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. Andrew..

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 '22 and answers to questions contain forward-looking statements.

These forward-looking statements represent our expectations as of today, August 11, 2021, and accordingly, are subject to change. Such statements are based on assumptions that may not materialize and are subject to risks and uncertainties.

Actual results may differ materially, and listeners are cautioned not to place undue reliance on these forward-looking statements.

A description of the risks, factors and assumptions that may affect future results is contained in CAE's annual MD&A available on our corporate website and 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 afternoon are Marc Parent, CAE's President and Chief Executive Officer; and Sonya Branco, our Chief Financial Officer. After the remarks from Marc and Sonya, we'll take questions from financial analysts and institutional investors.

And following the conclusion of that Q&A period, we'll 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. Our positive momentum continued into the new fiscal year. I'm pleased with our strong first quarter performance. Even in the midst of a pandemic, we've been able to drive results by being adaptive and agile through some of the most rapidly changing circumstances.

We reported top and bottom line growth across all three business units during the quarter. And on a consolidated basis, we generated 37% year-over-year growth and $0.19 of adjusted earnings per share.

In Civil, first quarter average training center utilization was 56%, which is 1% higher than last quarter and much higher than the 33% in the first quarter last year. We also delivered 11 full-plate simulators to customers around the world.

On the order front, we signed training solutions contracts valued at $338 million, including five full-flight simulator sales, new four-year business aviation training agreements with Journey Aviation and Gama Iivation, and a three-year business aviation training agreement with Avcon Jet.

We also succeeded to penetrate more share of the traditionally in-sourced airline training market with two new 10-year exclusive aviation training agreements with Scandinavian Airlines, SAS, and WestJet. We are also selected as partner of choice to aircraft OEMs in the emergent advanced air mobility market.

We're leading the design and development of the John Aircraft Systems Integration Lab for the Company's new all-electric vertical takeoff and landing, or eVTOL, aircraft, the journey aircraft.

And just at the end of the quarter, we announced a strategic partnership with Volocopter to develop, certify and deploy an innovative pilot training program and courseware development for eVTOL operations.

On the M&A front, we expanded our position in civil maintenance training with the acquisition of Global Jet Services, a proven leader in aviation maintenance train.

This tuck-in acquisition expands our capabilities with increased addressability of business aircraft and helicopter platforms for maintenance training through a world-class regulatory approved training programs. By leveraging our experience in pilot training, we expect this to enable rapid growth for CAE in the maintenance training market.

In Defense, we booked orders for $152 million including newly awarded contracts to United States Army to provide a new and upgraded maritime integrated training system and the SOSSEC consortium to design and develop the initial prototype HH-60W virtual reality/mixed reality aircrew trainer for the United States Air Force.

Other notable contracts include continuing to provide upgrades and updates on C-130J training systems for the U. S. Air Force as well as KEC-130J 20 systems for the U.S. Marine Corps.

Continuing as well -- continuing to provide a range of in-service support solutions for the Royal Canadian Air Force's CF-18 aircraft, and continuing to provide management and support of Royal Australian Air Force Aerospace simulators.

Defense also received an order to provide a new part cash trainer, a range of updates and additional train support services for the PC-21 ground-based training system supporting pilot training for the French Air Force.

I'm especially pleased with the speed at which the team concluded right after the end of the quarter, our acquisition of L3Harris military training, having obtained all regulatory approvals and meeting all other closing conditions.

We're excited to welcome some 1,600 members of the L3Harris military training team and to leverage our combined expertise to support the mission of our defensive security customers. Our combined teams are now squarely focused on integration efforts and seizing on our expanded market opportunities.

As testimony to how our position has already been substantially augmented by L3Harris military training. Since the end of the quarter, Defense won key positions on three major IDIQs and two noteworthy prime contracts that together significantly expand CAE's customer base and market reach.

Specifically, we won the largest IDIQ two contracts in CAE's history with our prime position on the U. S. General Services Administration, or GSA Astro IDIQ vehicle for data operations, aircraft development and systems integration support and training pools. We gain access to four of the small business on the national cyber range complex IDIQ.

Furthermore, Defense won a competitive prime contract with expected life cycle value of $90 million over eight years to develop simulators and training for the U. S. Air Force Joint Terminal Attack Controllers.

And in another first three Defense won a three-letter agency prime contract with the GSA expanding our market penetration into synthetic environment, enhance multi-domain, operational support and training.

In Healthcare, I'm encouraged by the double-digit year-over-year growth that we had in the quarter, which is driven by our core health care simulation and training business.

We continue to bring highly innovative solutions to market with industry's first ultrasound simulator with 3D, 4D ultrasonography and multi-cleaner reconstruction for improved fidelity and realism. We also launched CAE ICCU, which is a digital portfolio of learning solutions targeting critical care clinicians for ultrasound education.

With that, I'll now turn the call over to Sonya who will provide additional details about our financial performance, and I'll return at the end of the call to comment on our outlook.

Sonya?.

Thank you, Marc, and good afternoon, everyone. Our results continue to reflect the success of the measures we've taken to strengthen the Company, both externally in terms of expanding our reach and adapting to dynamic market conditions and internally to lower our cost structure.

