CAE sees FY26 CapEx down 10% from FY25

CAE’s (CAE) Civil business continues to benefit from strong and durable fundamentals in a secular growth market for aviation training solutions. During the first half of the fiscal year, Civil experienced slower-than-usual order activity, with a total of 12 FFS sales and a book-to-sales ratio of 0.86 times. While CAE continues to maintain its leading market share, the first half reflected a decrease in commercial airline pilot hiring activity. CAE views this decrease to be temporary and based largely on macro uncertainty over the summer. CAE continues to expect a stronger second half, consistent with usual seasonality and its FFS delivery profile. Civil adjusted segment operating income, or aSOI, is expected to be roughly in line with the prior year, with an annual aSOI margin in the 20% range. Commercial aviation continues to be most affected by new aircraft availability, aircraft groundings, and pilot hiring. Despite these near-term dynamics, demand is expected to strengthen over the long term as production and delivery rates increase, grounded aircraft return to service, and pilot retirements continue. Aircraft Original Equipment Manufacturers continue to manage record backlogs. Together, these factors reinforce the long-term trajectory of Civil training demand. The benefits of the underlying market recovery are expected to be more pronounced in FY27 and beyond. Management believes CAE is exceptionally well positioned for long-term growth and enhanced profitability in Defense, supported by an adjusted backlog exceeding $11.0B and a prolonged up-cycle driven by rising defence budgets across NATO and allied nations – many of which are now targeting spending levels approaching 5% of GDP. In Canada, the federal government recently announced that the country will achieve NATO’s 2% of GDP defence spending target in the current fiscal year, well ahead of schedule, and has established a new Defence Investment Agency to accelerate modernization and industrial capability development. Canada is also targeting 5% of GDP in defence spending by 2035, representing a generational investment opportunity. In Defense, management is maintaining its outlook of low double-digit annual aSOI growth and an aSOI margin in the range of 8%-8.5% for FY26. Management now expects total capital expenditures to be approximately 10% lower than in FY25. The decrease is driven primarily by an approximately 25% reduction in Civil capital expenditures, reflecting the slower near-term pace of demand recovery. A significant portion of this year’s capital expenditures is being directed toward the execution of a large U.S. defence contract, and the remainder focused on organic growth investments in simulator deployments across CAE’s global network of aviation training centres under multi-year customer contracts. FY26 annual outlook remains unchanged for free cash flow, finance expense, tax expense, and capital allocation priorities, including deleveraging and shareholder returns.