Let’s Try This Again

We’ve seen this movie before. But this time, perhaps it plays out better.

A generation ago, in 1988, Canadian company CAE acquired the Link military training business… the first time around. It was a disaster before it even began.

From World War II through the mid-1980s, Edwin Link’s legacy dominated the simulation and training market. It was estimated that Singer-Link had upwards of 75-80% market share, particularly in the US military aviation domain. Indeed, it was said that Link often drafted RFPs for the government to issue to bidders. After all, the company employed most of the industry’s experts. Not surprising. Link won most of the contracts. F-16 trainers for the USAF as well as foreign operators, F-111, Swedish Gripen, B-52, B-2 and F-117 and most other classified simulation programs, the first contractor-managed aircrew training system (C-130), the Army’s and Navy’s helicopter simulators, submarine trainers, and NASA’s space training from Apollo through the Shuttle. The original “too big to fail.”

With unfettered success came arrogance. As alternatives to proprietary “gold-plated” simulators emerged – for example, DARPA’s SimNet, proposed as a 60% training solution – Link executives derided lower-fidelity concepts as “a 5% solution.” Link’s high-bay facility outside Binghamton, New York was geared to producing “big iron” full-motion sims, and dammit that’s what they would push to the government customers.

Upstarts such as Loral and Hughes chipped away at Link’s share, though. And then the house came tumbling down. It was the era of junk bonds, and a corporate raider, Paul Bilzerian, aided by T. Boone Pickens, made a greenmail run at Singer in 1987, hoping for a quick ROI. Except… the chairman of Singer died of a heart attack, age 51, and two weeks later, Black Monday, the stock market cratered. Bilzerian now owned a company he did not really want.

Bilzerian enlisted Shearson Lehman to break up Singer’s assets. The commercial airline flight simulator business, for instance, went to arch-rival Rediffusion in the UK, which ultimately would end up at Thomson, then Thales, and finally L3Harris.

The crown jewel military simulation unit attracted three final bidders: two American companies and CAE. At the time, foreign ownership of a US defense contractor was almost unheard of. (Full disclosure: I witnessed much of this from the inside as part of the Link communications team.) The Shearson pitch was simple: there were 10 major near-term contracts worth about $2 billion up for grabs, such as the C-17 Aircrew Training System, and the implication was Link would win most of them. In fact, Link would win none of them.

The proud Link workforce could not conceive being taken over by a Canadian competitor, which at the time was smaller than the embattled Binghamton operation. The sentiment was “either American company, but not CAE.”

CAE desperately wanted an entrée into the lucrative US military training market. It needed an address in the States to qualify. It “won” the Singer-Link sweepstakes with an offer of US$550 million. Seven years later, (the late) CEO David H. Race would sell off the problem child to Hughes for a fire-sale $155 million.

As in many unwanted takeovers, Link executives resisted full cooperation with their new CAE masters, attempting to hide even unclassified information.

Then, a year into the re-branded CAE-Link, the company was hit with a whistleblower lawsuit, which alleged that, between 1980 and 1988 (pre-CAE), “Link Flight artificially and fraudulently inflated the contract prices it submitted to the government… The padding was referred to in internal company documents as ‘negotiation loss’ or ‘management reserve.’”

Five Link executives were indicted, Link came perilously close to being disbarred from US military contracts, and the government settled for $55 million ($22 million from innocent CAE, $33 million from Bilzerian’s company, Bicoastal), at the time the largest such settlement.

The whistleblower, who worked at Link for little more than a year as a bids and pricing administrator, and a non-profit lawsuit partner received $7.5 million, of which $1.6 million went to attorneys. The whistleblower subsequently used some of his windfall to buy part-ownership in Binghamton’s minor-league baseball team, much to the chagrin of Link employees holding season tickets.

Raider Bilzerian landed in prison, indicted for fraud by then-US Attorney for the Southern District of NY, Rudy Giuliani, and eventually bankruptcy.

It was a different time. Different Link. Different CAE. The lessons? Always relevant.