COVID-19 - An S&T Industry Perspective

Group Editor Marty Kauchak reports on how CAE is responding to COVID-19 in its civil and defense sectors together with reporting on wider S&T Industry initiatives from Thales, VT MAK, Bohemia Interactive Simulations and Pitch Technologies.

“Dramatic Disruption”

This 23 March, CAE participated in an RBC Capital Markets-moderated webcast about the COVID-19 situation and its impact. Halldale Group joined the webcast and reports on key comments during the event from Marc Parent, CAE’s President and Chief Executive Officer, Sonya Branco, CAE’s Chief Financial Officer, and Andrew Arnovitz, CAE’s Vice President, Strategy and Investor Relations.

Parent set the stage for the webinar by noting the speed and magnitude of the COVID-19 pandemic has caused “a very dramatic disruption to the civil aviation transportation system” that while “very great, we definitely believe it will be temporary.” As the precise duration of this crisis remains unknown to CAE and the broader community, the company is taking immediate actions to fiscally protect itself and its stakeholders to include: cutting capital expenditures to minimal levels; and reducing operating expenses, to include temporary layoffs of unionized manufacturing employees, and across-the board salary cuts – from Parent through the lower ranks of the company. “Additional temporary layoffs locally and around the world are inevitable and will follow in short order, in the coming days, and these will be across the board as well,” he emphasized.

Beyond a focus on operating expenses, CAE is also taking additional steps to reduce other costs and match operating levels to decreased demand. To that end, Parent added, “we expect minimal investment in our training network as we expect fewer orders from airlines. Nothing is off the table.”

Parent and Branco then provided a 101-level discussion about training system acquisition, noting that due to upfront deposits required at the time of contract signing, it is rare that a customer cancels a simulator order.

The CAE President and CEO continued, “We have a large backlog of simulator orders, and those are funded through customer deposits. For a company to cancel it is quite rare, because they need them, perhaps later – and we have a few, not many, airlines who ask us to move the order ‘to the right’”.

Offering a glimpse of light at the end of a bleak tunnel for the community, Parent revealed that within the last week, CAE received “two new full flight [FFS] orders, from a customer in China, another in Singapore. When I see that, they clearly see this is a temporary, although very grave, issue.”

Access to Training Centers Disrupted

CAE reported 50 of its civil aviation global training locations were open for business, with others in different states of closure due to host-nations’ government-mandated shutdowns. Not unexpected, Arnovitz reported Asia is “opening up somewhat”. While CAE navigates a 14-day quarantine in effect in Singapore, “which is making third-party training there more difficult, but with the center still operating,” the training center in Cebu, Philippines is temporarily closed, while the Kuala Lumpur center has recently reopened. Other CAE training center shutdowns have mirrored the progress of the pandemic around the globe. While CAE also had to close its center in Lima, Peru, “one of the biggest challenges we’re facing at the moment are in Europe – and, so far, centers which have been temporarily closed are Brussels and Milan.” All training centers in North America remain open.

CAE has also observed a decrease in business aviation activity, due to a reduction in overarching business demand in some regions, further heightened by border restrictions. “We’re seeing issues mainly with getting customers themselves to the training sites because of quarantine. All of our business aircraft training centers are operating. While the demand has gone down, what we’re seeing now is a recurrent training demand – driven by regulations. But considering the circumstances, we’re seeing a good level of activity.”

Parent then digressed to state the imperative for civil sector aircrews to train, even though flights are being cancelled and other operational reductions are occurring. “This is a regulated business. Even if airlines are flying at reduced levels, they have to train. Depending on the country they need to train every six to nine months.” While, during this period of crisis, some governments, for instance in Europe, are providing leeway to the airlines to temporarily postpone check-out training due to the inability of aircrews to access training centers, the aircrews will eventually need to complete center-delivered training.

This 6 April, CAE announced that it implemented additional flexible measures to protect its financial position in response to the COVID-19 crisis and mitigate the impact on its employees. The measures included temporarily suspending its common share dividend and share repurchase plan, as well temporarily laying off 2,600 of its 10,500 employees and placing another 900 employees on a reduced work week.

Defense Perspectives

CAE also reported in the 23 March webcast an approximate C$4 billion backlog in its defense business. Noting the company’s defense business model has continued to evolve to increasingly offer services around the globe, Parent concluded, “Longer term, we don’t see a structural impact on defense. But we can anticipate some short-term friction as we move through this period.”

Indeed, part of this S&T company’s expanding offerings beyond training devices, include providing contract instructor services to military commands in the US and beyond. One representative contract calls for the supply of classroom and simulator instructors at five US Navy training bases under the purview of Chief of Naval Air Training. This 14 April, Chris Stellwag, spokesperson for CAE’s Defense & Security business unit, reported that approximately 90% of these military sites were supporting training – safely – and with good reason, as the various military forces consider the training to be essential to preparedness and readiness. He added, “There have been some customers in places like Canada, Italy and New Zealand, for example, taking a short pause in training on some programs, but those have been the exception rather than the rule.”

In another part of CAE’s portfolio, due to the array of international travel restrictions in force during this pandemic, there has been a slowdown in training activity at the company’s C-130 training center in Tampa, Florida. CAE’s C-130 Tampa Training Center serves US customers such as the Coast Guard as well as about 20 different international militaries operating the venerable C-130 Hercules transport. Stellwag noted most international customers have postponed their C-130 training until later in the year. In addition, CAE’s Dothan Training Center in Alabama that serves primarily the US Army is operating at about 80% capacity following DoD travel restrictions.

COVID-19 Training Center Protocols

In an effort to add to the database for S&T community lessons learned from the COVID-19 pandemic, CAE’s Stellwag pointed out his company has in force its COVID-19 Protocol for Training Centers at the its civil and supported military training sites. The two-page document addresses diverse topics, from presenting cleaning and disinfection protocols for simulators and training devices, to recommended actions for the training audience and on-site staff. CAE has provided a copy of this document to the US Air Force for use across its training enterprise.

Thales Exploiting its S&T Capability in the Fight Against COVID-19

Thales has leveraged its strong capability in safety critical training and electronics in order to support the Ventilator Challenge UK Consortium. Thales’ main role has been in leading the training work stream, working closely with its specialist partners; managing a broad team of industry and technical experts to develop key training materials, including Assembly Operator training and Clinical Operator Training.

Having already delivered personnel training at UK assembly plants and on-line training to the NHS UK in recent days and more planned, a Thales spokesperson said “This is a difficult time for us all, but to be able to adapt our training capability, and deliver it to where it is most needed demonstrates that our industry can make a significant contribution to beating this pandemic, and position to recover following the current challenges to our businesses”. Additionally, Thales has also supported the introduction of a local SME Inspiration Healthcare to the consortium and is specifically supporting them with logistics, warehousing and clinical operator training, of a range of devices that they are currently importing to the UK.

Working from Home

In response to widespread lockdowns, the S&T Industry has acted swiftly to support their customers with online events and free simulation software licenses. VT MAK are offering free 30-day work-from-home licenses and hosting regular “Lunch with MAK” sessions. Bohemia Interactive Simulations (BISim) report that around 95% of their staff are working from home (WFH) and also are offering temporary licenses for home working customer staff. With IT2EC postponed to September 2020, BISim will be hosting a set of online briefings, live demonstrations and customer meetings at the end of April. Pitch Technlogies will also be hosting online “Pitch Café” events focused on the latest distributed simulation technologies during the same period. In spite of the many challenges of the time the S&T industry is adapting and innovating.