Andrew Arnovitz – Investor Relations Marc Parent – President and Chief Executive Officer Sonya Branco – Chief Financial Officer.

Kevin Chiang – CIBC Fadi Chamoun – BMO Capital Markets Turan Quettawala – Scotiabank Benoit Poirier – Desjardins Capital Markets Cameron Doerksen – National Bank Financial Ronald Epstein – Bank of America, Merrill Lynch Tim James – TD Securities Chris Murray – AltaCorp Capital Julien Arsenault – La Presse Canadienne.

Good day, ladies and gentlemen. Welcome to the CAE Second 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..

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 '18 and answers to questions, contain forward-looking statements.

These forward-looking statements represent our expectations as of today, November 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 risk 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 at 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'll take questions from financial analysts and institutional investors.

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 to talk about our outlook. Our performance in the second quarter continues to support our outlook for the full year.

The results in Civil continued to be strong, and our Defence and Healthcare segments showed positive momentum. Overall, we saw high level of business activity, with total orders for the quarter reaching $931 million, including $516 million from Defence customers.

Looking specifically at Civil, we booked orders for $388 million, including 11 full-flight simulators, and long-term training contracts with customers, including Iberia Airlines, Brussels Airlines and Endeavor Air.

For the quarter, Civil had double-digit percentage operating income growth and we filled our training centers to a seasonally typical 70% utilization. In Defence, growth momentum improved as we continue to ramp up programs from our backlog. New orders included C-130J trainers for the U.S.

Air Force and Air National Guard and a contract to continue providing helicopter aircrew training to the U.K.'s Royal Air Force. Defence also signed an order for more T-44C aircrew training for the U.S. Navy and received contracts from the U.S. Air Force to continue training for the KC-135 aerial refueling aircraft. Also with the U.S.

Air Force, we signed a contract involving training aircrews on the Predator and Reaper remotely piloted aircraft. And finally, in Healthcare. We also saw more momentum with the launch of new products and a ramp-up of our expanded sales force.

Customer response to CAE Juno, our latest simulator for nursing, has been positive, with initial sales meeting our expectations. In fact, we began delivering our first Juno units during the quarter.

CAE is the innovation leader in health care simulation, and I'm very proud that we've recently been recognized with industry awards, including the prestigious Unity Impact Award for our VimedixAR ultrasound simulator. This is a mixed reality solution that integrates the Microsoft HoloLens.

With that, I'll 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 revenues for the second quarter were $646 million, and quarterly net income was $65.2 million or $0.24 per share. This includes a gain of approximately $0.02 per share from the divestiture of the Zhuhai Flight Training Centre.

By comparison, in the second quarter last year, earnings per share before specific items were $0.21. Income taxes this quarter were higher than usual at $24.8 million, representing an effective tax rate of 27% compared to 16% for the second quarter last year.

The higher tax rate was mainly due to the gain on ZFTC and the negative impact from tax audits in Canada this quarter. Excluding the ZFTC impact, the rate would have been 23%. Free cash flow from continuing operations improved in the second quarter, reaching $63.5 million, up from $27.3 million last year.

The increase came from a lower investment in noncash working capital and an increase in cash provided by continuing operating activities. As in previous years, we expect a partial reversal of noncash working capital investments in the second half.

Uses of cash in Q2 included funding capital expenditures for $24.4 million, and we invested $24.7 million to consolidate training capacity in the markets by acquiring a portfolio of existing simulators.

In terms of shareholder returns, we distributed $23.2 million in cash dividends, and we used another $19.9 million to buy back stock under the NCIB program. Our financial position continues to be strong, with net debt of $670 million at the end of the quarter for a net debt to total capital ratio of 24.1%.

Also, return on capital employed increased to 11.2% this quarter compared to 10.7% last quarter. Now looking at our segmented performance.

In Civil, second quarter revenue was 2% lower year-over-year to $349 million mainly because of some FX translation headwinds and timing differences related to the deferral impact of the accounting for standardized simulators.

Notwithstanding these elements, operational activity in Civil was strong as demonstrated by operating income, which was up 16% year-over-year to $62.8 million for a margin of 18%. These numbers exclude the gain on divestiture of ZFTC.

On the order front, the Civil book-to-sales ratio for the quarter was 1.11 times, and for the trailing 12-month period, it was 1.03 times. Civil backlog at the end of the quarter was $3.1 billion.

In Defence, second quarter revenue was up 6% over Q2 last year to $268.7 million, and operating income was up 3% to $30 million for an operating margin of 11.2%.

Business development activity was especially strong in Defence in the second quarter, leading to a Defence book-to-sales ratio of 1.92 times for the quarter and 1.53 times for the last 12 months. Defence backlog at the end of the quarter was $3.6 billion. And finally, in Healthcare.

Second quarter revenue was $28.3 million compared to $27.6 million in Q2 last year. Healthcare's segment operating income was $2.2 million in the quarter compared to $2.6 million last year.

This represents good progress given our ability to absorb the higher SG&A associated with the expansion of our sales force and development and launch of our new products, which position us for higher growth. With that, I will ask Marc to discuss the way forward..

Civil, Defence and Healthcare. We have significant headroom in large and growing markets that are characterized by high degree of recurring business, and we also have a strong competitive position based on our unique solutions and our global reach.

We believe these advantages, together with our deep culture of innovation, gives CAE the potential for superior returns over the longer term. Before we open the line to questions, I wanted to really add how very pleased I am that Michael E. Roach has joined the CAE Board of Directors.

As I'm sure most of you will know, Michael served as President and Chief Executive Officer of CGI from 2006 to 2016, where he led a highly successful growth strategy and enabled the company to become one of the foremost IT and business process services firms in the world.

His experience leading a global solutions company such as CGI with its comprehensive portfolio of services makes him truly a great addition to CAE's board. With that, I thank you for your attention, and we're now ready to answer your questions..

Thank you, Marc. Operator, we'd now be pleased to take questions from analysts and institutional investors..

[Operator Instructions] Our first question coming from the line of Kevin Chiang with CIBC..

Maybe just the first one for me. On Civil margins, a strong first half of the year, a multiyear high. Just wondering how we should be thinking about this trending sequentially into the back half of your fiscal year.

And maybe any input on to fiscal 2019? When I look back at recent history, it looks like you typically see a 1- to 2-point sequential improvement in that Civil margin in the back half of the year.

Is that something we should expect for this year as well? Would that be a normal sequential trend?.

I think I – to maintain the outlook that we have, which I talked about during the brief, basically, that we're going to continue – we continue to believe that we'll generate low double-digit percentage operating income growth, and I think I'd keep it at that. I mean, there's variability within that.

I don't expect trends that – we don't expect the seasonal trends to change and activity is high. So I'd leave it at that. And we haven't really gotten into next year yet, and we'll give it some time. But there's good opportunity in front of us..

Okay. And then just last one for me. On Healthcare, it sounds like a lot of exciting developments there.

I'm just wondering, when you look at the investments you've made, both in personnel and in the asset base and product, is there a sense of how much revenue you can generate off of that? Are the investments you've made – is this a $500 million revenue business without any additional investments being made? Or is there a sense of how big the pie can be given these investments?.

Well, obviously, we haven't gotten that far, Kevin, but look, I'm excited about the business. I definitely think that this is a double-digit growth business. And we definitely can ramp up the revenue from where we are in the years to come. There's no doubt in my mind. I wouldn't comment about the number you put out there.

But we wouldn't be putting the investments we have in product development, R&D and expanded sales force if we didn't believe that the market is there. And we've refocused our strategy this year, as we've talked about at the tail end of last year, where we're really focusing on the markets that are there today, the existing pool of value.

And the existing – the real existing pool of value in this business is on nursing education. And it's very interesting that there's similar dynamics in this – that we see in the pilot training market where there's a shortage of trained nurses.

And people across North America specifically are really looking for differentiated solutions to be able to go after that market. So products that we develop like, for example, first and foremost, CAE Juno, are specifically designed to go after that market with a differentiated product where we really haven't been before.

So penetrating into that market, which, as I mentioned, that's an existing market, [an existence] being served today. That, in itself, fuels our ambitions for the outlook that we've given in the short term and for multi years.

But beyond that, I think that you can see from the margins that even that we have in this quarter the – as I've said before, we still have, if you like, a headwind of the amount of sales force that we have and the amount of – which we've increased, and the amount of R&D that we're spending in this business is not in proportion to the size of the revenue we have today.

