CAE Inc (CAE) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the CAE fourth 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 year '18 and answers to questions contain forward-looking statements.

These forward-looking statements represent our expectations as of today, May 31, 2017, and accordingly, are subject to change.

Such statements are based on assumptions that may not materialize or 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, in our filings with the Canadian Securities Administrators on SEDAR and on the U.S. Securities and Exchange Commission website.

On the call with me this afternoon are Marc Parent, CAE's President and Chief Executive Officer; and Sonya Branco, our Chief Financial Officer.

After remarks from Marc and Sonya, we will take questions from financial analysts and institutional investors. Following the conclusion of that Q&A period, we will open the lines to questions to 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 the year, and then Sonya will review the detailed financials. I'll come back at the end of the presentation to comment on our outlook.

We had strong results overall in the fourth quarter and for the fiscal year as a whole, and I'm very pleased with the progress we continue to make with our training strategy. Our customers responded positively to our innovative solutions, leading to higher utilization in our training center network and a $3.2 billion order intake for the year. This gave us a record $7.5 billion backlog, which enhances visibility and augments the recurring nature of CAE's business.

Also, for the year, we grew net income by 21%, and we generated 32% higher free cash flow. All in all, a very good performance.

Looking specifically at Civil, we booked $481 million of orders during the quarter for training solutions and 17 full-flight simulators for customers, including Shanghai Eastern Flight Training, Donghai Airlines, Korean Air, Ethiopian Airlines and Airbus. For the year, Civil had a record $1.7 billion in orders, which is testament to CAE's position as the training partner of choice. Orders included a total of 50 full-flight simulators and a range of comprehensive long-term training agreements with airlines, including Vietnam Airlines and Jet Airways.

In business aviation, Civil won long-term training contracts with a diverse range of customers, including 2 large aircraft services and charter companies based in Europe. Overall, for the year, Civil grew segment operating income by 15% and filled its training centers to 76% utilization.

Turning to Defence. During the quarter, we booked orders for $239 million and received another $233 million in contract options. Notable wins included a training systems integration contract for a comprehensive C295 training solution for Canada's Fixed-Wing Search and Rescue program. This program has an expected value, including options, of more than $300 million over the life of the program. This win is indicative of the increasingly recurring revenue profile of our Defence business.

Also, during the quarter, Defence was awarded a contract to provide comprehensive aircrew training on the NATO E-3A Airborne Warning and Control System, and we also received an order involving training services for the U.S. Air Force's C-130J Maintenance and Aircrew Training Systems program.

For the year, Defence growth was modest as expected, and we made good progress converting our bid pipeline into orders. In all, Defence booked a record $1.4 billion in orders in fiscal 2017 and received another $939 million in contract options. This saw our Defence backlog increase by 29% to a record $4.2 billion. This achievement underscores the strength of our position as a global training systems integrator or TSI.

In addition to the Canadian Fixed-Wing Search and Rescue program, other notable TSI wins during the year included the extension and upgrade of the NATO Flying Training In Canada program and a comprehensive naval training center for the UAE Navy.

And finally, in Healthcare, financial performance came in below our outlook, mainly because orders took longer to materialize from our sales pipeline than we would have expected. And while we're certainly not satisfied with this result, we made good progress positioning the business for long-term growth. We further distinguished CAE's Healthcare brand through innovation leadership in simulation-based Healthcare education and training. Most notably, CAE Healthcare became the first company to bring a commercial Microsoft HoloLens mixed reality application to the medical simulation market. The CAE VimedixAR ultrasound simulator represents the kind of technological breakthrough one would expect from CAE. We succeeded to integrate realtime interactive holograms of the human anatomy with our ultrasound simulator. It's still early days, but we've seen strong interest in this new capability.

