Marc Parent - President and CEO Sonya Branco - VP, Finance and CFO Andrew Arnovitz - IR.

Turan Quettawala - Scotiabank Cameron Doerksen - National Bank Financial Fadi Chamoun - BMO Capital Markets Benoit Poirier - Desjardins Securities Chris Murray - AltaCorp Capital Peter Diekmeyer - IHS.

Good day, ladies and gentlemen. Welcome to the CAE First 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, Julie. Good afternoon everyone and thank you for joining us today. Before we begin, I'd like to remind you that today's remarks, including management's outlook for fiscal year 2018 and answers to questions, contain forward-looking statements.

These forward-looking statements represent our expectations as of today, August 10, 2017 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 web site, and in our filings with the Canadian Securities Administrators on SEDAR and on the U.S. Securities and Exchange Commission.

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'll first discuss some highlights of the quarter, and then Sonya will review the detailed financials.

I'll come back at the end of the presentation to talk about the new strategic developments we announced earlier today, and then I'll conclude with some comments about the way forward. Our progress to-date in all three segments continues to support our full year outlook for growth and profitability.

The Civil business showed very good momentum in the first quarter with strong top and bottom line growth on good utilization in our training centers. In Defense, although we didn't grow the bottom line in the quarter, I'm satisfied with our progress in view of our full year plan.

Defense can be lumpy on a quarterly basis, and in the first quarter we were beginning to ramp up a number of new developmental programs from backlog. Overall for CAE in the quarter, we grew operating profit by 10% compared with last year and we continued to enjoy strong demand from customers to our innovative training solutions.

In Civil, we booked C$400 million in orders, including eight full-flight simulators, and several long-term training agreements with airlines and business aircraft operators. For the quarter, Civil grew segment operating income by 15% and filled its training centers to 78% utilization.

In Defense, we booked orders for C$262 million, including a Training Systems Integration contract with the UAE on the Predator XP. Other notable wins include an in-service support contract for Canada's Fixed Wing Search and Rescue training program and contracts involving C-130J fuselage trainers for the U.S. Air Force and U.S. Marine Corps.

We're also very proud that the first cohort of U.S. Army students went through the new Initial Entry Fixed Wing course at our Alabama training centre and successfully graduated to become Army fixed wing aviators.

And finally, in Healthcare, we had higher expenses in Q1 related to the ramp up of an expanded sales force and the launch of an important new simulator, CAE Juno, which begins delivering in the second quarter. We specifically designed Juno for nursing education, which represents the largest addressable segment in the healthcare education market.

With that, I will now turn the call over to Sonya who will provide a detailed look at our financial performance. I'll return at the end of the call to comment on our outlook.

Sonya?.

Thank you, Marc, and good afternoon everyone. Consolidated revenue for the first quarter was C$698.9 million, and quarterly net income was C$63.8 million, or C$0.24 per share. This compares to C$0.26 per share in the first quarter last year, which is before specific items and includes the recognition of a deferred tax item.

There were still some timing differences this first quarter with respect to the recognition of revenue on our standardized commercial simulators. This resulted in deferral of approximately C$0.03 of earnings per share. For the year as a whole, we expect these timing differences to be relatively neutral, as we deliver more of the standardized products.

Income taxes this quarter were C$14.6 million, representing an effective tax rate of 18%, compared to nil for the first quarter last year. Excluding the deferred tax item, the comparable tax rate last year would have been 14%.

Free cash flow was typical of CAE's first half of the fiscal year, as we usually have a higher level of investment in non-cash working capital during this period. First quarter free cash flow from continuing operations was negative C$37.9 million compared to positive C$15.5 million last year.

As in previous years, we expect a portion of the non-cash working capital investment to reverse in the second half. Uses of cash in Q1 included funding capital expenditures for C$49.1 million, mainly for growth, and we distributed C$21 million in cash dividends. We used another C$2.7 million to buy back stock under the NCIB program.

Now looking at our segmented performance; in Civil, we maintained a strong growth in Q1 with revenue up 11% year-over-year to C$411.8 million and operating income up 15% to C$73.1 million, for a margin of 17.8%.

Before the deferral impact on the recognition of standardized products, Civil revenue and operating income would have been C$452 million and C$83.7 million, respectively, for a margin of 18.5%. On the order front, the Civil book-to-sales ratio for the quarter was 0.97 times and for the trailing 12 month period it was 1.07 times.

