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CAE Inc. is giving up its work underground to focus on the skies, announcing on Wednesday it plans to sell its nascent mining unit to give priority to its core businesses, including the robust civil aviation unit that provided the entirety of its first-quarter operating growth.
“There truly has never been a better time for commercial aviation,” CEO Marc Parent said at the company’s annual shareholders’ meeting on Wednesday, adding that he expects to sell 40 civil flight simulators in the current fiscal year.
Mr. Parent said global airline passenger traffic grew nearly 6% in the first half of 2014. In the United States, demand for the flight simulators that CAE makes is strong because several of that country’s airlines are in the midst of replacing their fleets. In addition, recovering demand in Europe, strong aviation growth in the Middle East and the rise of low-cost carriers in Asia are all boosting demand for simulators.
Operating income at CAE’s civil simulation and training unit rose 32% to $49.5-million in the fiscal first quarter, while operating margins jumped to 16% from 12.5% last year.
By comparison, operating income at CAE’s defence and security business, which focuses on military simulators, fell 7% to $21.9-million. Margins dropped 80 basis points to 11.1%.
“In defence, we’ve gone through some challenging market conditions and the business has proven to be resilient,” Mr. Parent said, adding that he expects stronger results in the second half of the fiscal year.
“It’s a dramatic change from the recession, when civil aviation weakness forced CAE to cut jobs and spending while seeking alternate sources of income, including simulation and training for the mining and healthcare industries.
The company made its first major foray into mining in 2009, when it committed research and development funding to the sector in a joint initiative with the Quebec government. A year later, CAE bought The Datamine Group, a global provider of mining software and services.
CAE wanted to become a leading supplier of tools that would help miners maximize their recoveries, control costs and manage their exploration and geological data. But a steep downturn in the mining sector, which began in 2012, made it tough to grow the business as miners reined in their spending.
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