It's designed to go after the increased revenue. You can well imagine that if we can generate that kind of return with the drag of the SG&A and R&D that we have today, throw a bit more revenue at it, and I think that we'll be quite happy with the SOI performance of this business. And that's what we're aiming at..

Our next question coming from the line of Fadi Chamoun with BMO Capital Markets..

First, maybe a clarification on the military side. EBIT yesterday is kind of down 2% and would imply almost 18% or more year-on-year improvement in the back half of the year to sort of put you in this guidance range that you provided.

Are you seeing things kind of just pushed a little bit to the right here? Or was it kind of all along designed this way? I mean, I would suspect, at this point, you have a pretty good visibility into kind of the ramp that you have..

No. No. No. Fadi, we do. Look, I'm aware of the – I did the same math, believe me. If you look at the – I mean, you've been following us for a long time, and you look at the – our performance specifically – well, CAE as a whole, but more specifically, our Defence segment.

You look at the last 3 or 4 years, and I think you will find that H2, second half, is always significantly stronger than H1, and I don't expect anything different. And I expect it to support the outlook that we've said, which gives the numbers that you cited.

And it's really been driven by the fact that, as I said at the first quarter, there's a number of programs that we've won that it takes us – it took – it takes us some amount of time to ramp up the revenue for a number of reasons.

One of it is because the first part of the program, we spend a lot of effort on R&D, which are not booking revenue at the same rate. That's number one.

Some of the programs were delayed because we didn’t have some of the, if you like, the raw materials to be able to deliver with parts and data for it specifically, which that is now behind us in most part, i.e., supporting our outlook.

And the fact is as well that some of the orders that we’ve won this year, although we have a great order intake, some of the orders that will generate revenue in this year came a few months late to our projections. So it – all of this contributes to making the back half a lot higher in terms of SOI contributions. So that’s what I expect to happen.

And I feel pretty good about that based on you will have seen, of course the Haperaheim order intake in Defence. So that, plus the visibility that we have on the execution of programs we have, gives us the confidence to give the outlook..

Great. It’s great color. Thanks. And one more, just on the – that portfolio of simulator you mentioned you acquired. I mean, I’m curious to know sort of the rationale for buy versus build and whether this is a commercial portfolio or a mix.

And maybe even kind of where are these assets located geographically?.

Well, a lot of this – I’ll talk about – but let me answer some of it. But a lot of this is speed. Speed, as you said, there’s build versus buy sometimes. And we’re already – we’re always shaping our portfolio of assets in our network.

I mean, in this case, there was a real opportunistic possibility of purchased existing capacity in a market where we can – it’s a pretty hot market for training right now. If we can get our hands on simulators right now at a good value, I can immediately put them to work and ramp them up pretty quick. And so it’s really a consolidation.

And actually, in fact, some of these simulators were already in our training centers. So maybe just provide a color on which ones they were – where they were..

Yes. So it’s a pretty international buy in Europe, South America, U.S., and so on. So we essentially bought multi – all commercial assets that either already had customers attached to it or that we see client demand and will deploy immediately. So a lot of consolidation of operations, existing market capacity.

And we see it as a value buy, which is immediately accretive and contributing to our investment criteria for our target return. So these type of bolt-on opportunities that we keep an eye out for with accretive returns are things we capitalize on when they’re made available..

Okay, great. And just one last clarification. You mentioned working capital should reverse in the back half. Are you expecting it to fully reverse or kind of have some investments you’re making....

Yes. So as I mentioned in my remarks, we would see and expect a partial reversal. So vested and, I think, good traction, especially on the collections. We continue to see high deposits on contracts and good inventory management. So good performance on noncash working cap, and I expect that to continue and expect a partial reversal for the year..

Our next question coming from the line of Turan Quettawala with Scotiabank..

I guess maybe, Sonya, if I could ask you about the deferral of revenue in Civil that had – I guess, due to the accounting changes and the way you’re accounting for the simulators right now.

Does it come back in the second half here? Or is that going to be more of 2018?.

Yes. And those are a couple of things that were headwinds against the – on the Civil revenues this quarter. One of them was FX, a bit of a headwind in the quarter with the appreciation of the Canadian dollar against most currencies. In our case, USD and the British pound were more significant.

