, we're going to try and sign contracts that will have margin accretion opportunities, and we've talked about that before. These things are all combining. But in this particular quarter, we had a contract mix that provided some tailwind that we don't expect to reoccur. And that's why we provided guidance for the year that's going to be 8.5% margin. That's solid improvement, and that's not a stopping point. That is a pause in the journey of driving this business to where I expect to achieve, which is like any other strong Defense business between 10% and 11%. We'll provide that guidance at the end of the year on how long it will take to get there, but don't view this quarter as where we are yet, just view it as a combination of those three factors. So I appreciate the question.

Great. And if I could follow up, Matt, your background is from U.S. Defense companies. When you look at CAE's Defense portfolio and you assess its strength, it is the largest training Defense company in the world. How do you assess its strength? What do you think its role is? And when you start looking at potential $1.5 trillion U.S. budget, the Europeans are spending a lot on Defense too. Where do you think CAE sits in that broader picture?

Yes, it's a great question. So let me answer it from a few dimensions. First, when Defense money is spent, anywhere from $0.07 to $0.10 out of every dollar is related to simulation training and mission rehearsal. That money comes out of both procurement dollars and operational maintenance dollars. So that puts us in a fantastic position. Not all of that is addressable to us because often training is done organically, meaning by the Defense department, but a lot of it will be available to us. Secondly, we have a very large international footprint. That's unique. There are many Defense companies that wish they had the international presence we do in terms of facilities and teams on the ground working side by side, and they have strong relationships. Just a couple of weeks ago, I was in Germany at our Stolberg facility, celebrating its 65th anniversary working side-by-side with the German Air Force. That is a fantastic facility, and that creates fantastic relationships and puts us in a fantastic position. So I think we're well positioned geographically to capture the opportunities you've talked about. And as I mentioned earlier, we're unique in the industry that we have 220 different platforms that we've developed over time. That's a combination of Civil and Defense. So when someone comes to us and wants to develop a new simulation system, a new mission training center, we're uniquely positioned to do that. We know more about hardware and software integration, how to combine front-end and back-end training, and how to have the best final output that uniquely positions us as well. We do one thing. We do training, simulation and mission rehearsal. And then finally, our ability to do programs like FAcT and the Australian program I mentioned, it's an end-to-end training solution. So we bring our training centers, our training simulation capability. We train integrated flight training, flight ops. We train, we bring courseware. And taking the requirements to train a war fighter, to train a pilot, it's complex. We know how to decompose those, we know how to execute them, and we do it better than anyone else. Thanks for the question.

Your next question comes from James McGarragle with RBC.

I just wanted to follow up on one of the comments in the prepared remarks. Obviously, you're looking for higher return, higher margin type of business. So on one hand, being more selective is going to help you get higher returns, higher margins. But how do you also think about being more selective while driving absolute levels of free cash flow growth and kind of capitalizing on all the secular opportunity available to you?

Yes. Could you, sorry, repeat the question? I didn't quite follow. I apologize.

Yes. No worries. So just in the prepared remarks, you mentioned you're looking at higher return and higher margin type of business. So obviously, being more selective is going to help you get higher returns and higher margins. But just how do you look at being more selective while also driving higher absolute levels of free cash flow growth and kind of capitalizing on the secular opportunity available to you?

Okay. Yes. Thanks for the question. I think I follow where you're going. First, being more selective in our capital decisions obviously means we'll spend less of our free cash flow on future capital deployments. That's the first step. And we will make decisions based on a more balanced scorecard. We will try to ensure that every asset meets a higher set of return thresholds, and that's going to reduce CapEx and that's going to improve cash flow. Secondly, we're doing the same thing in our research and development portfolio. I mentioned we're doing a bottoms-up review of every project. We have a significant number of research and development projects, too many. And so we're going to look at the ones that we're executing. And if they're core, strategic, we'll maintain it, but focus on disciplined execution. If they're not, we'll curtail them or wind them down. And then going forward, we'll be more selective about where we spend money on research and development. That will improve our free cash flow. And then finally, in a big part, it's about solid sustained performance execution, ensuring that we write the right contracts, that we collect quickly and that we focus the entire team on free cash flow. That includes inventory management as well. That's new focus for the company. It's not an overnight change. But as I indicated, we're already seeing the benefits of focus on account receivable collections, and there's more to come. So everything across the transformation plan will improve our free cash flow. Thanks for the question.

And then just a quick follow-up. How are you thinking about your ability to pass on higher pricing? Is there any flexibility to drive higher pricing with your customers and long-term partnerships? Just trying to understand how quickly you can use price as a driver of better returns across your customer set?

Yes. I appreciate the question. I've been asked this question a lot. We don't operate with a catalog. We don't operate out of a storefront. We negotiate agreements with airlines, and they're sophisticated, very important customers. What matters to me and the team is that we get the right value for what we provide, whether it's a full-flight simulator or a training center and then they get the right value out of what they buy. We have long-term agreements and lots of joint ventures. And so it's not a catalog, it's not a storefront, but focusing on getting value for what we provide and making sure we make the right decisions going forward, that's front and center.