Civil's backlog at the end of the quarter was C$3.2 billion. In Defense, first quarter revenue was up 2% over Q1 last year to C$263.2 million, while operating income was down 7% to C$26.3 million, for an operating margin of 10%.

The quarterly variability we often see in Defense, is driven by product/service mix and the timing on reaching certain program milestones. In the first quarter, profitability was impacted by the kick-off of a number of new programs, won late in the last fiscal year, which involved R&D expenses as part of their start-up.

To name a few, these included the Canadian Fixed Wing Search and Rescue training program, the UAE Naval Training Centre, and training systems for the Predator XP and Predator Guardian UAVs. As well the business units faced an additional headwind this quarter in the form of higher SG&A expenses.

Specifically, the share based payment expense was C$17.5 million, compared to C$8.7 million last year. The increase was driven by the sharp appreciation of CAE's shares and the mark-to-market fair value revaluation of our existing long-term share-based payment plans. Approximately 40% of this total expense was allocated to Defense.

The Defense book-to-sales ratio was one time for the quarter and 1.31 times for the last 12 months. Defense backlog at the end of the quarter was C$4.1 billion. And finally, in Healthcare, first quarter revenue was C$23.9 million compared to C$22.7 million in Q1 last year.

Healthcare segment operating loss was C$1.6 million in the quarter compared to a loss of C$100,000 last year. The loss in the quarter results from higher initial expenses associated with the expansion of our sales force and the development and launch of our new product, CAE Juno. With that, I will ask Marc to discuss the way forward..

Thanks, Sonya. Our outlook for growth this year remains unchanged and I continue to be encouraged by the positive response that we get from customers to CAE's innovative solutions.

Underscoring our confidence in the way forward, CAE's Board of Directors approved this morning, a C$0.01 increase to our quarterly dividend, which becomes C$0.09 per share effective, September 29th. This marks our seventh dividend increase in the last seven years.

In Civil, pilot training demand continues to be well supported by high rates of commercial passenger traffic and continued stable aircraft utilization in business aviation. This past June, at the Paris Airshow, CAE released its first ever, CAE Airline Pilot Demand Outlook, our 10 year forecast of global pilot demand.

A compelling take away from this report is the need for 255,000 new airline pilots over the next 10 years. Another important consideration highly relevant for airlines and CAE, is that half the pilots who will fly the world's commercial aircraft in 10 years' time, haven't yet started to train.

These dynamics underscore the considerable value of our comprehensive cadet-to-captain solutions. CAE's broad global offering enables unmatched flexibility to adapt and evolve our solutions to fit our customers' needs. To that point, I'm very pleased with the new strategic developments we announced this morning, involving airlines in Asia.

We signed a Memorandum of Understanding with Singapore Airlines to establish a joint venture to be operated out of the Singapore Airlines Training Centre, near Changi Airport. This marks an important evolution in our relationship with one of the world's premier carriers.

Once underway, the JV will serve the training needs for Singapore Airlines, and SIA Group subsidiaries, SIA Cargo, Silk Air and Scoot, as well as other operators in the ASEAN region.

We also concluded a transaction with China Southern Airlines, whereby China Southern has acquired our share of the Zhuhai Flight Training Centre or ZFTC, for $96 million. The evolution of this relationships, means that CAE now has the flexibility to address the broader market in China and the ASEAN region as well.

As part of the transaction, China Southern will outsource to CAE, third party airline training being conducted at ZFTC. And in addition, we will continue to serve China Southern as their partner for training services support, ab initio pilot training, and for their simulation equipment needs.

Also in response to reports by the media, we confirmed today that CAE and AirAsia are in advanced discussions to negotiate a sale and purchase agreement for CAE to buy AirAsia's 50% share of the Asian Aviation Centre of Excellence joint venture or AACE.

Our relationship with AirAsia began in 2004, and once a definitive agreement is reached, it would expand with an exclusive contract to fully outsource the fulfillment of all AirAsia Group's training requirements, including current and future affiliates, in support of all aircraft types that it operates for an extended period.

What these developments have in common, is that they serve to align our capital with our strategic priorities. They also closely correspond with our investment criteria for accretive growth in support of CAE's 13% return on capital target within the next two to four years.

