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 Arnovitz. 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 their 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&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 Marc Parent, CAE's President and Chief Executive Officer, and Sonya Branco, our Chief Financial Officer. After remarks from Marc and Sonya, we will take questions from financial analysts and institutional investors. Following the conclusion of that Q&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 restandard IFRS 16. You can download this document, entitled Supplemental Q4 FY 2019 Presentation, at www.cae.com/investors. Let me now turn the call over to Marc.
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 Sonya 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 fourth quarter, as expected, with revenue up 42% and earnings per share up 55% compared to the fourth quarter 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-one conversion of net income.
Our vision is to be the recognized global training partner of choice. I'm especially pleased with our record CAD 4 billion in annual orders and record CAD 9.5 billion backlog, which underlines CAE's 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 CAE's business. Looking specifically at civil, we booked CAD 1.1 billion 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 this high-value segment. During the year, civil booked a record total of CAD 2.28 billion in orders, giving it a record backlog of CAD 5 billion, which is 22% higher than last year.
Notable wins included a 10-year pilot training contract with easyJet, exclusive multi-year pilot training agreements with Asiana and CityJet, 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, CAE's civil aviation training network now operates over 280 full-flight simulators from more than 50 locations. For the first time in our history last year, we delivered more than one million hours of training. CAE 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 CAD 498 million.
Notable wins included a contract with Boeing to provide a P-8A 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, 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 CAD 1.3 billion in orders and options, which gave us a record defense backlog of CAD 4.5 billion. Key training systems integration wins during the year included the U.S. Air Force C-130H aircrew training services program and the U.S. Navy CNATRA Sys program, where we provide instruction at five naval air stations to support primary, intermediate, and advanced pilot training.
We also won a contract to provide comprehensive training services for the Royal New Zealand Air Force NH90 helicopter program and a contract from General Atomics to develop a synthetic training system for the U.K. Protector remotely piloted aircraft system. Also during the year, we acquired AOCE, which gave us a position on several U.S. defense contracts to provide training and engineering support services on higher-level security programs. 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 CAE Ares, our emergency care manikin for nursing, and CAE 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 Sonya, who'll provide a detailed look at our financial performance, and I'll return at the end of the call to comment on our outlook. Sonya?
Thank you, Marc. Good afternoon, everyone. