Good day, ladies and gentlemen. Welcome to the CAE Fourth Quarter Conference Call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Mr. Andrew Onovitz.
You may now go ahead.
Good afternoon, everyone, and thank you for joining us today. Before we begin, I'd like to remind you that today's remarks, including management's outlook for fiscal year 2020 and answers to questions, contain forward looking statements. These forward looking statements represent our expectations as of today, May 17, 2019, and accordingly are subject to change. Such statements are based on assumptions that may not materialize and are subject to risks and uncertainties. Actual results may differ materially and listeners are cautioned not to place undue reliance on these forward looking statements.
A description of the risks, factors and assumptions that may affect future results is contained in CAE's annual MD and A available on our corporate website and in our filings with the Canadian Securities Administrators on SEDAR and the U. S. Securities and Exchange Commission on EDGAR. On the call with me this afternoon are Mark Pallone, CAE's President and Chief Executive Officer and Sonia Brinkow, our Chief Financial Officer. After remarks from Mark and Sonia, we will take questions from financial analysts and institutional investors.
Following the conclusion of that Q and A period, we'll open the call to questions from members of the media. For your added convenience, we've posted a presentation on CAE's website to accompany this discussion of our performance and outlook. It also provides some highlights of the expected adoption by CAE of new lease standard IFRS 16. You can download this document entitled Supplemental Q4 FY twenty nineteen Presentation at www.c.com/investors. Let me now turn the call over to Mark.
Thank you, Andrew, and good afternoon to everyone joining us on the call. I'll first discuss some highlights of the quarter and the year, and then Sonia will review the detailed financials. I'll come back at the end of the presentation to comment on our outlook for the year ahead. We had an especially strong Q4 as expected with revenue up 42% and earnings per share up 55% compared to the Q4 last year. For the year, we delivered a record performance and we met our growth outlook.
Annual revenue grew by 17% and earnings per share grew by 13% and we generated strong free cash flow with a near one to 1 conversion of net income. Our vision is to be the recognized global training partner of choice and I'm especially pleased with our record $4,000,000,000 in annual orders and record $9,500,000,000 backlog, which underline sees positive momentum as the world leader in aviation training. Our continued success winning our customers trust further validates our training strategy and adds to the highly recurring profile of CE's business. Looking specifically at Civil, we booked $1,100,000,000 of orders during the quarter, including an exclusive 15 year training outsourcing agreement with Avianca and the sale of 28 more full flight simulators. We also successfully concluded the company's largest ever acquisition involving the Bombardier Business Aviation Training Business, which greatly expands our position in its high value segment.
During the year, Civil booked a record total $2,800,000,000 in orders, giving it a record backlog of $5,000,000,000 which is 22 percent higher than last year. Notable wins included a 10 year pilot training contract with Easyjet, exclusive multiyear pilot training agreements with Asiana and CityJet and a record total of 78 full flight simulator sales to customers worldwide. Overall for the year, Civil Group segment operating income by 13% and filled its training centers to 76% utilization while in parallel adding over 30 new simulators to our network to meet customer demand. In total, CA's civil aviation training network now operates over 280 full flight simulators from more than 50 locations. And for the first time in our history last year, we delivered more than 1,000,000 hours of training.
CE has now become the largest civil aviation training company in the world. Turning now to defense, during the quarter, we received orders and contract options totaling $498,000,000 Notable wins included a contract with Boeing to provide a PA Poseidon aircraft simulator for the Royal Air Force and simulator upgrade programs on the Royal Australian Navy's MH-60R helicopter training systems, the German Air Force for their Eurofighter fighter simulators and with Lockheed Martin for C-130J full mission simulators for the United States Air Force. For the year, defense grew operating income by 9% and received a total of $1,300,000,000 in orders and options, which gave us a record defense backlog of $4,500,000,000 Key training systems integration wins during the year included the U. S. Air Force C-1 130H Air Crew Training Services Program and the U.