And for the company as a whole, it had an impact on – $11 million on revenue and 10 – $2 million on net income. So that’s the first point. And it was also impacted by the deferral of the accounting for standardized simulators. Now that impact on revenue was a little bit more than $20 million for this quarter.

And you’ll see that this will continue to, I guess, abate as the ramp-up of the deliveries of these standardized simulators increase. It’s already lower than what we saw last quarter, and I would expect most of this to reverse in the latter half, next 15 months.

And just to clarify, on the FX side, it’s mostly on the translation exposure, not working capital..

That’s perfect. And I guess, just if I look at the utilization, that seems to have flattened out a little bit here on a year-over-year basis.

And if I look at Q1 as well as Q2, is there room for that to rise a little bit more? Or was this purchase that you made of some of these new sims, did that have an impact on it? If you could give some more color on that, that would be helpful..

Well, as you’ve heard me say before, I mean, utilization is not a perfect metric. I mean, is it tending to move up? Yes, absolutely. I mean, the fact is that we – practical capacity is 100%, and we have a number of training operations that are operating above that at the moment.

But then, on aggregate of 270-something simulators, 70% for a low quarter is not a bad number. I think, to your point, it’s flat to last year’s number, but I don’t – it doesn’t tell the whole story, and you see it showing up in the bottom line. We’re showing more revenue in Q2, which is driving more yield per simulator.

And mix – the mix across the various geographies affects that number. So it’s just not a perfect metric for looking at it quarter-to-quarter, to be very honest with you..

No, I understand that. Sure. Okay. That’s helpful. So there is more net revenue, I guess.

Was there any gains apart from ZFTC in that number there?.

selling the simulators to the client. Whether it’s customized or really advanced build coming out of inventory or from our network, it really depends on the situation. In this case, what was vested was something that came out of the network. Speed was important. And so we sold it out in our network.

And it so would have been a very normal-course sale had it not been coming from our network. So from the accounting perspective, you account that as other gain rather than inventory and revenue so – but I would consider that a normal-course deal..

Okay. Got it.

Is it possible to give me the number, Sonya?.

A little over $4 million, I believe..

Our next question coming from the line of Benoit Poirier with Desjardins Capital Markets..

My first question is related to the agreement that you signed with Singapore Airlines and AirAsia. Just want to make sure that we have a good view of the most important numbers.

So I was wondering if you could provide more details about the cash outflow that will be impacted in Q3 and also maybe a look about how many simulators we should expect to be joined in your fleet. And if it will replace – totally replace the profitability lost by the JV that you just divested..

Sonya?.

So in terms of the capital for these 2 deals, on the AirAsia side, when we signed the transaction, we made public the price, which is about US$90 million. So that’s the cash outflow when we signed the transaction.

On the Singapore side, it’s about – the capital contribution for each partner is about US$20 million to US$25 million, but that’s going to be in kind and not cash. And in terms of the contribution for our additional share of AirAsia, well, like we said last time, it’s going to be immediately accretive.

And on a run rate perspective, on an annual run rate perspective, yes, we would expect it to offset the lost contribution from the ZFTC..

Okay. Okay. Perfect. And you were talking about the other bolt-on opportunities that you foresee in other countries. So I’m just wondering about – if you could give some color, Sonya, about the size of those opportunities, whether it’s similar to AirAsia, to Singapore or maybe even a larger scale..

Well, like we said in the past, when we look at M&A, we’re looking for programs and contracts and major client outsourcings. And so that’s one of the reasons that we kind of keep some powder dry in the financial flexibility. Should there be some large outsourcing opportunities that require a bit more capital, then we’re ready to do so.

In the meantime, obviously, if there are some opportunistic deals out there, like this portfolio acquisition, that make sense from an operational and return perspective, then we’ll capitalize on those..

Okay.

And so am I right to say that you want to keep some flexibility as you would foresee something in the next, let’s say, 12 months? Or do you see any other cash deployment opportunities eventually given the strength of your balance sheet right now?.

Well, what I would say is we’re very much aligned with our capital allocation priorities, really continue to invest in growth, and that’s mainly organic. If there are nonorganic opportunities, we’ll look at them. And whether they’re outsourcing and so on, we continue to work on a very strong pipeline of opportunities.