Consolidated revenue of $752.7 million was 37% higher compared to the first quarter last year. Adjusted segment operating income was $98.4 million compared to a loss of $2.1 million last year. Quarterly adjusted net income was $55.6 million or $0.19 per share compared to negative $0.11 in the first quarter last year.

Cash used in operating activities this quarter was down 46% to $129.1 million compared to $88.4 million in the first quarter of fiscal 2021. Free cash flow was negative $147.6 million compared to $92.7 million last year. We usually see a higher investment in noncash working capital accounts in the first half of the fiscal year.

As in previous years, we expect a portion of the noncash working capital investment to reverse in the second half. We continue to target 100% conversion of net income to free cash flow for the year.

Growth and maintenance capital expenditures totaled $73.9 million this quarter, mainly for growth and specifically to add capacity to our global training network to deliver on the long-term exclusive training contracts in our backlog.

Our growth CapEx is directly linked to our opportunities to invest incremental capital with attractive returns on free cash flows, with several attractive market-led expansion investment opportunities on the horizon, we are in good position to deploy more organic capital, and so we are raising our expectations for total capital expenditures to more than $250 million in the fiscal year 2022.

Income taxes this quarter were $10.3 million, representing an effective tax rate of 18% compared to 24% for the first quarter last year. Income tax was impacted by restructuring costs this quarter excluding which the rates would have been 19%.

On this basis, the decrease in the tax rate was mainly attributable to beneficial impact of certain tax assets, partially offset by the change in the mix of income from various jurisdictions. Our net debt position at the end of the quarter was $1.6 billion for a net debt to capital ratio of 33.9%.

And net debt to adjusted EBITDA was 2.43x at the end of the quarter. All told, between cash and available credit, we have approximately $2.6 billion of available liquidity. On the restructuring front, we continue to make very good progress.

The program is enabling to best serve the market by optimizing our global asset base and footprint and adjusting our business to correspond with the expected level of demand and the structural efficiencies that will be enduring.

We continue to expect significant annual recurring cost savings to a ramp-up of a run rate of approximately $65 million to $70 million by the end of the current fiscal year.

We began executing our restructuring program in the second quarter last year; and as at the end of June 2021, we had incurred a total of $136.2 million of restructuring expenses for the entire program, including $12.2 million this quarter.

We expect to incur total restructuring expenses related to this program of approximately $50 million in fiscal 2022. Now turning to our segmented performance.

In Civil, first quarter revenue was up 75% over Q1 last year to $432.9 million and adjusted segment operating income was up $85.9 million over the first quarter of last year to $69.7 million or a margin of 16.1%. The Civil book-to-sales ratio for the quarter was 0.78x. And for the rolling 12-month period, it was 0.88x.

In Defense, fourth quarter revenue was $288.2 million, was up 3% over Q1 last year. And adjusted segment operating income was up 37% over last year to $23.7 million for a margin of 8.2%. The Defense to book the sales ratio for the quarter was 0.53x and 0.87x for the last 12 months.

And in Healthcare, fourth quarter revenue was $31.6 million, up 42% from $22.3 million in Q1 last year. Adjusted segment operating income was $5 million in the quarter compared to a loss of $3.2 million in Q1 of last year. With that, I will ask Marc to discuss the way forward..

Thanks, Sonya. As we look to the period ahead, I expect our positive momentum to extend throughout the fiscal year and beyond. 18 months ago, we're just beginning to confront the most severe shock the Company had ever faced.

And yet, despite the many uncertainties at that time, we were resolute in our determination to not only recover from the pandemic to emerge as an even stronger company. We're still independent. And despite that reality, we've gotten stronger.

I'm really encouraged by everything that we've done to reinforce CAE's base over the last year -- and 1.5 years actually, to expand our horizons for long-term sustainable growth.

The slope of our recovery to pre-pandemic levels and beyond continues to depend on the timing and rate at which border restrictions can be safely lifted and normal activities resume in our end markets, and in the geographies where we and our customers have significant operations, but notwithstanding they -- really disparate global vaccination rates and the volatility of border restrictions, which continues to obscure the usual market visibility.

We still expect strong growth in our core markets this fiscal year, coming mainly in the second half.

We got confidence on several important moves that we've made to expand and solidify our leadership position including pursuit of growth opportunities pipeline that has so far netted five acquisitions in Civil to consolidate our position and expand into growth adjacencies and our largest ever acquisition, namely L3Harris Military Training and Defense, which doubles our presence in the U.S.

Defense market and accelerates our defense on security strategy. At the same time, as expanding CAE's reach externally, we embarked on enterprise-level projects to substantially lower our cost structure and achieve even greater levels of operational excellence.

You heard Sonya reiterate our expectations that we'll reach an exit rate this fiscal year of $65 million to $70 million for annual recurring cost savings from those initiatives.

In Civil, we're in an excellent position to benefit from a broader market recovery, which so far has been more narrowly led by domestic air travel, specifically in regions with relatively high vaccination rates and cargo operations.

The rebound in domestic operations demonstrates the pent-up demand for air travel and the potential for a rapid ramp-up when restrictions ease. Cross-border and transcontinental operations have continued to lag as they're much more tied to the easing of border restrictions, but we believe considerable pent-up demand exists there, too.