S. Navy Sinatra Assist Program where we provide instruction at 5 naval air stations to support primary, intermediate and advanced pilot training. We also want to contract to provide comprehensive training services for the Royal New Zealand Air Force NH90 helicopter program and a contract from General Atomics to develop the synthetic training system for the UK Protector remotely piloted aircraft system. Also during the year, we acquired AOCE, which gave us a position on several United States defense contracts to provide training and engineering support services on higher level security programs. And finally, in healthcare, our new simulation products and expanded sales force led to accelerated revenue growth towards the end of the year.
We accomplished a number of strategic objectives during the year to enable future growth, including the launch of innovative products like CA ARRIS, our emergency care management for nursing and CD Luna, an innovative infant simulator for clinical training of neonatal and infant care. Most recently, we appointed a new healthcare leader, Rekha Ranganathan, who brings deep commercial experience in healthcare to leverage our current accomplishments and take healthcare to greater scale and profitability. With that, I'll turn the call over to Sonia, who will provide a detailed look at our financial performance and I'll return at the end of the call to comment on our outlook. Sonia?
Thank you, Mark, and good afternoon, everyone. Consolidated revenue for the Q4 was up 42 percent to $1,000,000,000 and quarterly net income before specific items was $127,500,000 or $0.48 per share, which is up 55% compared to $0.31 in the Q4 of last year. For the year, consolidated revenue was up 17 percent to $3,300,000,000 and annual net income before specific items was $335,200,000 or $1.25 per share, which is up 13% compared to $1.11 last year. Specific items in fiscal 2019 include the costs of the acquisition and integration of Bombardier's Bats business. Specific items in fiscal 2018 include the income tax recovery related to the U.
S. Tax reform and net gains on strategic transactions involving our Asian joint venture. We generated $116,800,000 of free cash flow in the quarter and three $123,800,000 for the year for an annual cash conversion rate of 98%, which is in line with our annual average conversion target of 100%. During the year, we had lower investment in non cash working capital and generated higher earnings, which converted into higher cash provided by operating activity. Overall, a good year from a cash flow standpoint and we expect it to continue our focus on maintaining non cash working capital efficiency in the year ahead.
Uses of cash involved funding capital expenditures for $96,200,000 in the 4th quarter and $251,800,000 for the year, mainly for the deployment of new simulators to our global training network in support of our customer led growth opportunity. In line with the customer driven accretive investment opportunities that we see, we expect modestly higher CapEx in fiscal 2020, increasing by about 10% to 15%, primarily to keep pace with growing demand for training services from our customers and to secure new long term customer contracts and outsourcing. Our existing asset base generates a high level of recurring cash flow and in addition the simulators we've deployed to our network in support of growth over the last years have typically ramped up within about 24 months to generate accretive and incremental returns and free year. In addition, we repurchased and canceled approximately 3,700,000 common shares under the NCIB program during the year for another $94,400,000 In all between the dividends and the share buybacks CA returned $194,300,000 to shareholders during fiscal 2019 which represents a 44% increase over last year. Looking at capital returns, we have essentially already reached our 13% multi year return on capital employee target with an increase to 12.9% from 12.7% last year excluding the impact of specific guidance.
We're maintaining our 13% ROCE target by fiscal year 2022 as we now integrate and ramp up the LaGuardia Bats business acquisition and continue to fund accretive growth opportunities. Net debt was $1,880,000,000 at the end of March for a net debt to total capital ratio of 43.9%. This compares to $649,400,000 or 22 percent of total capital at the end of the year. The increase was mainly from the additional funding we required for the VAC acquisition and the monetization of our existing future royalty obligation. We issued US450 $1,000,000 of unsecured secured senior notes and $150,000,000 of term loans and with our continued strong cash generation, we expect to deleverage to the lower end of our net debt to capital target range of 35% to 45% within 24 to 36 months.
In terms of interest expense, the quarterly run rate in fiscal 2020 should be in the range of approximately $30,000,000 which takes into account the new debt as well as the treatment of leases under IFRS 16. Income taxes in the 4th quarter were $19,300,000 representing an effective tax rate of 13% compared to 8% for the Q4 last year. The higher rate this quarter results from a change in the mix of income from various jurisdictions and a higher recognition of deferred tax assets in Europe last year. We also recognized deferred tax assets in Canada this Q4, but these were mostly offset by tax Before these items, the income tax rate would have been 20% this quarter and on the same basis, the income tax rate for the year would have been 19%. Now turning to our segmented performance.