Your next question comes from Benoit Poirier with Desjardins Capital Markets.

Matt, could you maybe talk about the opportunity to improve pricing through a dynamic approach, but also about the opportunity to leverage synergies between Civil and Defense. I'm just curious to know where you are in this journey.

Okay. I appreciate the question. As I mentioned earlier, pricing with sophisticated airline customers is a complex endeavor. It's not a catalog. It's not a shared app of some nature. It's how we create relationships that go many, many years. And so we'll look at providing, as I said previously, the right value to the customers and ensuring that we get the right value back for what we provide. That's what we're going to focus on. When you think about utilization, our focus is to improve it. We want to sweat those assets. We want to harvest them. We want to improve utilization, and that will improve everything about the business. It will improve our return on invested capital. It's going to improve the utilization of the assets. It's going to improve free cash flow. And there are a variety of tools that we'll explore in doing it. So sorry, can you repeat the second part of -- Oh, the question was Defense and Civil, yes. So on Defense and Civil, we already have many opportunities to work closely together. As I mentioned in our remarks, the core of our engineering capability and our manufacturing capability is here in Montreal. And that's important because we leverage this large infrastructure, which has higher Civil volume than Defense volume to reduce the cost and improve the efficiency of delivering Defense products. And on the other side, we leverage Defense product development, which is often several years ahead of where the Civil market needs to improve the technology that sits in our portfolio. The hardware, software integration, the system engineering, in some cases, the image generation required for military products can be several years ahead of where we need it for Civil products, and we've done that in the past. What we want to do is do more of that. We want to leverage the demanding nature of Defense products, simulation, training, mission rehearsal, live virtual constructive environments. We want to leverage all that development and use it to benefit the Civil side of our business, and we want to leverage our Civil infrastructure, supply chain, factory to improve the cost effectiveness of the Defense solution. I do firmly believe in having a balanced business, and I think they work well together. A lot of that opportunity is in front of us, and we're focused on unlocking it, but it's a great question, and thank you for it.

Okay. And maybe just a quick follow-up on the balance sheet. You ended the quarter with a strong leverage ratio of 2.3x ahead of the plan. You mentioned the desire to reinvest, put those resources to work you need to deliver. But with the upcoming strong free cash flow, it looks like you'll be in a position to discuss about capital deployment opportunity, not far away. So any thoughts about where do you see an optimal leverage ratio for this type of business and your -- maybe the preferred avenues when it comes to capital deployment to shareholders?

Yes. Let me have Dino first answer, and then I may add a couple of comments. Dino, please?

Thank you, Matt. Thank you, Benoit, for the question. So definitely, the expectation is that we do maintain the leverage ratio to be below 2.5x. And we do want to continue to reduce debt and of course, reduce the interest costs. So that will be very much a focus on our side. I think Matt said it earlier, right, we want to deliver -- continue to deliver strong free cash flow. The cash generation will help us position ourselves for the future, right? We want to continue and operationalize the transformation costs -- transformation plan and the costs associated with that. So we are looking at that. We're looking at being below 2.5x and maintaining that. That's our expectations, and we'll continue that focus. But really, it goes back to a disciplined approach, both to noncash working capital, CapEx, raising the bar and making sure that the decisions that we make meet that balanced scorecard approach.

Yes. And I'll just add, I'd ask everyone internally and externally to get -- allow us to get a few quarters under our belt. It wasn't too many quarters ago, and we had a lot of pressure in this company because of our balance sheet. So we want to ensure we have sustained repeatable processes. We want to fund the transformation plan. We want to focus on the right investments when they matter and go forward. So it's great that we all see we're in this inflection point, but let's ensure that we continue to execute and build sustainable cash flow generation for the future.

Your next question comes from Sheila Kahyaoglu with Jefferies.

Congrats on all the things you have going on. It looks like you're going to make a lot of progress. Maybe just on the pilot hiring. In the U.S., at least, it looks like it's rebounding a little bit towards the end of 2025 after a pretty dismal summer. So -- but it still seems like conditions are pretty soft within the Civil business. How much of that softness is coming from commercial versus business aviation customers?