At the same time, as a broader market recovery looks to take hold in commercial aviation, we intend to continue expanding our market share and securing new customer partnerships drawn from a large pipeline of airline prospects.

We're also succeeding to expand our Civil addressable market by over $1 billion to over $6 billion by extending beyond pilot training solutions into the rapidly growing market for digitally enabled crew optimization services and aircraft maintenance training services.

In business aviation, demand has rebounded at a very rapid pace with current flight activity in the U.S. now exceeding 2019 levels and approaching the prior levels in Europe. This bodes very well for pilot hiring and business aviation train demand in this highly important segment of the civil training market.

Much of the current demand is coming from first-time consumers of private aviation, and we believe the market has structurally expanded as a result. Civil full plate similar sales are driven by new aircraft delivers, which new aircraft deliveries, which are so many signs of improvement.

The total market for simulator products remains small at present, but we expect to remain -- we maintain our leading share of available full-flight simulator sales, and we still expect to deliver upwards of 30 in fiscal year 2022 driven mainly from backlog.

We're also expecting to build on our initial successes in the emerging advanced air mobility market, which we see as a new potential secular driver for pilot training, and CAE's expertise in modeling simulation.

Already with selections by OEMs, including John Air Mobility and Volicopter, we see an important leadership role for CAE helping to shape the training standards for an estimated 60,000 new pilots by 2028 in support of this entirely new modality of air transportation.

In Defense, the rapid closing of the L3Harris Military Training acquisition provides greater definition to the remainder of fiscal 2022 and beyond. And our focus will be on successful integration of this acquisition. International opportunities are somewhat slower to materialize in the current environment, but we see this headwind as temporary.

And we have a strong pipeline with some $5.8 million of bids and proposals pending customer decisions. From a balance standpoint, having now substantially augmented our presence in the Defense segment and in the United States, in particular, we expect defense to benefit from the greater government budgetary stability that this provides.

CAE's Defense business has become the world's leading platform-agnostic global training and simulation pure play. And we're very excited about the increased potential that, that brings to capture business around the world accelerated with the expanded capability and customer set that we now possess.

Our new client positions on major IDIQs and our contract to develop simulators of training for the United States Air Force, joint terminal attack controllers are all perfect examples of what we mean by synergies and how L3Harris Military Training expands our core offerings across multi-domain operations and bring assets to new customers and programs.

Our Defense priorities are focused on the long term, investing in our leading position as a training and mission support partner, with leading-edge capabilities in digital immersion. We're also enhancing our position by laying the groundwork to strategically team with major OEMs on next-generation platforms.

With our expertise in the increase of live, virtual and constructive training, along with our newly expanded capabilities to address mission and operations support, we believe we'll make significant inroads in the broader defense market in the years ahead.

And lastly, in Healthcare, I believe we have the right team in place, including a reinvigorated front end to fully leverage the greater market appreciation of the benefits of Healthcare simulation and training to improve safety and to help save lives.

We're making deliberate moves to increase our addressable market and access to larger pools or the largest pools of value in Healthcare training, like nursing and in the military. Here too, we expect good momentum, and I look forward to gaining sustainable scale with our innovative solutions to make Healthcare safer.

In summary, CAE is poised to benefit from how the world is changing in a post-COVID-19 environment, and we adapted our growth strategy to seize on the opportunities presented by these new realities. We've made several important moves over the last 1.5 years to expand and strengthen our position.

And the investment thesis for CAE is more compelling than ever. We look forward to strong growth for the year ahead and superior and sustainable growth and strong free cash flow over the long term. With that, I thank you for your attention, and we're now ready to answer your questions..

Operator, we'll now be pleased to take questions from analysts and institutional investors..

[Operator Instructions] Our first question comes from Konark Gupta with Scotiabank. Please proceed..

So maybe the first question on the order activity. The book-to-sales ratio was a bit low in the first quarter for both Civil and Defense segments.

Did you see any delays and/or any cancellations that may cancellations that may have impacted the orders?.

No, specifically, no cancellations for sure, Konark. Continued headwinds on timing of international orders in Defense, I mentioned that on the call. There's still some cold bid impacts there. Things are not back to normal, not only in Civil, but in Defense overall.

Because, again, travel restrictions -- and basically just things just not being back to normal. So we're seeing that internationally. That's affecting things. But if you look at Defense, in particular, I've never been a fan -- and I said this meantime before to not look at orders on the Defense side, on a quarterly basis.

I would look at our 12 run rate -- 12-month run rate. And even on that base, you come to the conclusion is still one.

But I would I would point to the recent orders that we've had and the really very, very encouraging awards on not only on orders, but on IDIQs that we've gotten since the quarter, specifically since we've done the completed the acquisition of L3Harris Military Training. That is -- of course, that doesn't materialize into order intake.

It's kind of a license to play. But the fact that you selected prime on those IDIQs is a very strong indication because that gives you access to literally billions of dollars over the next few years. So I'm very encouraged by that. So I'm not overly concerned on a sustained basis.

On the Civil side, I think what I'd point to a couple of things, if you look at -- we made no secret that simulator orders are going to be slow in the quarter. So we don't -- we didn't expect to have a book-to-bill anywhere near one for -- on the product standpoint at this time.