But we don’t necessarily have, I think, plans for anything large and imminently, no..

Our next question coming from the line of Cameron Doerksen with National Bank Financial..

I guess, a question on Defence. I mean, you talked about the pipeline of new bid opportunities or new submitted bids that’s now over $4 billion, which, I think, is up, as you mentioned, quite significantly, even though you won a bunch of new business in there.

Can you maybe just talk a bit about the sort of mix within those, within that $4 million – $4 billion [ph] plus of bids? Is it still sort of skewed more towards training? And maybe geographically, if you could comment on where you’re seeing the opportunities..

Well, I think it’s the – I don’t have offhand looking at all the opportunities what proportion is services versus product. But I think you might expect that what we’re seeing today is what will continue.

We are bidding on our – we’re playing to our strength, which is total solutions and involving training and products, including supplying pilots and the full training gamut. So that’s a differentiated offering. It’s very much what the governments around the world are looking for these days. So – and I do think the opportunity is across the globe.

I mean, we’ve seen it with increased defense spending in the United States with, as I said in my notes, a very, very strong focus on readiness. There are shortages of pilots across the services. We’re seeing the existing programs that we have. We see very high levels of activity towards pilot training specifically.

In Europe, we’re seeing increased spending as a result of people ramping up their spending both to [indiscernible] meet their naval requirements and to basically bolster their defenses against imminent threats.

I said it before, resurgent China, threats in – new threats that people are looking at in Southeast Asia and continued insurgent activity like we see in Middle East. So it’s coming from across the world, and it’s quite – as we said before, we kind of like to have the perfect storm in defense spending right now.

And so we see the opportunities everywhere. It’s not confined to one specific geography..

Okay. Good. So maybe the second question here. Just maybe get your thoughts on the announcement by Bombardier and Airbus about Airbus being involved in the C Series program. I guess, from CAE’s perspective, I mean, you’ve been a partner with Bombardier on the C Series. And obviously, Airbus had its own, I guess, forays into training as well.

So I’m just wondering how you sort of see the sort of longer-term future on that program playing out..

Well, you – I think you’ve heard me say before, I think the C Series is a great aircraft, and it will be successful in the market. With the deal that Bombardier has done with Airbus, I think that secures the future of the aircraft, and I think it will prosper.

And I think as you said, I mean, we’ve already sold a number of simulators to airlines that have bought the C Series already. And we are – we have a joint venture to provide the training for the C Series aircraft for those customers that will basically go to a service training.

So we’re well positioned, and I think the airplane will do well, and I think our fortunes will go along with it..

Our next question coming from the line of Ronald Epstein with Bank of America, Merrill Lynch..

Changing gears a little bit to business jets. What have you guys seen in terms of business jet training? Is it picking up? Has it slowed down? Is it holding steady? I mean, if you can give us any color on that..

It – look, I think it ebbs and flows. Overall, it’s in line with utilization very much because it’s training. We sell courses. And as you know, it’s a regulated market. If airplanes are flying, pilots have got to train. We’ve been able to actually increase share in the business aviation market. And so we’ve done well that way in a flat market before.

I am seeing some increased levels of activity driven by utilization. I wouldn’t say they’re very large numbers. But I definitely am seeing an increased level of activity, and I think you see that in the numbers on aircraft utilization – business aircraft utilization, both in Europe and in North America..

Our next question coming from the line of Tim James with TD Securities..

I’m just wondering, Marc, if you could discuss the factors that caused CAE or CAE thinks about going forward to enter JVs for training purposes with new partners versus going after a market independently or on its own..

Well, I think the factors are totally customer driven. I mean, we – it really goes along with our vision. Our vision is to be the training partner of choice for our customers. So we will enter into conversations with existing customers or prospective customers in the view of becoming their trusted partner. And then I’ll take – I’ll give you an example.

I’ll take one this case in point I used in the past. Look at AirAsia. AirAsia started business 15 years ago. We sold them their first sim on their first aircraft. I used one. And a couple of years later, about 2006, when we sold them two new simulators, and we entered to a dialogue with them.

Again, it’s all based on dialogue, is to say, “Hey, we have an expertise at architecting training centers because we do a lot. We have an expertise in being able to run training centers in terms of efficient scheduling, effective maintaining of the simulators themselves. So could we do that for you as a contracted service?” And we did.

