Commercial Aviation S&T Faces Down Headwinds

The S&T sector’s financial strength is being supported by an uptick in new aircraft orders, and by extension, an increased demand for trained and qualified community professionals. Marty Kauchak reports.

Commercial aviation training enterprises continue to be buffeted by a number of headwinds, some of which include the war in Ukraine, lingering pockets of the Covid pandemic, decades-high inflation and slower global economic growth. From a review of some recent financial reports and other documents from publicly held simulation and training companies, or S&T divisions of larger businesses, it appears the simulation and training industry is on track for continued growth well beyond year’s end.

In one corporate business model, commercial aviation training is subsumed in the larger Boeing Global Services (BGS) sector that delivers complete service solutions for commercial, defense and space customers, regardless of their equipment's original manufacturer. Boeing’s Second Quarter FY2022 report released 27 July noted BGS’s second-quarter revenue increased to US$4.3 billion and second-quarter operating margin increased to 16.9%, primarily driven by higher commercial services volume and favorable mix.

CAE’s most recent financial reports (Q4 and fiscal year 2022), released 31 May, noted, in part, Q4 civil sector revenue was Cdn$432.7 million, up 11% compared to the same quarter last year. Further, the report stated, operating income was $58.1 million compared to $40.5 million in Q4 2021. CAE benefitted from increased utilization of its civil training centers. The company’s civil sector also signed contracts with airlines around the globe for long-term training services and the sale of 15 full-flight simulators.

In a third financial business case, the L3Harris Investor Newsletter Q2 2022, published 28 July, noted, in part, the Integrated Mission Systems sector revenue decreased 7%. Of significance, the decline was partially offset by an increase of US$28 million in Commercial Aviation Solutions, primarily due to higher pilot training center volume and the sale of end-of-life inventory. In an adjacent market development, L3Harris called out an approximate $100 million follow-on award to provide modular open system processors for an unspecified next-generation trainer aircraft.

eVTOL Market Goes Public

Beyond legacy-era, S&T publicly and privately held entities, CAT is also closely monitoring the rapid emerging eVTOL market. One sector attribute is the quickening move to a public financing business model. In one case, Vertical Aerospace’s ordinary shares and warrants commenced trading on the New York Stock Exchange last December under the tickers “EVTL” and “EVTLW” respectively. This 29 April, Vertical released its first shareholder letter and announced its annual report filing with the US Securities and Exchange Commission.

What is significant in the shareholder letter is the company’s transparency and matter-of-fact overview of its technology, the company itself, and indeed, the sector as a whole. The document caveated, in part, “Forward-looking statements are neither promises nor guarantees, but involve known and unknown risks and uncertainties that could cause actual results to differ materially from those projected, including, without limitation: Vertical’s limited operating history without manufactured non-prototype aircraft or completed eVTOL aircraft customer order; Vertical’s history of losses and the expectation to incur significant expenses and continuing losses for the foreseeable future; the market for eVTOL aircraft being in a relatively early stage; [and] the potential inability of Vertical to produce or launch aircraft in the volumes and on timelines projected.”

A second eVTOL OEM, Embraer’s Eve Air Mobility, began selling common stocks and warrants on the NYSE under the tickers EVEX and EVEXW, respectively this 10 May.

Gaining Short-Term Fiscal Strength

The S&T sector is certain to benefit from the demand for new and increased numbers of aircrews, being driven in large part by an increase in new aircraft sales. Indeed, Airbus’s report of its half-year (H1) 2022 results, released 27 July, noted, “Airbus delivered a solid H1 2022 financial performance in a complex operating environment, with the geopolitical and economic situation creating further uncertainties for the industry,” but added, “The Airbus teams are engaged with suppliers and partners to ramp up towards an A320 Family monthly production rate of 75 in 2025, backed by strong customer demand.”

At rival Boeing, during a Q2 2022 Earnings Call 27 July, Brian J. West, the company’s Chief Financial Officer and Executive Vice President, pointed out: “The BGS backlog is $19 billion. With strong support for our defense business and our highly valued commercial capabilities, our services business is poised for growth as the commercial market continues to recover.”

CAE noted in its most recent report, “Civil expects to maintain its leading share of FFS sales and to deliver upwards of 40 FFSs to customers worldwide, with a higher proportion of units expected to be delivered in second half of the fiscal year [2023].”