And on Civil, if I look at training itself trained -- if you were to take training itself, a book-to-bill is higher than one. And I think that the important thing to note there as well as if you look at our Business Jet, the book-to-bill -- Business Jet is a trend -- largely a transactional business.

So the book-to-bill is largely a transactional business. So the book-to-bill is always around one kind of you -- just because of the way we book that business. So if we're above one substantially, it means that we're quite a bit above one in the commercial aviation training business. So that's the way I would look at things.

If that gives you a bit more color..

That's very helpful, Marc. And you mentioned the three IDIQ contracts, so congrats on that and the two prime contracts as well.

Just to clarify, do these five contracts belong to the acquired L3Harris business? Or is it for the existing business in Defense?.

While they do belong to us because we own the L3Harris training business. And it was bid by L3Harris Link. And Link is now owned by us. So they are our contracts. They are our IDIQs..

No.

I'm sorry, just to be I wanted to understand, is it related to the L3Harris asset that you acquired? Or is it outside of the L3Harris?.

Okay. Well, yes, part of it is like I'll give you the IDIQs, for example, on those IDIQs. There's various pools, one of them is training, okay? So there was five pools, I won't go through the details of all the pools.

But L3Harris Link bid on five of those pools, and they -- or actually, I'm not sure it was five, but they were selected as prime on 5 out of the 10 pools that we were selected on one of the CAE legacy, let's call it, legacy for a moment. We were selected in one of the pools, which is training as a prime contractor.

So as a result of this -- and what we get from the acquisition is obviously a prime position on those other pools, which directly across -- come about as a result of the acquisition. The other order that I would point to is a $90 million order for the training system for the JPAC, U.S. Airport JPAC that comes from the Link acquisition as well..

That's great color. And last one for me before I turn it over, maybe for Sonya. So you raised the CapEx guidance slightly and you are still expecting 100% free cash flow conversion.

Should we interpret that as you're expecting higher net income versus your prior expectations this year? Or is it the better working capital performance that you're expecting?.

So free cash flow as net in the quarter and really driven by noncash working capital here. And really, what we see there is the usual seasonality. There's usually a larger amount of kind of annual payments in the first quarter, in the first half and also maybe a bit of volume from Q4 to Q1 now.

So really, the variation here is that we expect this to reverse in part in the second half as we've done before because we keep a continued laser focus on working capital metrics and optimizing that, and really still guiding to the 100% net income to free cash flow conversion.

Now I just kind of highlight that the free cash flow is we've defined, it does not include the growth CapEx, right? So the CapEx increased to over $250 million is not included in that free cash flow. And if I may, on the CapEx., one of the reasons that we have raised our view on that is really, I think, a positive development.

And to tag on to what Marc was saying, we are seeing some good orders on the training side, on the commercial side, as airlines need and request more capacity.

So they're not only asking for more capacity, but some of these airlines that we're working with, actually, we're seeing some change behaviors, whereas they would have purchased the simulator and -- prior to COVID. We're entering into long-term training agreements. And that's one of the reasons that we've increased our view on the CapEx.

And I'll remind you that the organic CapEx is really the most accretive capital, and growth investment that we have delivering 20% to 30% incremental returns in the first two to three years. And that's the best example of growth compounding that we have..

If I can clarify, Sonya.

Why would you need to invest into incremental capacity even when your utilization levels are still below 60%, let's say, I mean, should you not have excess capacity in your training centers already? And like where is the demand coming from?.

Well, it goes -- I'll answer that one, Konark. It goes directly to the question of different behaviors being exhibited by airlines, which we wanted to that airlines are basically looking to change from the traditional in-source kind of model to looking more at an outsourced model.

We keep on commenting on that, that we have more conversations today just to that result. So we announced two outsourcing this quarter where we've got two 10-year contracts with two separate airlines on those type of deals. So what you see is airlines investing in new capacity, mainly for new aircraft.

And rather than going through the model of basically investing in the simulators, they're turning over and signing long-term contracts with us. So that's what you're seeing here. So a lot of that incremental CapEx is exactly for that kind of behavior.

And as we're saying that -- as we've said many times that we've demonstrated investing in that type of CapEx is the best example of growth compounding that we have because we won't invest in it unless we see the type of return accretion that basically, we've presented at Street, which is very quite nice. Thank you.

So that's the kind of -- that's what we're seeing. And to your question of we're still operating at, say, 56% capacity. Well, this -- once the market is back to normal, and we fully expect to return, let's say, apples-to-apples on the same level, let's say, the same level of capacity.

Well, what we're talking is CapEx and investing is incremental to that..

Yes. And I'd just add that the demand is linked to either new platforms or platforms where we don't have excess capacity. Of course, if we have simulators that are underutilized and that's part of the restructuring program, we move it around to match up with demand.

And so these contracts are for a platform that are under or already all utilized or in use..

Our next question comes from Kevin Chiang with CIBC. Please proceed..

Maybe just two for me. It does seem like in this pandemic, you've invested in some of these adjacent services. You talked about the maintenance training acquisition, you've been growing the crew management.