In Civil, 4th quarter revenue was up 50% year over year to $593,400,000 on higher training services volume and a high number of simulator deliveries. Operating income before specific items was up 64% to $122,300,000 for a margin of 20.6%. For the year, civil revenue was up 15% to 1 point $9,000,000,000 and operating income before specific items was up 13% to $351,100,000 for an annual margin of 18.7%. The civil book to sales ratio for the quarter was 1.87 times and for the year it was 1.48 times. In defense, 4th quarter revenue of $397,900,000 was up 34% over Q4 last year resulting from higher services activity and some good progress made on products related programs.
Excluding the impact of the acquisition integration costs related to the purchase of AOCE, 4th quarter operating income was up 42% to $51,700,000 for an operating margin of 13.3%. For the year, defense revenue was up 21% to $1,300,000,000 and operating income before the AOCE related expenses was up 9% to $134,800,000 representing a margin of 10.3%. The defense book to sales ratio for the quarter was 0.68x and for the year it was 0.83x. Defense contracts often include contract options that go beyond initial year of the contract, especially in the U. S.
So the book to sales ratio including options for the quarter was 1.28 times and on the same basis for the year it was 1.03x. And in Healthcare, 4th quarter revenue reached a new high of $40,700,000 up 16% from $35,100,000 in Q4 last year. Healthcare segment operating income was $4,200,000 or 10.3 percent of revenue in the quarter compared to $6,700,000 or 19.1 percent of revenue in Q4 of last year. For the year, healthcare revenue was $121,600,000 up from $115,200,000 and segment operating income was $4,800,000 or 3.9 percent of revenue, down from $8,800,000 or 7.6 percent of revenue last year. The lower operating income was mainly because of higher expenses related to the sales force expansion.
Before I turn the call back over to Mark, I'll say a few words about the new accounting standards IFRS 16 related to leases which CD adopted as of April 1, 2019. The 5th standard changes the way we account for leases, which are currently classified as either finance lease, which is recorded on balance sheet or as an operating lease, which is off balance sheet and expense as incurred. Under the new standard, all leases will now be recorded on balance sheet as a right of use assets and a lease liability included in long term debt. This change impacts the timing and nature of expenses related to lease contracts. Rent expense over the current lease standard would not be replaced by interest and amortization expense.
CE has adopted this standard using the modified retro to a quotation and so will not be restating fiscal 2019 results for the IFRS 16. IFRS 16 is expected to have a negative $0.01 EPS impact on our fiscal 2020 financial results. We provide additional details on the expected impact in Note 2 of our consolidated financial statements and in our supplemental Q4 FY 2019 presentation. With that, I will ask Mark to discuss the way forward.
Thanks, Sonya. CAE continues to benefit from secular tailwinds in our markets and we're well positioned for sustainable, profitable growth. As we look ahead, we'll continue building on our positive momentum as a trusted partner for our customers. We expect to continue exceeding underlying market growth as we deliver on a record backlog and convert a larger pipeline into higher market share and new enduring customer partnerships. Beyond the solid foundation of our financial results and record setting orders and backlogs that we just reported, I'm highly encouraged by the continued evolution of CEE strategy to garner sources of growth and long term competitive advantage.
The management team and I last month completed our annual strategic review with CAE's Board of Directors and we're indeed very enthusiastic about the company's prospects to continue growing and generating attractive returns in larger markets where HE benefits from an excellent position and a high degree of recurring business. In Civil, we expect to continue growing our market share as the training partner of Choice with our innovative solutions. Market fundamentals remain supportive with continued passenger traffic growth and expanding global in service fleet of aircraft. CAE is a pure play training company that's well defined as an innovation leader. We have the largest and broadest global training network, market leading simulation products and support, and the most comprehensive offering of cadet to captain training solutions.