Once completed, these transactions will offer us enhanced flexibility to further strengthen our position in China and the ASEAN region, which are the fastest growing commercial airline markets in the world. These are indeed exciting times for CAE and our Civil business, as we look to grow our share of the large global aviation training market.

Our outlook for the year remains unchanged and we continue to expect Civil to generate low double digit percentage operating income growth, as we earn a greater share of wallet in training and maintain our leadership in simulator sales.

In Defense, we have a solid backlog and we expect to continue winning our fair share of programs from an active bid pipeline of over C$3.6 billion. The market is supported by the positive fundamentals of increased Defense spending and an emphasis on mission readiness, which is a fundamental driver for training.

We're very well positioned to continue growing our share in the large Training Systems Integration market, with our unique, comprehensive training solutions.

Our outlook for mid-to-high single digit growth in Defense this year, on both the top and bottom lines, remains unchanged, and we continue to be bullish about CAE's long term prospects in this market. And finally, in Healthcare, we're focusing on some of the largest value pools in the market, like simulation-based education and training for nursing.

We continue to expect Healthcare to resume growth this year on higher sales from our pipeline and the launch of new products, which will put us on a course for long-term double-digit growth.

As we've said before, the key to our success here is higher volume, and with innovative new products like CAE Juno that we launched this quarter, and our expanded salesforce, we're confident we can access a larger share of the market.

In summary, we're experiencing a high level of activity in all segments of our business and we're on course to deliver on our outlook for the year. With that, I thank you for your attention and we're now ready to answer your questions..

Thank you, Marc, and operator, we will now take questions from investors and financial analysts..

[Operator Instructions]. Our first question comes from the line of Turan Quettawala with Scotiabank. You may proceed with your question..

Yes, good afternoon. Thank you for taking my question.

I had a quick one about -- I guess, can you talk a little bit about what the incremental capital would be required for some of these new relationships I guess with AirAsia buyout, as well as with Singapore Airlines?.

Hi Turan. So one of those transactions with AirAsia is still very much an active deal. So I think you'd understand that we wouldn't want to comment. Other than the -- as we said, they are in line with the criteria that we set for ourselves for accretive return and a target of 13% return on capital over the medium term.

Now with Singapore Airlines, we are at the MoU stage, but the expectation on the investment will be about $20 million to $25 million by each of the partners. But in our case, we'd be contributing assets..

Okay, that's helpful. Thank you. And then I guess, I know you are talking about the return --.

And that is so -- I wouldn't expect this to be a matter of new capital, but rather kind of portfolio shaping. I would look at it that way..

No, understood.

So you get the C$96 million from the Zhuhai, right?.

That's right..

Okay.

I guess, would you be booking again in that Zhuhai sale?.

There will be a gain on divestiture. We are finalizing that to get an extent of the gain [ph], with all the post closing adjustment, and so we will be finalizing that and reporting it out in Q2..

Great, okay.

And maybe if I just ask one more, in terms of -- is this China Southern, is this sort of a one-off or are you seeing kind of more airlines looking at, maybe taking it back in-house?.

No. To me, you look at -- I think, just to look at what we are hoping is, three deals [ph] together, Turan. I mean, look at -- for example, AirAsia. What you see and I have had this conversation directly with the CEO, Tony Fernandes at AirAsia, I think is very positive.

When you look at it, what they are doing there, and of course, we are still at the MoU stage, but I think, I mean, they and he has already been pretty vocal on this.

They are so confident in the training that's being provided by CAE at the joint venture, that not only do they now have a high quality training operation for all of AirAsia and its affiliates and affiliates to come, but they have an opportunity. If you like to monetize the value that they have created.

Then so for us, this is a nice story, and in exchange, I think that we are looking at expanding the contract. Again, we got short on details right now, because we haven't finalized it.

But I see this is a good story, and both of these deals together, and to a certain extent, Singapore Airlines, I think the thing to remember this, is that it gives us now, if you like, unfettered access to the markets in ASEAN and in China, where we had exclusivity agreements with both of those airlines. So you can -- I think just a good new story.

In fact, I am very happy with it..

Okay. Thank you very much, Marc. That's helpful..

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

Thanks very much. I just wanted to maybe follow-on with the questions on the, I guess, the portfolio readjustment in Asia.