Just wondering how you think about the adjacent service opportunities you can bolt on into Civil, I guess over the medium to longer term, are there areas you still want to focus on that you don't offer now.

And then are you seeing benefits from cross-selling? I presume that's the end goal here where someone comes to for pilot training, maybe maintenance training and to manage their crews as well.

Is that kind of the best case scenario as you bring this all together?.

Well, absolutely. I mean, that's definitely a big part of it, Kevin, as traditional basic enlarging the -- it's a traditional share of wallet. We like to -- in all of our transactions with our customers. And that's been our model all along.

It's always to try to make ourselves more relevant and more important to our partners and being their training partner of choice, but moving into more of, we call it, mission operations in defense. In Civil, it's capturing more of their needs around the pilot, around the technician around their operations.

So maintenance training is a national -- it's a natural one. We've done it. We have a very nice franchise of doing that in business aircraft. In commercial aircraft, we basically embarked on that in a relatively good way with Telesis, for example when we acquired that.

And we're expanding upon it here with this acquisition that we're doing in this bolt-on in the United States. I feel very good about the growth of that market. The technician market is one that is poised to grow for the same reason that the pilot -- the need for pilots is going to grow.

It's a tenured, it's on an average basis on a world, it's a very tenured workforce. It's a regulated market in terms of, especially in Europe, where you need technicians with certification. So it's a natural market for us.

Beyond that, again, we're moving into a more software-enabled solution that was what we did with Marlow, Roster Buster and RB Group. Again, we're making ourselves more essential to our customers.

And they already outsource these solutions or they're open to outsource the solutions because we're able to address hot and buttons that basically are not core to them..

And maybe just a couple. Have you been able to cross-sell some of these newly acquired services within your core customer base? And when you think about the addressable market now, I think earlier this year, you talked about Civil being a $6.1 billion addressable market.

Now with the maintenance training capabilities give a sense of how big that pie is today?.

Well, at the moment, when I talk $6 billion about the market that we see, including those adjacencies..

Okay. Okay. And maybe just a second one for me. Just turning to Healthcare. In your outlook in your press release, you highlighted the growing shortage in your outlook as I think is a long-term tailwind for Healthcare and the services you provide.

I'm just wondering, when you talk to health care customers, are you seeing, I guess, a similar realization like you see in Civil and Defense whereby they recognize that simulated training could help free up labor? Or is this something that to educate these customers on, and so that might extend out that might extend out this labor shortage issue in terms of a revenue recognition opportunity for you over CAE?.

Well, for sure, look at a macro level, and I was saying in my comments, we definitely see the nursing shortage that exists, and is poised to increase as a catalyst for our business, as kind business. Because you're talking about you need more nurses, you need more cautious for nurses.

You need more slots in nursing schools, who do we sell our products and solutions to nursing schools, training hospitals and those kind of things. So to -- just that's the first order response to kind of things. So to -- just that's the first order response to that.

Beyond that is the fact that you can -- by using silicon-based training, you can make them more effective, you can provide value to those schools whereas by using their product, they can make themselves more relevant. In a lot of cases, for example, in the United States, there are more full profit operations.

So if they can have a nursing program that is steep in modern technology using medical manikins and digital solutions. That is more appealing, for example, students who are looking to get a degree in that particular market. So all of it contributes to how we see the market in Healthcare. But that's just one of the components. It's a good one.

It's an important one. But if I look at all of the catalyst in -- basically for a business, they're just coming out of the pandemic. I mean Healthcare is -- I mean there's never been a time where health care is more on everybody's mind. And we're reinvigorating the whole organization.

We are basically concentrating on the core business, which as you commented in nursing, for example, but we see opportunities, big opportunities, for big opportunities, for example, in the military, on government or paramedical organizations like, for example, the FEMA in the United States, for example, federal emergency management.

You just see where we can bring simulator-based training solutions to the fold. So I -- we are ramping up in health care, and I'm very confident of a nice growth profile that would be good for our business..

Our next question comes from Tim James with TD Securities. Please proceed..

Marc, I'm just wondering if you could talk for a minute about type certification versus [indiscernible] versus recurrent training activity that you're seeing throughout the network. And maybe just commenting on how each is faring relative to if we use, say, fiscal 2020 as kind of a baseline.

I'm just trying to understand how the relative strength of their rebounds have been?.

I would say that -- well, first of all, type rating, basically, our business in commercial aviation training. It's pretty much operating in lockstep with the flying activity. And that's what commented around. That's the first order catalyst.

So when you think about the utilization in our overall training centers, I would say that business center is doing pretty darn well because of the level of activity there. In the U.S., we're doing very well. That's training centers and high levels of operation.

Rest of the world in commercial aviation, not so much because of still border restrictions and very uneven levels of vaccination. So Europe if you take average 56%, be significantly lower than that. Asia I would tell you, still quite a bit behind because of -- again, that the level of -- very low level of vaccination.

So just in the past few weeks, we've had closures of centers in Vietnam and Kuala Lumpur, Australia even. So it's still -- so the fact that -- and I see that as perversely, you might say very positive because we're able to make the amount of return that we're making on 56% utilization with those dynamics.