And we're now differentiating even more with new data driven solutions that provide our training customers with powerful new tools and deeper training insights than previously thought possible. We currently have an active pipeline of airline outsourcing opportunities, and I believe our well differentiated position gives us even greater potential for more long term recurrent training partnerships for CAE. In Business Aviation, we're also bringing digital to the floor, pushing the boundaries of aviation training and enhancing our customers' experience. The Bombardier BAC acquisition is transformative for CAE as we now integrate this business. It will our market addressability to include operators of the nearly 5,000 Bombardier business jets worldwide.
In the year ahead, for Civil overall, we expect operating income to grow in the upper 20% range on continued strong demand for our trading solutions, including maintaining a leading share of flight simulator sales and the integration of the 1st full year of the Bombardier Bath business. In defense, the market is also highly supportive with governments around the world placing a high priority on mission readiness and looking at outsourcing to partners like CE to help create and maintain critical operations personnel. Here too, we're seeing good momentum as we convert a large bid pipeline into orders. We expect to gain a bigger share as a training systems integrator with current bids and proposals pending customer decisions at over $4,500,000,000 We're demonstrating our ability to bid and win as a top tier training systems integrator in our traditional air domain and increasingly enable. The most recent example being the selection of the Lockheed Martin led team for the Canadian service combatant ship program where CAE will play a key role in Canada's largest ever defense procurement, initially for training needs analysis and to provide engineering support.
The CSC program will further extend our experience in Enable domain to develop and deliver TSI solutions to enable customers globally. For the year ahead, we expect defense to generate mid to high single digit percentage operating income growth as we deliver from backlog and continue to win opportunities from a large pipeline. And finally, in healthcare, our new products and strengthened front end organization show a lot of promise, and I'm confident there's a large enough market for CAE to build on the innovations CAE Healthcare has already fielded and achieve greater scale. Healthcare has been and will continue to be self funding as we expand this market reach and bring new solutions to market. Adding to my confidence that we can make this a material part of CAE is our new healthcare leader who has a proven track record of rapid and sustained business growth in the healthcare industry.
We maintain a positive view of C Healthcare's long term potential and for the year ahead, we expect double digit percentage growth. In summary, we look forward to superior and profitable growth. We have the benefit of an increasingly recurring base of business and markets with significant headroom for CAE to expand its share. In the period ahead, we'll continue to prioritize accretive growth opportunities balanced with cash returns to shareholders and maintaining a strong financial position. We take great confidence in the strength of our talented employees and our position as an innovation leader and increasingly the recognition of CE by customers as the worldwide training partner of choice.
With that, I thank you for your attention and we are now ready to answer your questions.
Thank you. Operator, we would now be pleased to take questions from analysts and institutional investors.
Thank
And our first question comes from Benoit Poirier of Desjardins Capital Markets. Please go ahead.
Yes. Good afternoon. Hi, Ben. Yes. First question is on the IFRS expense that will be added from the IFRS 16 this year?
And how does the IFRS 16 impact your guidance in terms of operating income?
So first, all of the IFRS 16 has been reflected on the operating income guidance. So the main impact of the new standards is to bring all the leases on balance sheet and the lease liability. So on the asset side, we see about $230,000,000 of additional right of use assets and about $260,000,000,000 on lease liabilities. On the P and L, it's really a question of nature and timing of expenses that's impacted. With the rent expense being replaced by amortization and financing expense, economically nothing changes, just from timing and classification.
And the interest guidance that I just mentioned of a new run rate of about $30,000,000 a quarter reflects the impact of the new debt that we just issued and also the impact of IFRS 16. Now there is some timing leakage that happens and so hence we see about an EPS headwind of about $0.01 for FY 2020.
Okay, perfect. That's great color. And looking at healthcare, Mark, could you maybe provide more color about the strategy under the new President in terms of greater scale and also return on investment? I would be curious when you talk about double digit target whether it's in terms of revenue or operating income? Thanks.