Maybe just firstly on AirAsia, I know, again it's still not a done deal, but can you maybe just describe how this would be an expansion, I mean, beyond just you taking the 50% that you don't own? Is it the fact that you are not doing all of the trading currently in that operation for AirAsia, and this would be basically expansion to all of their pilot training?.

Well, I think we are currently already doing their training. Their training is outsourced. Now we are not doing all of the training for all of the affiliates, and that will become part of the deal.

You will know, I mean, AirAsia is going to be -- is one of the airlines that's expanding the most in the world, actually, and they are going to be taking a lot of airplanes over the next few years.

So between the growth of AirAsia itself and the fact now that we are -- even though we will be continuing to be doing AirAsia's training, because they have full confidence in us and we have such a fantastic relationship built since 2004, that we will have a long term training contract for them and their affiliates, which of course, and I should point out that, in their case, it's not only flight crews, there's maintenance technicians, it's flight attendants, it's actually even manager training that we do there.

But we now have access to all the other airlines in the region, that -- since now it's only CAE, in some cases, it's maybe slightly more attractive for them to come train with us, and we don't have any exclusivity in the region that we had in the past. So clearly, you would expect this to be growth..

Okay. And maybe just secondly, I guess, just on the sale of the China Southern JV. You've mentioned that it helps you may be address the China market more broadly.

Can you just maybe explain how that is the case? I mean, were you restricted in pursuing other airlines in China? And do you have to -- do you think you have to have a physical presence in China to address some of the pilot training demand there?.

Well look, I think that we serve the training in China, for example, a center in Hong Kong. But I think what's -- to reflect on a whole story, is we have built a great operation, very successful operation with China Southern called ZFTC. We are very happy. I think this deal is win-win. And in the case, this was our first joint venture in training.

We changed our strategy over the years, especially in the last three years, where we are very focused on training. China Southern wants to -- as we said in the press release, I think, China Southern wants to focus on training as a -- they want to just concentrate on their own operation.

They are not interested in running this as a profit operation, to make profit, if you like. We will continue to deliver the third party training as part of the agreement in the excess capacity at China Southern. And clearly -- I don't want to say too much, but clearly, we did have factual -- we did have an exclusivity.

Again, it was the first one in China, so we did have an exclusivity. Now we don't. So clearly, China is a big market, and will be one of the largest markets, if not the largest market in the world. So you would expect that we will want to -- at some point, set up shop there, I would consider that very highly likely before too long..

Okay. Very good. Thanks very much..

Our next question comes from the line of Fadi Chamoun with BMO Capital Markets. You may proceed with your question..

Hey guys. Good afternoon. So I want to go back to this Asian strategic changes there.

So is it fair to say, if CAE approach those two JVs with Zhuhai one and AirAsia one to change the structure, because you wanted to open the market and remove that exclusivity? Is that how we approach this?.

No. We have an ongoing airline with these airlines over the years. I mean, in this case, it was specific events. In the case of AirAsia, I think the fact of the matter is, is that the CEO, I guess the airline itself wants to monetize assets that they have had. I think they have done it with other parts of their portfolio.

I think through their travel agency, they have done. And here again, I am just quoting the straight conversation I had with Tony Fernandes.

In their case, that they wanted, they saw an opportunity to monetize the value that we both have created together in this training center, and that for us, we get a very highly valued asset, and we get a long term training agreement out of this, with AirAsia. In the case of China Southern, I mean, we are at a point in our relationship.

That in our joint venture, where we were -- basically, we are coming in to a 15-year point in relationship, where we had the conversation. We continue as we go or not. I think that, as joint ventures in the end, as you all know, is really how the interest of the parties align.

Are you strategically aligned? And as I have mentioned, this was our first training joint venture that we had and was setup. The first one in CAE's portfolio. At the time, we were a products company, and it has been very -- and it's highly successful.

We have created a -- very highly, to quote the CEO or President of China Southern, a very highly successful pilot training facility. It has been a great outlet for CAE products. We sold all of the simulators that are in that training center.

So going forward, I think the interest of China Southern and ours are going the way where our strategy is, and China Southern wants to concentrate on its training of the cost center, where if we want to run a profit making operation, as of course as we do, in the rest of the business, and so it was a good time to go the way -- our respective way in that sense.