I feel pretty darn good as the rest of the world recovers like the United States does, which will happen. That's not a question. And having traveled internationally myself recently, and I don't know if you have, but the level of hopes that you have to go through to fly internationally, you really got to want to.

So when that starts getting reduced, I think we're going to see a lot of pent-up demand. In terms of ab initio activity, it's very -- it's actually very strong. We haven't really reduced the level of flying activity.

The only areas where we have to reduce, for example, in Australia because a very strict lockdown for closures of schools back up now, but that's the kind of activity, in fact, what you see is airlines that are anticipating renewed pilot shortage and increasing.

So we're seeing orders from major airlines increasing their number of [indiscernible] and our flight schools in a significant manner. So that's a positive for sure.

I don't know if that gives you products, but it's what I said, whenever this is historical, whenever there is a crisis, even though the products -- or sorry, simulator deliveries are tied highly to deliveries. There's always a lag when you have a shock, and of course, it's a mother of all shots.

There's always a lag before airlines start to buy simulators in earnest. So we're seeing that. That's why we anticipated that we're not going to get back to level of orders that we had pre pandemic for some time. But we're starting to see recovery.

We had five in the quarter, which I wouldn't call it a run rate, but I'm encouraged by that, and I'm encouraged by the level of activity. I think airlines are seeing it come back. Airbus is increasing deliveries next year. We see the big four U. S. airlines, recall 3,500 pilots, 6,000 flight attendants.

We saw United Airlines ordered 200, the MAXs, and 78 321s. And of course, again, TSA passive throughput in the U.S. A., continue to reach a very high levels. We're back at 80% pre-COVID. So it's all pretty positive signs, but I don't if that gives you a good answer, Tim..

No. That's very helpful, Marc. Very helpful. Just on the 737-MAX, I know when the issues were kind of working their way through, I guess we got to go back more than a year ago now, CAE was building some simulators, some MAX simulators in anticipation of demand and then maybe not based on contracts in hand.

How does the -- how do those simulators and your -- if you're carrying any of those, or have all those MAX simulators more and less been spoken for? And are we kind of back to a normal trend in terms of MAX simulators that would be being produced in CAE facilities?.

Yes. No, we have nothing -- we have no backlog with 737-MAX are all delivered, and I anticipate good demand for 737 MAXs..

Okay. Great. And then my last question, and there's great color on sort of where defense orders are coming from. I'm just wondering specifically that there was a very nice increase, as you talked about in the bid pipeline I guess over $1 billion relative to the end of fiscal '21. This is on the defense side, of course.

Are there any platforms or trends you're seeing or areas where that account for that big step-up in the bid pipeline? Any warfare types -- any kind of markets you could point to? Or is it really across the board?.

Well, it's across the board, but obviously, the U.S. is a largest expense market in the world. So you expect that's a high level.

But having said that, the contracts that we go after internationally are large contracts that basically established turnkey training centers for fighters, that kind of thing, we have a number of countries that we're looking to do that specifically some of those talks are going slow because of pandemic, but that's where we were seeing some of that order activity bit protracted.

But if your question is, I mean is that order pipeline, if you like, is it sensitive to one or two major bids, I would tell you, no. That's across the board..

Our next question comes from Fadi Chamoun with BMO. Please proceed..

If you're talking, Fadi. We can't hear you..

I was on mute. Apologies.

So I was wondering on the SAS and WestJet, were there assets commitment on your part toward these outsourcing deals? Or is it purely kind of service side?.

It's asset commitments, but assets that we put in the asset. And it's part of the increased CapEx that we're talking about on both airlines. So it's basically -- they don't invest in a simulator, but we get in these two cases, 10-year exclusive contracts to -- for training on those platforms for those airlines, that's essentially it..

Okay.

My second question is kind of as you look at this year, can you give us kind of an idea about kind of what is the contribution that you're expecting in terms of maybe revenues or operating income from the acquisitions that you've made? And also if you can give us an idea about how much contribution you expect to realize on a full year basis from that $65 million, $70 million restructuring program..

Well, I'll let Sonya talk a bit more specifically. The biggest one, obviously, is L3Harris where we're very, very happy to have the have to close this, after giving us really, I guess, pretty much three, four quarter. So what we said in the past, that's probably a $500 billion business. So we get nine months of it.

So quick mask that tells me what we should be able to get. But having said that, you can well imagine that having closed it early brings its own share complexities, and then we're going through putting those two sets of numbers together, the teams together. So we're solely focused on integration right now.

So the heavy lifting before we can be very definitive, but I think that's what we -- just on that big one, which is, of course, the big dog in this we would get. And Sonya, maybe you'll comment on the others, and....

Yes. So Marc -- as Marc mentioned, completely focused on the integration. We had said it would be immediately EBITDA accretive, double-digit EPS accretive in the first full year of operations. So that's FY '23, and working up to a run rate of synergies of $35 million to $45 million also in that EPS accretion in the first full year after closing.

So I would go with those metrics. On the restructuring program, Fadi, for full year, what we have given a guidance of $65 million to $70 million of recurring structural savings. And we're building up to that run rate over this year.

So this quarter, along -- we've kind of flowed through about 15% of that annual target, and that's already kind of I think, good progress, and we continue to advance on that progress as we optimize locations and continue relocations of simulators. So we'll see that ramping up throughout the year and a little bit more in the second half as well.

in the second half as well..