Well, I think double digit would apply to top and bottom line Benoit. And I think the strategy is just basically seizing on the momentum that we have and taking us to the next level. And Rekha Ranganathan, our new leader has a very strong track record of doing that. She was ahead of Phillips Healthcare, 1 of major divisions, has a strong network in the healthcare sector and brings a level of expertise and knowledge at the top management level in healthcare that I think we need as we go to next level. The products we developed to attack the new sectors that we targeted last couple of years in nursing specifically are paying off.
The momentum is good there and it's really now a question of obviously selling more. I think if we look at the past year, Q4 was very good. It took us a while to ramp up the sales force, but and that's been the drag that you see on the bottom line mainly plus the development costs themselves. But those are those additional sales force and products are starting to pay off. So and I think the partnerships we've made to society all of that is going to lead to is factored into the guidance I have.
And I think the strategy of making changes basically we'll report that as we've let the rate get on our feet and take a look at the market and see if we're not going to make any changes. But I think right now it's steady as she goes.
Okay. And last question, if we look at the Civil business, Mark, could you talk a little bit about the training requirement that could come from the 737 MAX and also whether the softness we see in some traffic numbers in Asia, whether it's impacting your civil business? Thank you.
Well, on the MAX, you would understand that I'm not going to say much on that. It sees ballast in any event like this, never no matter what it is, never to comment on the situation itself. For obvious reasons, there are investigations on the underway. But suffice to say that for us that you assume that as a world leader in aviation training, we're going to have a role to play in maintaining the safety and the air transportation system as a major player. So for us, we've got capability, we've got the capacity to support whatever transpires to get the airplanes back in the air to support them, support airline customers, OEMs or regulators to ensure the training needs are met.
That's all I'll say about that. And the last part of your question with regards to your repeat question with regards to
Oh, just related to some softness that came from the traffic numbers in Asia. I was just curious given your involvement in Asia, your exposure, whether you see an impact on your training business?
No, not really. I think demand for training is strong across the board. I we see some events to a certain state you always see like some airlines going out of business, but what we see is the demand being picked up pretty much immediately by other carriers. And at the same time, we continue to win share. As I said, you saw the contracts we signed this year for the ones I mentioned like Evianca, Easyjet, Asiana, just to cite those things.
So overall basically things in terms of pass through track for us it should be as it relates to training it's still going up.
Okay. Thank you very much for the time.
Thank you.
Thank you. Our next question comes from Ronald Epstein, Bank of America Merrill Lynch. Please go ahead.
Hey, guys. It's Christine Liwag calling in for Ron. Following up on your commentary on the 737 MAX, I was wondering, can the Boeing 737NG simulators be converted to a 7 37 MAX simulator? And if it can what does that entail?
Well, look I think again, Christine, I'm going to go back and I'm not going to comment much about anything really relates to the MAX simulator because of the situation that's unfolding. And what's your short answer, it's pretty much any one of our simulator, no matter what type be converted to another flatbed and we kind of do that all the time. We've even taken simulators from other manufacturers and convert them to quasi CA simulators and that's part of our aftermarket business that we do. So short answer, yes, it's possible just any type is possible to do that.
I see. And you mentioned that should there be more training required to get the aircraft back into service, you have the capability to meet this demand. Can you talk about what that means in terms of your capability? Does that mean you can build more full flight simulators if needed or increase your utilization? Can you talk about to the extent that you can, if there is more demand, how could you meet it?
Do you need to build more and add more capacity? Can you discuss that?
Well, I think we've demonstrated again this year if you look at how we're able to recover in the past year. Remember we had during our last fiscal year that we just reported on we had a 5 week work stoppage because of the strike in our manufacturing facility in Montreal. So we lost 5 weeks' worth of production and we are still able to completely ramp up and stand up separate production line and basically recover all of the deliveries that we had and then some which demonstrates our capability to flex and we don't have to add we have significant capability left in our factories. We're not on 3 shifts. We're about 1.5 shifts.
So and we could ramp up to meet any demand why any of the big word, but I think that substantial capacity on any aircraft type and we've demonstrated in a few we got a 1,000,000 square feet of manufacturing capability in Montreal and we always find a way to be able to optimize what we do. So long answer, but yes, we can scale up.