With that, I'll now turn the call over to Sonya, who will provide the detailed look at 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. Consolidated revenue for the fourth quarter was up 2% to $734.7 million, and quarterly net income before specific items of $15 million was $82.4 million or $0.31 per share, representing an EPS increase of 15% over the same period last year. Specific items included the remaining restructuring integration and acquisition costs related to the purchase of the Lockheed Martin Commercial Flight Training.

For the year, consolidated revenue was up 8% to $2.7 billion, and annual net income before specific items was $278.4 million or $1.03 per share. Year-over-year, CAE grew earnings per share by 20%. There were some timing differences in the quarter with respect to the recognition of revenue on our standardized commercial simulators. This resulted in deferral of approximately $0.01 of earnings per share in the fourth quarter, and for the full year, this amounted to approximately $0.03 of EPS.

A reconciliation of these timing differences can be found under additional financial highlights in this morning's press release.

We had a very good free cash flow performance in the quarter at $160.4 million, and for the year overall, free cash flow was up 32% to $327.9 million. This represents a cash conversion rate of 118%.

We had a lower investment in noncash working capital in Q4 as we normally expect in CAE's second half, and we had an increase in cash provided by continuing operating activities. Uses of cash involved funding capital expenditures for $73.6 million in the fourth quarter and $222.9 million for the year, mainly in the support of growth. This includes a higher-than-usual investment in Defence this year, specifically for the U.S. Army Fixed-Wing training program. We expect a lower capital intensity in fiscal 2018, with total capital expenditures in the range of $150 million, commensurate with market-led opportunities for accretive investment returns.

Other uses of cash included the distribution of $20.5 million in dividends during the quarter and $80.6 million for the year. In addition, we repurchased and canceled approximately 159,000 common shares under the NCIB program during the quarter for another $3 million. And for the year, we repurchased 2.5 million shares for a total of $41.7 million. In all, between dividends and share buybacks, CAE returned $122.3 million to shareholders during fiscal 2017.

Looking at capital returns. I'm pleased that, despite the higher investment in Defence, we improved return on capital employed to 11.2% from 10.6% last year. As well, CAE's financial position became even stronger, with net debt of $750.7 million at the end of March, for a net debt-to-total capital ratio of 26.5%. This is down from $787.3 million or 28.9% of total capital at the end of last year.

Income taxes were $14.8 million this quarter for an effective tax rate of 17%. This is up from 14% last quarter and down from 24% for the fourth quarter last year. The decrease from last year was due to an auto settlement in Canada and a change in the mix of income from various jurisdictions. Excluding the effect of this settlement on the income tax rate, this quarter would have been 22%.

I'll conclude with a few brief comments on our segmented performance. As expected, Civil was the main growth engine in fiscal 2017. Fourth quarter revenue was up 6% year-over-year to $417.8 million, and operating income was up 12% to $83.8 million for a margin of 20.1%.

For the year, Civil revenue was up 9% to $1.56 billion, and operating income was up 15% to $273.2 million for an annual margin of 17.5%. On the order front, the Civil book-to-sales ratio for the quarter was 1.15x, and for the trailing 12-month period, it was worth 1.09x. Civil's backlog at the end of the quarter was $3.3 billion, which is up 7% from last year.

In Defence, fourth quarter revenue was 4% lower than Q4 last year to $282.7 million, and operating income was down 13% to $33 million for an operating margin of 11.7%. For the year, Defence revenue was up 7% to $1.04 billion, and operating income was up 1% to $120.4 million, representing a margin of 11.6%.

Last year, Defence benefited from nonrecurring items reported in our fiscal 2016 Q4 report. Before these items, Defence operating income growth would have been approximately 4.5%. The Defence book-to-sales ratio was 0.84x for the quarter and 1.33x for the last 12 months. Defence backlog at the end of the year reached a record $4.2 billion, which is up 29% year-over-year.