Few years later, back in about 2011, we said hey – they were growing. They needed more simulators. That’s a capital outlay for them. We say, “Hey, can we help you with there? Can we partner together in a joint venture where we will contribute existing simulators?” And we get into that forms of natural joint venture. We’re contributing new simulators.

They don’t have any capital outlay, and they participate by being able, for us, through the – our global sales force, to now sell the excess capacity on those sims. So they get a benefit of lower costs. They get a benefit of the fact that now their training costs become variable.

And they get the benefit of when they don’t use the training, we sell that excess capacity. The joint venture does on an open market. And as well, there are – actually, there are pilots that will become customers. So there’s an intangible aspect of that.

And as we’ve seen it in AirAsia specifically, we have the situation we have with AirAsia where the CEO says, “Hey, now you’re running it very effectively for me.

Why don’t I just – why don’t we just enter into an agreement where I’ll give you 20 years guaranteed training for the airline and all the subsidiaries and in exchange for a 20-year – about a 20-year contract and I can basically see – capitalize that value that’s been accumulated in the joint venture for ourselves?” So that’s one example.

But if we could have gone straight to the end, would we have done it? Sure. Absolutely. But it really depends on the dialogue. We focus with the airline how can we best participate. And depending on the airline, we’ll have different solutions. I hope that answers your question, but that’s really what we go through..

Yes. No, that’s helpful. And then just – and I’m just thinking about in contrast with the divestiture of the 49% interest, obviously a different market dynamic. I was wondering if you can elaborate on sort of the differences there versus what you’ve experienced with AirAsia and what’s unique to those two markets..

Well, I think we have talked about it on the last call. I mean, the big difference on that one is, first of all, the – that joint venture was the first one that CAE did before we were ever into training, a long time – long before we had trained the first one. So we do think differently now. The big one was that it was all dry training.

So we don’t do wet training. And that’s at least for the joint venture partner. We now – and basically, our interests were no longer aligned. So that’s where we had a natural point at which we could reevaluate our relationship, and we did in a win-win manner.

And we’re going to continue to be able to serve the third-party market through the simulators of that training center. And as I said, look, we – through that relationship, we were – we could not compete on training anywhere in the China market. And China is a very big market, then obviously, we want to be able to serve the market.

So I think that’s part – all of the reasons we went that way. But I certainly would not say that that’s – that particular contract is indicative of the market. I think it’s a unique situation. And what I see in front of us with a number of opportunities is that I think there’s more opportunities for us to continue to take share in outsourced training..

Okay. Yes, that’s very helpful. Just one quick question. I’m just wondering about the $150 million in capital expenditure plans for fiscal 2018. Is that a good kind of assumption, Sonya, to carry going forward for a number of years? Is that now a normalized run rate? And I realized, if new opportunities come up, it could move the dial on that number.

But is that a good baseline number to think about?.

Well, that’s a range of $150 million for this year, and I think that’s the right view for this year, but we continue to reassess. And it’s really led by market-led opportunities that are out there to deploy accretive capital and support the growth rate.

So we’re not necessarily giving guidance going forward, and I know that we often look at the CapEx from an absolute value number. But if we approach it from a capital intensity perspective, CapEx, it continues to decrease, whether as a proportion of revenue or cash from ops. So I would start to look at it and think from that perspective.

And to your question on the outer years, I think it will be market-led, and we’ll give guidance when we – in the next year..

And I think we’re pretty happy with the accretiveness of the capital that we’ve deployed in recent years. And that is the big decision that we take on with regard to any deployment of CapEx..

Operator, I think we’ll have time for perhaps one more question from the investment community if there is one more. And we’ll open it up to members of the media..

Thank you. Our last question from the financial analysts is coming from the line of Chris Murray with AltaCorp Capital. Please proceed with your question..

Thanks. Marc, I’m just kind of curious, your thoughts around some of the issues we seem to be seeing with some of the airlines in the civil space with – we’re starting to see some scheduled disruptions. We’re starting to see wage demands, things like that, moving higher. We’ve been going back and forth for a few years talking about a pilot shortage.

Some commentators have also suggested it’s more of a compensation issue. I guess, what I’m trying to understand – and especially with your folks in your training centers, how are you seeing sort of the first wave of pilots? So I’m thinking like ab initio training and things like that.