Thanks, Sheila. Appreciate the compliment, and I appreciate the question. I think, as I mentioned earlier, we over-indexed on pilot hiring. We need to step back and look at the overall industry. There are many ratios and metrics that we can look at aircraft deliveries, aircraft grounding, pilot hiring, crew ratios. There are many factors that disrupt that, bankruptcies and incidents around the world. It's a global industry. As I look today at the softness, it's more on the commercial side than on the business side, but the markets are tied together. The demand for pilots on the commercial side affects directly the demand for pilots on the business side and the demand for new pilot training. It's a combined ecosystem as people progress up through the aircraft types. So as I said earlier, this is the market. This is where we are. We're going to size our deliveries. We're going to size our network for the market, and we're going to make sure that we're ready to capture the opportunities as the growth occurs. It's almost like we're -- I hate to use a bad analogy, but it's like on The Wizard of Oz and we're on Yellow Brick Road, and we think there's something out there. Now, we're there. This is the market. We want to position the network. We want to position our factory. We want to position our customers so that we can grow together. And that's why I step back from a quarter-over-quarter point and say, if you look at this market, it's going to grow at 4% to 5% a year. We're the market leader in full-flight sims, and we have the largest training network. We're just going to size it for where we are today. Thanks, Sheila.

Got it. And if I could ask a follow-up to Kristine's question on Defense margins. I understand this is the new baseline we should be working off of with the problematic contracts fully rolled off. I guess from here, how do we think about timing of new contracts anniversary-ing and resizing, repricing the portfolio?

Yes. Let me clarify. I didn't say or I didn't mean to say that we've rolled off the old contracts. We're still in execution, and there's time in front of us. What I want to emphasize is that the team is focused on program management, program execution, ensuring that we control costs. As we've been doing for the past couple of years, we'll continue doing it forward. When we look forward, we want to embark and sign contracts that will be value accretive to the business that have high return thresholds, higher margins and higher cash flow. That takes time. I've been doing this for a long time and Defense dollars take many years to be awarded. And even when they're awarded, it takes many years to flow to contractors. So Q3 is not a new baseline. As I indicated, we plan to end the year at about 8.5% margin, and our focus is on steady continued margin expansion in the Defense business, which is going to be based on executing these legacy contracts, focusing on the new contracts and more importantly, controlling costs because that's within our control and our timing. And so that will be more of the guidance we provide at the end of the year.

[Operator Instructions] Your next question comes from Anthony Valentini with Goldman Sachs.

Matt, just to stick on the Defense margin conversation for a second. You know better than anybody else that the international margins for the Defense primes are typically -- significantly higher than domestic work. And you pointed to the fact that you guys have higher mix to international, which is exciting, obviously, on the growth side, given everything that's happening. But I guess I'm curious if there's something structural that will limit you guys in having higher mix to this higher international margin, and therefore, you guys can achieve margins higher than the Defense primes. Or if it's the right way to think about it that, that mix to international means that the margin potential is actually better than what the Defense primes achieved given they're only 80% or 90% domestic.

Yes, I appreciate the question. When you're looking at Defense markets, yes, generally, international margins can be higher, but there's other factors to consider. You have to consider the award channel. Is it a foreign military sale award channel? Or is it a direct commercial sales channel? You have to consider the product. When we sell our commercial products to the Defense world, and we do, we sell many commercial full-flight sims into the Defense world because they're used by Defense players, they come with commercial margins. But where we sell bespoke Defense products, that's different. We also have development work versus production work. So I don't think you can generalize and say Defense margins are significantly higher to use your term, they're not. What we want to do is develop the right mix and the right contract portfolio, and that's where we're going to focus going forward. It comes back to as we continue to improve our overall Defense margins, we're going to provide guidance on how we see it increasing. I don't think it will be an overnight change in Defense margins. It's going to be methodical, controlled improvement in our performance based on everything I mentioned.

Okay. That's incredibly helpful. Maybe on the -- quickly on the Civil side, I think, obviously, you have no control over what's happened historically. But a few years back, there was an initiative to consolidate some facilities and some simulators. And I know that's been a huge part of your transformation strategy, and you guys are talking more about that today, and it sounds like it's going to become more efficient. But how do investors get confidence around this not being something that is like cyclical, a part of this business that will need to happen every few years and get comfortable that like this is the last time that they're going to have to go through this type of thing. Like is there anything that you guys have learned as you were going through and identifying that you think you can make this kind of be the last time?

I appreciate the question. I can't focus or comment on what happened previously, but I can tell you what we're doing today. What we're doing today is sizing the market for today's demand. That's important. What we're doing today is we're going to be disciplined about putting new sims in place. It's going to reduce our CapEx. It's going to reduce the growth of the network, and we're going to sweat the assets. We're going to utilize them. That requires a completely different operating model, a different cadence and different KPIs and all that is being deployed. And so the final thing I'll say is that's why we increased the threshold for capital approvals to make sure that I see them so we can control the outflow. So there's many elements to how we're going to control and monitor this. And that's the elements that we put in place that we've talked about. So I'm not going to speak to the past. I tell you where we are and where we're going, and we're going to control it. We're going to be disciplined.

This concludes question-and-answer session.

Yes. Thank you, operator. I see we've overrun here a bit. I want to thank all of the participants today for joining us and for their questions. And I'll remind you that later today, a transcript of today's call, including the Q&A session, will be made available on CAE's website. Thanks very much. Have a good day.

This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.