And in Healthcare, fourth quarter revenue was $34.2 million compared to $35.8 million in Q4 last year. Healthcare segment operating income was $4.1 million or 12% of revenue in the quarter compared to $3.5 million or 9.8% of revenue in Q4 last year. For the year, Healthcare revenue was $110.7 million compared with $113.4 million, and segment operating income was $6.6 million versus $7.2 million last year.

With that, I will ask Marc to discuss the way forward.

Thanks, Sonya. This year, CAE is celebrating its 70th anniversary. And over the last 7 decades, the CAE brand has evolved to become synonymous with training and with innovation. As we look to the year ahead, we expect to see continued good growth as we pursue our vision to be the recognized global training partner of choice.

In Civil, pilot training demand is fundamentally driven by the regulations governing the flight crews who operate the global in-service fleet of commercial and business aircraft. So far in 2017, we've seen continued high rates of commercial passenger traffic, which serves as a catalyst to expand the in-service fleet.

In business aviation, the market is stable, and we're continuing to find growth in support of the existing in-service fleet. Commercial aircraft deliveries are a driver for full-flight simulator sales, and there, too, we see positive signs, with commercial aircraft OEMs still delivering aircraft at high rates.

Over the last couple of decades, CAE has established itself as a thought leader in aviation training and that we're now bringing to market some of the most innovative and comprehensive solutions that we believe will enable us to unlock a greater portion of the overall $3.5 billion Civil aviation training market.

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

In Defence, governments around the world are placing a high priority on mission readiness and the intrinsic benefits of simulation-based training. These factors are driving a greater need for training, and we believe that CAE is very well-positioned to grow its share as a training systems integrator.

Last year, we saw a steady progression with CAE converting a large bid pipeline into orders, and we expect this to translate to mid- to high single-digit top and bottom line growth in fiscal 2018 as we ramp up new programs from a record backlog and win our fair share of new opportunities. We have a robust bid and proposal pipeline, and with Defence budget increases anticipated in the United States and other NATO and Allied nations, we continue to be bullish about CAE's long-term prospects in this market.

And finally, in Healthcare. We expect to resume growth this year on higher sales from our pipeline and the launch of new products, which will put us on course for long-term double-digit growth. CAE is bringing real value to the Healthcare education market, and at the product line level, gross margins reflect the market's appetite for innovation. The key to our success is higher volume, and the new products we're launching this year will give us more access to some of the larger segments of the market. We have a positive view of CAE Healthcare's long-term potential as the use of simulation expands for education and training, and we remain confident that Healthcare will become a more significant part of CAE's overall business.

In summary, CAE made good progress in fiscal 2017 in terms of overall financial performance and in terms of enhancing our position for growth in our 3 core markets of Civil, Defence and Healthcare. CAE's strategy and investment thesis are based on 6 interrelated pillars of strengths. We benefit from a high degree of recurring business. We have a strong competitive [mode]. And we have significant headroom in large markets that are being driven by secular tailwinds. These factors, combined with CAE's culture of innovation, give us the potential to generate superior returns. And as we look to the period ahead, we take confidence in the strength of our position and the support of fundamentals in our end markets.

With that, thank you for your attention, and we're now ready to answer questions.

Thank you, Marc. Operator, we'll now take questions from financial analysts and institutional investors.

(Operator Instructions) And we'll get to our first question on the line from Benoit Poirier with Desjardins Capital Markets.

So I was wondering if you could provide more details about the upcoming cash deployment opportunities and kind of the free cash flow conversion you would expect to achieve in fiscal '18. Obviously, a very strong performance toward the end of the year.