But at the same time, it's an evolution of the relationship. As I said, we are going to sell excess capacity at the ZFTC. We are going to continue to be their partner for ab initio pilot training and equipment and support. So again, I think it's a great win-win for both parties..

Okay, great. But it also means that those two airlines, AirAsia and China Southern are basically not really interested in participating in the profit of the JV, since they want to run the training. And we in the past saw, like this is like a big selling point on your approach in airline to outsource that training.

Is that not the case?.

Well it used to be, and it continues to be a strong selling point. It just emphasizes the fact that we are doing with Singapore Airlines, it's one of the premier carriers in the world. And I would disagree with you in the case of AirAsia or just point out that they are monetizing their asset.

So they are taking the value that is being created, not only now, but in the future, they are monetizing that value now, and I think at the same time, they continue to retain the same service that they have with us, which is the training we provide. And we get a long term contract. So to me, that sets a great precedent for our business..

Yes. So thanks for that color. But one more quick one for Sonya, so the Zhuhai is probably a negative in terms of the contribution from Zhuhai going away and then AirAsia, I guess, positive.

Is all of this big, sort of a wash, as far as the guidance for this year, or --?.

Yes it is. So we are maintaining our outlook. Now there is a positive contribution from Zhuhai that would go away. But with these deals upcoming, they would relatively offset..

Okay..

And if you are looking for color, we will give you the exact numbers. Out of Zhuhai, it was a drylease operation that we ran, and so if we just take that drylease operation, so no consideration for sales of simulators, which are, mind you, we will now consolidate at 100% instead of 50%.

But if you take just the training operation, on a run-rate basis, is $0.04 a share. So for this year, it's half year. So you can assume that $0.02 a share is loss from that. So clearly, for maintaining our outlook, so we think it's going to be made up..

Okay, great. Thank you very much..

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

Thank you very much and good afternoon.

Just to come back on the previous discussion, I was wondering if those discussions are mostly with emerging markets, or do you see kind of a trend across airlines outside of Asia, Marc?.

No. I don't think the dynamics have changed. So the discussions are very opportune for airlines that don't have the infrastructure, such as -- we have never created the infrastructure or we started with them from the beginning, and then carriers are taking on a lot of aircrafts. So I don't think the dynamics have changed much..

Okay, perfect.

And with respect to the proceeds that you are going to receive, the $96 million, do you intend to place those proceeds in the coming year or it will take some time before you kind of use them?.

Well, we'd expect to be using a portion of those proceeds in the upcoming AirAsia transaction. So to the point, that we are potentially a portfolio shaping, in our view..

Okay.

And those transaction, we would expect they will be closing in Q2, is that fair?.

So the Zhuhai divestiture closed today, as of August 10, and it is -- we are ongoing in discussions with AirAsia..

Okay, perfect. And now if we look at Healthcare, obviously margins were below expectations.

Just wondering about the implication of the simulator, Juno implementation, how should we be thinking about the margins going forward? Just wondering if this particular simulator has lower margin, or it's basically ramping up volume that gives you confidence that margins will revamp?.

No I think it's exactly that. With the simulator, we are not anticipating as low margins. What you are seeing mainly in the quarter is, all the costs associated with the development ramp-up and launch of Juno, which together, just those costs alone, about $1.7 million. And yes, the key here, as I said in my preamble, it's all about volume here.

The products in Healthcare, vitamin sales, there is not a product in there that doesn't have a good gross margin and Juno is no exception right off the bat. So if we can be half way successful in our ambitions of selling more, which we very much believe that we will, through -- because the market is there.

We have increased -- we have got great product for the market. It has been very well received, and we have got the salesforce to do it, and we are ready to produce it. So that's where the expansion and revenue and earnings will come from..

Okay.

And when you say that, you remain confident to grow Healthcare, are you talking both in terms of top line and operating income for the year, Marc?.

Well per outlook..

Yeah, for the outlook for Healthcare, yes..

Yeah. Yes. Which means both..

Okay, perfect.

And last one for me, there is a lot of discussion around M&A activity between UTC, Rockwell Collins; so any thoughts Marc, on how this could impact CAE and valuation multiples?.

You'd be better placed to tell me about that. But I don't see it affect us right now. They play their game, we play ours..

Okay. Perfect. Thanks for the time..