I mean, are you seeing changes in demand, which is drawing more pilots into the pilot community? Or is it still staying fairly static?.

Well, there is no doubt – look, we’ll preface this by saying we’re the largest organization in ab initio pilot training in the world. So we have a pretty good view of it, some pretty large schools that we operate. So – and I’m having, firstly, a lot of conversations with airlines with regard to pilots. There’s absolutely no doubt.

I’m always worried about calling it a shortage. It’s not for me to call it shortage because – but one thing we can say, though, is, I don’t know if you’ve seen it, but we issued our first yearly pilot demand forecast this summer.

And what our numbers show, and it’s based on a pretty deep analysis of the situation from our unique perspective of training the majority of airlines around the world or supply them simulators or supply them pilots, either through our ab initio business or our Parc Aviation business where we actually supply trained captains to airlines, I mean, our numbers show that for the next 10 years, the industry is going to need 255,000 first officers just to meet the training demand.

So there’s no doubt that things have to ramp up. So what we’re seeing is we’re seeing demand for ab initio cadets from airlines that we haven’t seen it before. We’re definitely seeing that the feeder airlines are scrambling to be able to meet their pilot demands because a lot of them are being driven by increased flying at the main lines.

So there’s no doubt there’s a higher level of activity. And I think there are moves across in the industry to attract more people into the pilot profession because it’s going to be – it’s a good profession and it will be for years to come..

And so are you seeing a higher number of applicants at the front end, is, I guess, what I’m trying to figure out.

Is this sort of going to be a push or pull in terms of the demand into the network?.

I would say I’m not sure that we will get – I could tell you that we’ve seen a more bottoms-up demand coming from more youngsters wanting to get into the pilot profession so far at least that I’ve seen. But definitely, when airlines come out with specific programs, they’re attracting a huge amount of applicants.

I just look at – we designed a program for JetBlue Gateway seven program. And look, I forget the exact numbers, but they opened up just a few slots and they literally had – look, I think I had to get Andrew to get me the exact numbers. But they had a demand that way outweighed the number of slots they have and they think that’s more to come.

So it’s really – I think what we’re going to see is – through a combination of the industry, the airlines themselves, we’re going to see people putting innovative schemes that will attract people to the profession..

Okay. That’s helpful. And just one last question for me. Just thinking about NCIB and capital returns. I mean, you’re fairly active in the quarter.

Should we be thinking that, that pace will probably continue? And any thoughts – early thoughts around anything around the dividend at this breaker point?.

Go ahead..

Yes. Well, I don’t have – maybe I’ll let Sonya talk about it. But look, we’ve never been explicit about any very – explicit policies on dividends. But you’ve seen our behavior, and we won’t expect our behavior to change. You see how we are in terms of payout ratio, in terms of the yield. And we’re kind of pretty much in the industry.

We have raised it seven times in the last seven years. So I think we’ve been pretty consistent on what we’re doing. Again, I wouldn’t – I like consistency. In terms of the NCIB, I think the same would apply. Again, what we’ve said is we’ve put it in place.

We use it at the moment, and we’ve got authority with the board to basically use it to neutralize options being exercised, right? So I mean, that’s what we’re doing. Look, I can’t say anything in the future, but that’s our current policy.

Do you want to add anything, Sonya?.

No. Absolutely, the goal right now with the NCIB is really to offset dilution from options and the dividend reinvestment plan. And really, as part of our capital allocation, we look at returns to shareholders, and we balance that with continued investment in growth and maintaining a healthy balance sheet. So really, it’s a balance.

But like Marc said, steady as she goes. Yes..

All right. Thank you..

Operator, it looks like we have about 10 minutes remaining. I’ll ask that you please open the line now to members of the media..

Thank you. [Operator Instructions] Our first question coming from the line of Julien Arsenault with La Presse Canadienne..

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Mr. Arnovitz, there are no further questions from the media at this time. I will now turn the call back to you..

Thank you, operator, for your handling of the call today. And I want to thank all participants, institutional investors, analysts and members of the media for joining us for CAE’s quarterly conference call. And I would like to remind you as well that a transcript of today’s call can be found on CAE’s website as well as a 48-hour playback.

Thank you very much..

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a great day..