MONTREAL - Flight simulator and training company CAE Inc. (TSX:CAE) sees opportunities to expand its growing military business in the Obama administration's massive defence budget.
"Overall, I see it as a positive for CAE," company president and CEO Marc Parent said in an interview Thursday.
Most of the planned programs in the US$663.8-billion budget proposal had been leaked over the last few weeks and didn't come as a surprise to the industry.
If adopted by Congress, U.S. military spending will increase 3.4 per cent from last year.
Among the proposals that interest CAE most is a six per cent increase in special operations.
Over the past few years, the Montreal-based company has received US$300 million in contracts from special forces to deliver helicopter simulators for mission rehearsal in Afghanistan and Iraq.
It also sees opportunities in the C-130 Hercules, the same transport aircraft purchased by the Canadian military, in which it is exclusive builder of simulators with partner Lockheed Martin.
Parent said CAE is also well-positioned from past contract wins to benefit from increased U.S. spending on MH-60 Seahawk helicopters for the navy.
While training plans were not outlined in the budget, Parent expects CAE has a shot at winning training contracts expected to be reopened for bidding in the next two to three years.
Despite CAE's optimism, Cameron Doerksen of Versant Partners said there isn't much in the U.S. defence budget that would materially change things for the company or other Canadian military suppliers.
The proposal to slow the ramp up of Joint Strike Fighter purchases next year to 43 could impact landing gear manufacturer Heroux-Devtek (TSX:HRX) and Megellan Aerospace Corp. (TSX:MAL).
"It's not really negative, but not as positive as the plan was a year ago," he said.
As the world's largest military power, the American defence budget is important and accounts for 40 per cent of CAE's military revenues.
But Parent also looks to military spending by other countries to help meet the company's growth target.
"We continue to anticipate that we can continue to grow our military revenue by about 10 per cent year on year," he added.
Germany is among its best customers, accounting for 12 per cent of overall military sales.
CAE announced Thursday that its subsidiary in Germany had received a string of military contracts valued at more than C$58 million.
Germany's procurement office has contracted CAE to continue to provide a range of on-site training support services for flight simulation equipment.
CAE has also been awarded a contract to upgrade full-mission simulators used by the German air force for more complex training missions on the Tornado fighter jets.
Germany is an important partner for CAE. In addition to its relationship that dates back 50 years, Germany was one of the first countries to adopt simulator training for its helicopters.
"They've led the way so it continues to be a feather in our cap that they pick us," Parent said.
Expanding CAE's military division has been a key diversification strategy to withstand the volatility of civil aviation. And winning international contracts helps to expand its global footprint, he added.
While the U.S. government wants to spend more on defence, governments around the world could face pressure to trim their spending because of growing deficits.
Parent sees this as positive for CAE because using simulators costs one-tenth of aircraft training.
Doerksen doesn't expect that Canada's budget next month will generate any military surprises because most of the contracts have already been awarded.
"I don't see that there's any significant risk as far as a spending pullback," he said.
CAE's shares closed down one cent at $8.74 in trading Thursday on the Toronto Stock Exchange.