And then lastly, if I could, with your strong book to bill of civil orders, I think it's 1.48 times. Can you parse out how much of that is from hardware versus service?
I don't have the number offhand. I don't know, Sonia, if you have it offhand, but it's a mix of both.
Yes, it's a mix of both. We don't necessarily have or disclose the split, but suffice it to say that it was a great year for products, but also on the services side and both grew very strongly.
Thank you very much.
Okay. Thank you.
Thank you. Our next question comes from Turan Quettawala of Scotiabank. Please go ahead.
Yes. Hi, good afternoon. Thank you for taking my question. I guess firstly on the Civil side. Mark, I'm wondering if you can just comment a little bit about the order flow.
I mean, you obviously had a few pretty strong years of order flow on the FFS side, but certainly a 78 orders this year. When you talk to your sales channels, like do you think there's a few more years of this type of order flow? Or do you think we've kind of reached a peak here?
Louis, look, we had a high number, more than we even anticipated. Often, as you can well imagine, at the end of the year, I mean, all it takes is couple of weeks for some of the fall out of the year or coming to the year and we don't work that way we sign them when they are ready to be signed. So look, I think the manufacturers' production lines are very high rates. They have very high backlog and the delivery of full flight simulator or the order for full flight simulator is very highly correlated to the delivery of aircraft at the manufacturer of just mainly Boeing and Airbus. So I mean that's really what dictates the demand for simulators.
Now if I think of training as a whole, there's a lot of headroom in training. It's simply the issue will double over the next 10 years for sure. So that's a lot of that's a lot of trained demand coming our way including simulators.
Thank you. And I guess just one more from me on the margins in D and S. There was a lot of volatility in margins last year, I guess in fiscal 2019. Just can you talk a little bit about whether we should expect a bit more of a volatile year in 2020 as well? And then also do you expect margin expansion at D and S in 2020?
Well, I think I'll let Sanya maybe comment in more detail. But I think I've always been pretty consistent to say you never should look at order intake or margins or even possibly revenue for defense on a quarterly basis because largely a contract business. So depending on which contract if you execute during the quarter, you can have pretty interesting swings as we've seen in the past. And when you sign contracts, it can vary. So it's best to look at these on a 12 month basis.
So maybe Antoine,
if you want to comp. No, I agree. We shouldn't look at it on a quarterly basis because the variability is really a reflection of the defense business. And as we've seen in the past quarters, the mix of products and services and the progressions of the programs and when we hit their milestones has a significant impact. Overall, the backlog as a whole, we continue to see it as 11% to 12%, but it will vary as it flows through the income and as of as we execute.
So that's why we remain focused on the annual outlook and operating income growth as a whole. And our outlook for next year is mid to high single digit percentage growth for 2020.
And the backlog you said Sonia was at 11%
to 12%?
That's right.
Thank you very much.
Thank you.
Our next question comes from Miren Mahadavan of BMO Capital Markets. Please go ahead.
Hi, Just on for Fadi Chamoun. My first question is on your fiscal 2020 guidance. Typically, pace of the earnings are usually second half weighted. How do you see that playing out for the fiscal 2020? And can you also confirm if the guidance is based on numbers excluding special items?
Excluding what, sorry? The special items. Okay, sorry, got it. Got it. Well, I think it's reasonable to expect based on what we see on order flow on the deliveries of simulators, it will be way towards the back half for sure.
Sonia, do you want to expand?
Yes. So, the way that we see deliveries and kind of the order backlog flowing through, it will be like other years kind of H2 heavier. And in terms of the outlook, it's on the number before specific items, so adjusted for specific items.
And then my second question just on you have a great trading franchise with the dominant market position, but your capital intensity it's kind of remains kind of high. Are there levers that you guys could utilize to improve asset returns and improve your cash flow in ROIC?