Okay. And maybe a follow-up on this question, specifically on the aviation side. Now that you've kind of overlapped the hardest quarter last year, your run rate EBIT in that business is about $250 million for the last four quarters. Based on what you're seeing in both delivery of full-flight simulators and opportunities on the services side.

Like would you kind of maybe -- give us maybe an overall range of where do you think organic growth will look like as we go into the next nine months and year?.

So we didn't give specific financial guidance really because the visibility is don't quite a pick on, I think, the level of the border restrictions, the volatility on travel restrictions. And that's the main driver to drive a lot of the recovery there.

Now so -- but what we've said is that we expect very strong year-over-year growth, right? So on recovery on the flow through of those cost savings, we have got about -- we delivered about $70 million of SOI this quarter at a 16% margin. And that's that 56% utilization and buildings in the quarter.

And Marc went into some detail on kind of the volatility that we see across regions. So as that recovery ramps up and the rest of the cost savings ramp up, we'll see the SOI follow, and then the margins as well..

Yes. If you say to break it down, Fadi, a little bit to think about just as you say, if you look at Civil along to break it down, take revenue and earnings from simulators as well. I mean we've said, well, we expect to deliver about 30 for backlog because it makes you lined up what that looks like.

Then you look at -- we talked about our level of training activity in our flight training, our STOs. And I talked about that. That's breakeven because you don't see big swings about that because kind of -- you basically book your revenue as you're flying. So you don't get used swings, but I would tell you on the increase.

And when you look at the rest, business aviation and training is doing very well because business aircraft training is on a high. We're in our Q2 that's seasonally the low quarter. So you would expect it to grow in Q3, Q4. And then you have commercial.

Commercial is the one that is the wildcard because that's the one that Sonya was saying, that is really exposed to their variability in the vaccination rates and border restrictions. So that's the one that caused the most headaches in predictability. U.S. doing great. U.S. is doing really good.

So Europe, it's still low, but we're seeing signs of promise there. And Asia, well, I think it's tied to the vaccination rates. So I guess that's the best crystal ball I can give you..

Okay. Great.

The SAS and WestJet go into effect now, basically?.

Well, no, we have to....

Well, the agreements are signed. And we're going to build the simulators to deploy..

Our next question comes from Cameron Doerksen with National Bank Financial. Please proceed..

Just one question for me. I'm just wondering if you can expand a little bit more on the latest R&D program that you've announced. I know you've kind of highlighted the advanced air mobility and AI and some other things in there. But just wondering, if you can provide any more specifics.

And I'm just wondering what kind of new capabilities are you looking to develop at CAE that maybe you didn't have before or maybe that you were underrepresented in before?.

Well, a lot of it has to do with you furthering the core competencies that we have. I mean, some is in new areas, specifically like or development of capabilities among urban air vehicles. We're talking air vehicles. We're talking about electric hybrid aircraft, green technologies, that's another one.

Others are continuing the path we're on, on everything digital in our business is basically using data -- using the data that we get from our business to basically develop technologies allow us to be more for to our customer and yet data-enabled revenue streams from that.

And a lot of it has to do with furthering our expertise around the experts in the world in creating these synthetic environments that are so important to warfare specifically.

That's what I talked about, specifically one of the great outcomes coming out of the acquisition in -- of L3Harris is we are now -- we now have capabilities -- strong capabilities in all five domains.

And because the military is now focused on basically preparing for a near peer fight because again, what does the military do when they're not in operations where they train for operation, train for war. So what they trained for? They're trained for what they call the near peer fight.

And the near-peer fight is one that you can only really do virtually. And that in order to be able to do that, you have to create an environment which is a synthetic environment which the military can exercise in. We are world-class at that.

But again, nothing stands still in life, and we basically continue to invest in R&D to make sure that we continue to hone those skills that makes us the best in the world, and more relevant to our customers. Those are some of the things that we talked about..

Our next question comes from Benoit Poirier with Desjardins Capital Markets. Please proceed..

Yes. During the quarter, we've seen some big aircraft orders.

Could those initial steps could they lead to some sizable training opportunities?.

Well, for sure, for sure, Benoit. As we said before, to the extent that they're going to translate into incremental deliveries and that you see, as I was mentioning, Airbus increasing your production rates then that's going to inevitably result in more simulators needed in the market. And we fully expect to maintain our market lead.

Specifically, we've gone even more lead in that market where the acquisitions are true. So I think that will be good for us as well as training market as well. They're going to need incremental capacity, whether that gets deployed in terms of simulators or basically outsourced training..

Okay.

And Sonya, with respect to your increased CapEx guidance this year, could you maybe provide some color on how it will flow to return on capital employed metric over time, and whether the ramp-up in accretive contribution is over a few years?.

Absolutely. And so as we're talking and great examples is that these are all market-led contract secured opportunities. And so that means the ramp-up is much faster.

Now there's some commercial, of course, as we talked about in some of the contracts that we've signed, but also a good amount of investment in Business Jet side, and deploying network in line with that strong demand, and that market that's recovering nicely. So the growth CapEx -- organic growth CapEx is the most accretive capital that we deploy.