Thank you. Maybe I'll let Sonya comment on the latter part. But our capital allocation priorities haven't changed, and we don't expect them to change. I mean, our priority, we have 3, and the first one remains. The #1 priority is growth, and we see opportunities, and yes, we generated good cash, and we would expect that performance to continue. And the -- but we see -- there's -- I will say, as we said in the past, we kind of keep our powder dry to seize opportunities when we see them. And for us, it's about growing. We're deploying CapEx, and we've talked about it in our outlook, and those investments are generating increasingly very nice, accretive returns. And as well, we look for opportunities where we can continue to grow our installed base by converting airlines to -- where we can outsource -- where they can outsource training. So those are the kind of opportunities we look for. So that's -- and in business aircraft as well, we see opportunities to deploy a -- more simulators, where we have some accretive opportunities in our network. But -- so the #1 priority remains growth. Second, I think we'll use it to continue to maintain our good financial position, I think, which we've achieved. And thirdly, we're going to continue our pattern of returning cash to shareholders, and I think we've demonstrated quite a bit this year. And I'll turn it over to you, Sonya.

Thank you. Benoit, on your question on free cash flow, I agree. Good performance for the year, $320 million of free cash flow, and that's driven largely on good cash generations from earnings and also reversal on noncash working cap for the year. And that was driven by a good advancement on collection of advanced deposits on contracts and continued focus on collections and speed of collecting AR. Now -- and that turned into a reversal of noncash working cap for the year. Going forward, I don't necessarily see that noncash [working] capital continue to reverse because as we grow the company, as we grow the business, that will also come mainly from the services side, or largely from the services side, and that model is essentially earning the service and then billing afterwards. So that requires a bit of a noncash working capital investment. So for free cash flow overall, we typically target a conversion of about 100% of earnings, but it can fluctuate a little lower or higher as we saw this year, but we'll target typically that range.

Okay. That is very good color, Sonya. And with respect to your kind of the target for fiscal '18, I was wondering if you assume any gains on disposal, kind of reversal of royalty obligation, and maybe any color about other restructuring charges to be taken in fiscal '18.

So we'll start with the restructuring charges. So the program, both for the acquisition and our process improvement plan, were completed and are complete. So there is no further restructuring going forward. In terms of gains, there was, in the year or in the quarter, a gain on disposal of some assets that we saw in our results. And the way that we see this is typically, really, we are in the business of selling simulators, and sometimes, we sell it from our network, and that could be for various reasons, speed, competition, et cetera. And for accounting purposes, this will show up as a disposal rather than sale of inventory. So we really consider that normal course operations. Regardless, there were some onetime costs that were absorbed in the quarter, such as [some] reorganization costs and expenses in our flight training organization as we changed around some locations and certain nonrecurring administrative costs that were related to that. So if we net these elements out, the gain and the cost, it comes to a little less than $1 million. So it really kind of nets out completely. On the royalties, your third element, this is a onetime benefit that we recorded or a gain that we recorded last year, and that was one of the elements that was included in Defence and that we normalized out last year. And this is really nonrecurring in nature, and we don't see that, not this year or going forward.

Okay. And maybe last one for me. If we look on the Civil side, any color on how many simulators would you expect in terms of booking for fiscal '18? And also, if you could comment about the growth of utilization rate for your training network. We noted that it was up 1% year-over-year, while the growth expected in the first 3 quarters was more around kind of a 4%, 5%. So just wondering if the growth in utilization rate has slowed down a bit.

Okay, Benoit. I'll answer your fifth and sixth questions. No, don't worry, as long as the other people don't mind. No, look, good questions. But look, I think in terms of simulators, look, the market hasn't really changed. I mean, the production rates are what they are, and so I would give the same answer I gave at the beginning of last year, with our horizon that we have, we're going to maintain our leadership of the market. So I'd tell you that we'll be in the more than [40] range as we were at the beginning of last year. We'll update that as we go along, but I think that's a good number to start. I mean, last year even, we had a good year, I think second best in our history. There was a couple of volume orders in there, where people buying multiyear. So that always helps. It's not to say there might not be again this year. At the moment, I'll stick with about the 40. And with regards to utilization, I think, look, there's room to grow. I think we can -- we have very good utilization in our network. There is room to grow within that, and I think it's not just the only metric, as you know. I mean, really, what you've got to look at as well is think about our strategy, is to convert more and more of our utilization to [wet] by doing the training ourselves. And in business aircraft, well, that's all wet, but -- because all the training is done by us. But in commercial, the -- I mean, the large majority of the training that we do is still dry. So I think there's -- within the -- even the existing utilization numbers, there's room to grow revenue across the same assets.

And we'll get to our next question on the line from Steve Arthur with RBC.

Now just follow up on the Defence business, good discussion about the Defense pipeline and order flow. I just want to ask quickly about the margins in that business, the patterns in the past few years turning a little bit lower. And based on your current backlog and the recent awards, how would you expect those margins to be trending in the next -- in the coming years, a little lower still or maybe higher given the capital that you've been deploying there?

No, I think, look, we're still -- you could see we're in the 12 range. We talk about 12, 13. It's been trending a little bit lower, more in the 12 range, mainly because we're getting more service kind of work. But I mean, it's a good thing because those tend to be very large orders that are recurring and go on for many years, which gives us excellent visibility. So that's one of the reasons you see that, Steve. But I think -- so I don't expect that margin profile to change much. But I mean, that's reflected in the outlook that we have for growth and top and bottom line into mid- to high-single digits in terms of growth.

We'll proceed to our next question then on the line, it's from the line of Tim James from TD Securities.

Just wondering if you could discuss the modified NFTC contract terms and revenue. In the $300 million contract amount that was disclosed, just wondering if that represents incremental annual revenue to the existing contract. Is there a component of the revenue stream that is training-related, which just kind of continues relative to kind of historical precedent and then an uptick related to equipment delivery and over what sort of time period?

Look, I'll let maybe Sonya go, then [I don't have time for] all the details, but I can tell you that it is incremental revenue because -- and I think it dovetails with the second half of your question. There was additional new simulators in there in that contract. So it's not just the extent of the program. Sonya, do you want to comment more on it?

So yes, additional simulators and also the additional several years to the contract. I don't have the ending year here yet, but we can get back to you on that.

I think we commented on that. We had a press release that apparently described what it was at the time.

Yes.

Yes, I just trying to understand if the training component of that contract is consistent from the old contract to the modified contract. And if the -- kind of the dollar amounts that were disclosed, just how much of that relates to equipment, which is incremental revenue for CAE, and how much of it relates to training, which would just be, as I say, a continuation of the existing revenue stream?

So there definitely is incremental, and -- but my recollection is mainly on the product side because we're selling new simulators as part of that.

Okay. Okay. Then just more of a quick sort of housekeeping question, Sonya. The amortization expense for the Civil segment dropped fairly significantly in the third -- sorry, in the fourth quarter relative to the third quarter of fiscal '17. Just wondering if you could explain why that change occurred.

I think that was a natural evolution of certain intangibles and long-term assets that came to full amortization. So there was a bit of a dropoff in the last quarter, yes.

And so the fourth quarter is a better run rate to think about on a go-forward basis?

Well, we continue to add to our network and build on our R&D and development costs, so that will add to the base. But -- and so you'll have some dropoffs and some increases. So I would say, maybe not at that level, a little bit higher.

Right. Sorry, I should clarify. When I say at this run rate, I mean this run rate relative to the assets that are being amortized, I guess. Obviously, as the asset base grows, that will grow in line with the assets, more or less.

Yes.

And we'll get to our next question on the line from Cameron Doerksen from National Bank Financial.

Just, I guess, a question on the Civil simulator network. I guess what I'm just sort of trying to understand is where the incremental upside here might be on utilization and I guess, just overall profitability. Can you maybe just discuss where maybe you're still seeing some underperformance in your Civil training network, where eventually that may start to pick up? And I guess, sort of related to that, are you seeing any incremental improvement in demand for business aircraft training?

I don't think -- well, maybe I think in terms of the business aircraft training, I think the market, as we said, is relatively flat. I mean, there's pockets of, I will say, up and down throughout the world, but we're doing pretty good in that market. And mainly, it's a question of us really harvesting the existing market and gaining share in the market we have, and we've done pretty well. And we've been improving our offer to and as testimony by a couple of pretty significant orders that we've had this year with some sizable aircraft, big fleet operators in Europe specifically. And business aircraft operators, I saw a lot of aircraft like that, like, as I mentioned, big fleet operators. The fact that we train airlines and we're so good at that and experienced at that gives us a leg up. So I think that's a market, I think, we could still see some upside on in business aircraft. I don't call it underperforming. I just consider that we can continue to do well in this market. And across the world, I think, look, it's what I -- in terms of the commercial aircraft, it's really for us to continue to support our customers that are growing, and there are high, very high utilization of aircraft because the revenue pass-through kilometers are high. They continue to be high. So there's room for us to continue to fill the existing simulator centers that we have. So as I mentioned, we don't think we've reached -- we're certainly not at full capacity everywhere, even though that the utilization is high. So as I said, there's room to grow within the existing network, and there is room to add more revenue even at the same levels of utilization by converting some of that dry training, where we just lease the simulator to not only getting the revenue from the lease, but actually conducting the training ourselves. And that's -- and as I mentioned, there's a pretty -- there's a very large portion of the market that is currently -- and we're investing in commercial aviation that's still dry, so there's a lot of opportunity there. So for us, it continues to -- we continue hone our skills and our capabilities of training, which are world-renowned as testimonied by the outsourcing successes we had. Think AirAsia, think of Japan Airlines a couple of years ago, which outsourced all of their training to us, and continue to look at those opportunities. And that's what we're doing.

Okay. Safe to say, I know it's relatively small for you in -- within the overall network, but safe to say that the helicopter market is still pretty soft?

Yes, it is soft. I mean, we -- the market hasn't changed really and -- but we make money in the -- with the centers that we have because we've adapted to the market, and obviously, we're not investing in the market at the levels they are today because deliveries are so very weak right now and the utilization of helicopters is certainly low.

We'll get to our next question on the line, and it's from the line of Turan Quettawala with Scotiabank.

I guess, for my first question, I was wondering if you could comment a little bit on what potential risks you see either on the upside or the downside, I guess, that could either hamper your efforts to make your guidance or help you to beat in 2018.

Some of it is execution. I think we've won a lot of -- I'd just qualify, it's risk, risk and more risk within the range that we've provided. If you look, I think we've got a, not a wide range, but I think some range, well, we talked about in Defence, for example, from mid- to high-single-digit growth. And really, the issue there is as a result of -- with speed at which we'll be able to ramp up these programs, we've won, as you've seen, quite a number of pretty large contracts in the past few months. So for us, we've been hiring significantly, and it's really us being able to achieve certainly the higher ends of our outlook, is us being successful at being able to ramp those up. And as well, at the same time, is we have a large bid pipeline out there. In fact, and actually, the good news is that even with the large amount of orders that we've had [in the last 6 months], we still have over $4 billion in proposals in the hands of our global customers. So part of the risk is, although that's very high, as we've demonstrated many times in the past, we don't have a say in when they would actually award those contracts, and we feel good about winning them. So some of them have to be won in the year ahead for us to achieve -- I mean, I feel pretty good about that because the customer needs the product or the service. But it's as usual. You've got to continue to win orders, but we feel good about it. The good news again, both Civil and Defence, is we have a very good backlog. I mean, the record backlog gives us a ton of visibility to anchor the outlook that we have.

That's great color. And I guess, for the next question, I was wondering if you'd comment a little bit on the Healthcare business. If I look at the SOI from that business, it's basically been flat since 2014, and I know you've had some issues here, I guess, in terms of the revenue for the last year or so. But could you comment on whether there's a point here where you would want to call it quits on that business?