Our next question comes from the line of Chris Murray with AltaCorp Capital. You may proceed with your question..

Thanks folks. Just maybe cleaning up a couple of other housekeeping questions. Sonya, can you just kind of walk us through the calculation of the stock based comp? It would have been something I would have thought there would have been kind of a quarterly accrual for.

But I mean, just explain why we had such a big jump in the quarter, that would be great?.

Sure. And you're right, there is a quarterly accrual, and that's what's driving that expense. So the expense was due to really the sharp appreciation in the share price, and the speed of that appreciation.

So in just one quarter, there was a significant appreciation, and so you will have that basket of all the existing plans, which includes many years of outstanding units and plans, which were revalued all in one quarter, to mark-to-market with the updated share price.

So what this says is, a result of an unusually higher expense in just one quarter, and resulted in year-over-year C$9 million headwind to both business units..

Okay.

So should we think about -- like, if we look at the magnitude of change between CAE the end of March and the end of June, that $9 million would kind of be the sensitivity based on the change in stock price? So should we just be starting to bake that into your SG&A comp, is that the right way to think about it?.

There is various variables to that compensation, and so, share price is one of them. So that's not the only one. So I don't think that would be an absolutely best measure. So while it would be indicative, I don't think you can kind of do just a straight up regression on that..

Okay, fair enough. And then Marc, maybe another question, a little more long term strategically. Boeing came out towards the end of July and talked about the fact that it wanted to make a significant move into developing its own avionic suite. And as part of that, driving more aftermarket.

I mean, one of the things certainly that has always been great, Boeing has been, at times a competitor, at times a customer, at times a supplier. So it's always interesting to see how this one evolves. But do you foresee any longer term impact from their decision to essentially take over the cockpit in its entirety..

No. I think the impact, if any, would be more towards the manufacturer of those types of equipment..

Yeah.

I guess, I am just thinking about, like does that give them a leg up in future simulator design or avionics or almost shut you out of markets, as they design their own stuff, as they try to build more aftermarket support and services?.

No, I wouldn't think so. I think the -- I mean, look, the fact as you mentioned, is Boeing is both our competitor and a partner, and we are a very good supplier. For example, we provide all of the simulators for them -- for the P-8 Poseidon Aircraft, which as you all know, is a militarized 737. So I don't see that dynamic changing long term..

Okay, great. Thank you folks..

Thank you. Operator, we will conclude the Q&A session for investors at this point. If there are any other participants on the line who have more questions, I will be available after the call. At this time, I would like to open the line to members of the media, should there be any questions there..

[Operator Instructions]. Our next question comes from the line of Peter Diekmeyer with IHS Markets. You may proceed with your question..

Yes, good afternoon. I am wondering, if we could drill down a bit into the defense items.

In particular, I am wondering about -- if we can get an update on what's happening on your naval training facility, that you guys are setting up, I believe in Qatar, and whether or not, you see that as a platform to develop further opportunities in the naval sector, and whether this is a material thing that we should be thinking about, when looking at your overall defense numbers going forward?.

I think that -- we made no secret that, I think we have capabilities beyond air. So I think it is an important contract that we had, and with the Qatar Navy. It builds on the contract we had, that we delivered last year for the Swedish Navy.

And yeah, we are bidding to provide training capacity, both in equipment and in services to navies around the world, and just because we see it as a good market. For example, here in Canada, that the Canadian military is going to be operating it's fleets for the next few years. So I think, we wouldn't want to put ourselves forward.

And by the way, you had it mistaken, I repeat, it's not Qatar, its' the UAE Navy..

Pardon me..

But so I think naval is in our portfolio, and it's something that we definitely have capabilities that just carryover from our air experience, both in products and services. So I think we are providing a lot of value and that's what we were able to bring forward for the navy in the UAE, and I think that will continue going forward..

And how is that going in the UAE? What stage are we at right now? Is that center operational or is that --?.

No. We just won the contract recently. We are in the startup phases. One of the programs that Sonya talked about, with regards to -- we are in the heavy R&D phase right now..

Okay. Thank you..

Operator, if there are no more questions from members of the media, we will conclude the call at this point. I want to thank all participants, investors and media for taking the time to be with us this afternoon; and I'd remind you that a transcript of today's call is available at CAE's web site at cae.com..

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line..