And generally, I mean we've seen historically and in what we see ahead, have a high incremental return on capital. Often within the first couple of years, they're in the 20% to 30% return on capital range. So this is very much in line with those metrics and those expectations..

There are no further questions at this time..

Operator, if there are any further questions, what do people need to press?.

[Operator Instructions] We do have a question from Noah Poponak with Goldman Sachs..

I had understood your prior comments to suggest that with the quarter under your belt here, Civil, a little firmer, biz jet, a lot firmer, the L3 deal closed that you would maybe be providing more formal guidance and outlook commentary this quarter.

And deal closed that you would maybe be providing more formal guidance and outlook commentary this quarter.

And I'm just curious, did I interpret that incorrectly? Or did Delta interpret that incorrectly? Or did Delta variant or the end market keep you from doing that? And when do you think you might have enough visibility to provide a more formal outlook?.

No. I think you're right. Noah, that's what we said. When we were there last quarter, at the same time, I fully expect it to be able to provide more specifics to that. I mean to what level of specifics, to be honest, more than more than now, but I don't know how much more.

But look, the reality is that the, I think we're not -- basically not alone in this. To me, we still don't have enough visibility of the recovery in vaccination and basically result in reduction in travel restrictions out of that market, and even Europe is a bit challenging to predict right now.

So I know enough to be able to predict that it's going to be -- we're going to see strong growth. And specifically in the back half, we're in a seasonally low quarter now for flying activity. This year is no -- if I talk about commercial aviation, that's no different than any other year, somewhat affected by COVID.

But the traditional patterns that we see where airlines in the summer are flying in the Western Hemisphere, and they're not training. We see some of that. So -- but that's going to recover in Q3 and Q4. But to provide any guidance that's going to be -- to me that I can really hang my hat on that it's neither going to be over the top or underwhelming.

I need more specifics. We tend to be -- and that's -- I think we've always been that way a bit conservative with regards to providing any outlook on that basis..

Has the actual business not evolved quite how you thought it would in terms of utilization rate or order flow or customer activity? Or is this really that COVID has progressed in a way that just hasn't become as incrementally visible as you thought it might?.

I think the latter is -- it’s been yes. It's basically that. The business is going the way I would have anticipated it. In fact, business aircraft is doing better, specifically in the United States..

Right. Okay. Okay. That's a good clarification. And Marc, you've mentioned a few times how you're in the seasonally light quarter for Civil, and we can see that in the model going back over time, that's usually the case. It's not always the case, but it's usually the case.

Are you expecting that to be the case this year because you have the normal seasonality, but then you just have the working off the very low base that COVID has created? So are you expecting that to be the case?.

No, we're expecting that to be the case. Definitely, we don't. If that's going to be the case, I can tell you that's the case right now in business aircraft, even though we have a lot of training going on. It's not as much training as we could. And the reason for that is because the level of flying activity is higher than it was prior to COVID.

So when pilots are flying, they're not training. And you take -- you got it -- I'm a business aircraft pilot myself, and I can tell you, it takes time. You really had a plan to be able to manage your schedule and book off a week to go and do train, which is what you have to do.

So we see those dynamics, and we expect to see it again that -- we see it again that again this year. It's somewhat skewed by -- as mentioned by COVID, but the seasonal pattern still is there. And that's part of the reason why we're basically giving more of the growth towards the back half.

You see by the way as well, I would comment that we see -- we were to see the seasonal variability with regard to our deliveries as well because same as last year, every year, we have shut down in our factory. And this year, we really, really shut it down, and for an extended period because of COVID-related issues.

So that means you're not building simulators. So we talk about 30 simulators for the year. You're going to be more steward to the back half even though they're coming from backlog..

Makes sense. And I'm just going to sneak in one more. I'm a little surprised by the rate of change in Civil EBIT dollars compared to revenue dollars sequentially, just given BizJet is stronger and that's higher margin.

And then typically with the utilization rate or we've seen with the utilization rate being kind of flattish sequentially that that's the phenomenon of the JVs that you have that flow through EBIT differently than revenue dollars.

So can you -- is there a way to help me square up the variance there?.

Maybe Sonya, you want to....

Yes. Well, on the margin front, it's really a question of mix. Q4 has very strong on back contribution or proportion. And so that was the highest margin kind of creates some volatility in the margins and as we've discussed with the JVs. In terms of the top and the bottom line, so both top and bottom line growth on both sides and several variables here.

You saw growth on utilization, and also on the cost side, you saw a growth or profitability growth coming from the cost savings, right? So a lot of the restructuring program, it's across the board on the Company, but a large proportion goes to the civil side.

But you also saw that the deliveries were lower quarter-over-quarter, right? So where you had some progress on those fronts, you had a bit of lower deliveries in Q1 versus Q4..

Great. Operator, I want to thank everyone from the financial community for participating and for their questions. And with the time remaining, we'll open the lines to members of the media should there be any members of the media already taken..

[Operator Instructions].

Okay. Well, if there are no questions remaining, we'll conclude the call, and again, thank everyone for joining us today. A transcript of today's call can be found later this afternoon on today on the CAE's website. Thank you..

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone..