CAE to diversify product and service lines with $250-million SADI investment

Biggest SADI award to date

Montreal's CAE Inc has received its second federal loan in three years with a $250-million investment by the Strategic Aerospace and Defence Initiative (SADI) to develop and adapt its modeling and simulating technologies for new markets. Dubbed Project Falcon, the federal assistance will support the $714-million, five-year R&D program that marks the company's major push for expansion and diversification after shedding several of its business lines including its marine division in 2005.

Project Falcon will focus on six core technology areas including the development of an "augmented visionics system" allowing for safe takeoff and landing when visibility is restricted. Simulation and modeling technologies will also be adapted for new types of aircraft and unmanned vehicles while networking technologies will be developed to allow defence forces to participate in real-time training and mission rehearsal exercise. A tentative move into the health care field is also being pursued.

The SADI assistance also means enhanced collaboration with universities and research institutes as well as partnering with smaller firms — two key elements of the SADI program's mandate. CAE says the assistance will help to create or maintain approximately 1,000 jobs with the R&D undertaken at CAE's Montreal R&D labs and test and integration facilities.

"We want to continue innovating in all of our basic products and go even deeper into modeling," says Nathalie Gauthier, CAE's VP public affairs and global communications. "This includes homeland security and some adjacent markets with a mix of new and extended technologies."

Government assistance doesn't guarantee that a company will actually boost R&D expenditures. In 2005, CAE received $189 million from Technology Partnerships Canada (TPC) and $31.5 million from Investissement Québec to launch a six-year, $630-million R&D program called Project Phoenix. Since that time, however, CAE's R&D outlays have actually declined and its research intensity has tumbled from a high of 12% in 1999 to just 7.1% in 2007 (see chart). At the same time, CAE's revenues have recovered over the past three years since it re-focused its product lines from $1.1 billion in 2006 to $1.25 billion in 2007 to more than more than $1.4 billion last year.

"The Phoenix project is ready to end in one or two years. We wanted to launch a project to help develop new products — new simulators, new vision systems — and get more military contracts. That's our diversification. Revenue is now half civilian and half military, half products and half services," says Gauthier. "Our company was affected by quite drastic events like SARS and 9/11 so we had to re-look at the whole company. We took out 25% of our business but a year or two later we had recouped. Revenue growth has been really strong in the past two years."

feds award training and services contract

The SADI assistance closely follows the awarding of a $329.5-million federal training systems and services contract for a new fleet of C-130J Hercules tactical airlift aircraft. The contract was awarded to CAE under the Operational Training Systems Provider program which includes training systems and services for Canada's medium-to-heavy helicopters and potentially other aircraft fleets.

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