So we spent about $250,000,000 in CapEx this year and we do see a bit of an increase next year. But really this is a reflection of the good momentum that we see in the market and we continue to see really good opportunities to serve market demand, continue down sourcing and to the extent we see these opportunities, we'll continue to invest in accretive growth, accretive to earnings and accretive to return on capital. And as we've seen all the new capital that we've deployed, it goes to work very quickly and within call it about 24 months, it generates 20% to 30% accretive incremental returns and cash flow. So really this is a reflection of the market demand that we see out there. Should there be any change there, well then, we would revise our investments accordingly and really look to our capital allocation strategy and balance the investments between investments and growth, cash returns to shareholders and a solid balance sheet.
And our first priority remains investing in growth.
Perfect. Thank you.
And speakers, I'll turn the call back over to you. We have no further questions at this time.
Thank you, operator. We'll now open the line to members of the media should there be any questions.
And our first question comes from, one moment please, Allison Lambert of Reuters. Please go ahead.
Yes, thanks. Just to get back to the MAX, given the public expressed interest by certain regulators and pilots unions for simulators in the wake of the grounding, have you seen any increase in demand for your MAX simulators or demand by carriers for this aftermarket service you've described that could convert the NG simulators to MAX simulators or any type of simulators? And just to give us an idea, how much would it roughly cost to make such a conversion?
Look, again, as I was saying as analysts, I'm not going to comment much about the specific MAX situation itself. But what I can tell you is factual is that we sold 43 Boeing 737 MAX simulators to date which is highest proportion of the one up because of our market share of the simulators that have been sold. We delivered 10 so far. I don't want to comment about the changes in the dynamics. And to be frank, that dynamic will continue to be paced by delivery of aircraft unless there was some dramatic change in how training is done.
But I'm not going to comment or repaying on that one way or another because still in the hands of regulators.
And what about the cost? How much does it roughly cost to make this conversion?
Convert from once to once, I'm sorry.
Convert, you said that it's possible to convert, for example, an NG simulator to a MAX simulator?
That's again, I'm not going to go back because you would have to assume that what is the change that you're trying to make. So I can't really comment because the scope of what you're asking can be very, very you could go from a small change to a massive change reflects everything in the aircraft, which you don't necessarily have to do to actually represent a 737 MAX. But I can't answer your question with any precision. And frankly, I really again going back to what I said, don't want to comment as our policy never to comment on specific situation on involving incident accidents.
Thank you. Our next question comes from Sylvain Larocque, Quebecor. Please go ahead. Our next question comes from Michael Bruno of Aviation Week. Please go ahead.
Hi. Thanks for taking my question. I'm curious as to how much interest do you see from the OEMs like Boeing or Airbus to get into your business of pilot training? Certainly Boeing is going into more vertical integration in some of its business portfolio. And I'm curious if you feel any kind of concern or do you see a threat out there from the OEMs trying to do more of what you do?
Well, I think all OEMs have got a service strategy and Boeing is not the only one out there. And what I would tell you is that as a lot of companies that actually most companies in the aerospace industry, sometimes you partner particularly on the defense business. For example, Boeing with the exclusive provider of Boeing PAA similar for Boeing and we're very proud of that. I think we have a very great working relationship. We cooperate in a number of sectors, but yes, they have a strategy to grow in aftermarket services, as I said, as all Williams do.
For us, I'll be very frank with you, we focus on our end customers and those are the airlines with business aircraft operators. And we do what we have. We can to satisfy the needs of our customers and I think we have grown a very successful franchise as largest training company in the world. And you would expect us to be able to do that because CAE is really a pure play training company and it's largest in the world than what we do. Largest in selling simulators, largest in terms of deployed network, largest airline training company in the world.
So for us, if we stay focused on our game and it's a large market. So I think what you see is OEMs in large case providing the initial training support for the customers as they deliver aircraft and I would expect them to continue to do that. But I can't answer for them. But we play our own game and we focus on innovation and being the innovation leader to provide the highest level of basically advancement of the science of learning as applied to airline pilot training and that's what we do.
Thank you. We show no further questions. I'll turn the call back over to our host.
Operator, thanks very much for hosting our call today. And I want to all participants, members of the financial community and media for joining us this afternoon. And I'll remind you that a transcript of today's call can be found on CAE's website. Thank you.
That does conclude the conference
call for today. We thank you
for your participation and ask that you please disconnect your line. Thank you and have a good day.