Well, look, I think if we'd call it quits, I mean, you'd be the first to know if we don't, but I feel -- I'm very confident about Healthcare. We're fully committed to it, and as we said on the call, I think it's -- look, I think we haven't achieved the outlook, and as I said, we're not happy with that. I'm not happy with that. But the reality is as much as we like to control everything, we don't. And some of the bids that we were very sure about, well, guess what? They moved out of the year. They came in just at the beginning of this year, which would have made the difference, and if we'd have had those, we'd have made our outlook. But the bottom line is, I feel very comfortable because of some of the color that was given on our outlook. We've taken a very, very deep look at this market this year and -- because we've been at it for a number of years here. So we question the assumptions that we have. And the results of our work gives us very strong confidence that there is a market out there, there's a market that we can -- an existing market that we can serve, and we've launched -- we're actually launching new products. So look, if you were to go to our website, I mean, now you'd see new products that we're launching right now that go after the -- where the highest pool of value is in the existing market, and at the same time, products that we're coming out with, such as these mixed reality simulators we're coming out with that we did with Microsoft HoloLens, I mean, that's attracting a huge amount of interest from medical device OEMs, for example. And so I have high hopes for this business, and for us, it's full steam ahead.

Operator, we'll now open the lines to members of the media.

And now we'll proceed with the Q&A for the press and media. (Operator Instructions) And we'll get to our first question from the media from Ross Marowits from the Canadian Press.

First, I wanted to ask you, with this trade battle between Boeing and Bombardier, do you see any risk to any opportunities in the U.S. from Delta or other potential buyers and also because the Canadian government has sort of questioned whether it will take Super Hornets?

Well, look, frankly, I think it's not really an issue for us. I mean, it's an issue for the government. But I mean, to me, it's a commercial issue between Boeing and the Canadian government, which, really, I couldn't comment on. Both are very good customers, and so I really can't comment on that. You probably know as much as I do on that.

But you have no exposure to the Delta order or to Super Hornets?

Well, we -- I mean, we do on the -- well, look, I think with regards to fighters, I think we can see -- we can perform on any platform that's chosen by the government and work with any OEM. I mean, we work with all OEMs, and we have good relationships with all of them. So it's really up to the Canadian government to make up their decision. And on the C Series aircraft, it's a great aircraft, with the partners on training. And I think we -- we're partners, we believe in the aircraft, and we think it will succeed.

But if there is some delay or problem with the delivery of the planes to Delta, would that pose a problem for you?

No. In the sense that I can't comment with regards to what will happen with or without Delta, and frankly, we haven't announced anything with Delta one way or another so far. So the answer is, there is no impact to us on -- with regards to that specific question.

Okay. And the second thing is, I'm wondering, with the pressure from the U.S. by NATO members to increase their defense spending, what impact or opportunities do you see with that going forward?

I think we've commented on that before and in the outlook. I mean, the fact that defense budgets are increasing or set to increase both in the United States and in Allied countries because of -- because not only of the pressures to reach 2%, but just because of the threats that are there around the world, I think increasing budgets are good news overall for us because it necessitates new aircraft, new helicopter upgrades to existing ones. And overall, what it means is more training. So more training, and we obviously are very well-positioned to capture our fair share in training that arises as a result of these increasing budgets.

Are you more optimistic on that given the recent comments by the President?

Not any more than I was before. I think that this has been -- that has been the fore ever since we've talked about this in the last couple of calls. I think news, I think recently, as the Canadian government has announced that they are going to be increasing over time their expenditures as a percentage of GDP, and that's obviously good news as a Canadian supplier in this business.

And Mr. Arnovitz, we have no further questions from the press and media. I'll turn it back to you.

All right. Thank you very much. I want to thank all participants from members of the investment and financial analyst community as well as members of the media for joining us on the call today. And I would remind you that the transcript of today's call can be found on CAE's website at cae.com. Thank you.

Thank you, everyone. And ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation as you disconnect your lines. Have a good day, everyone.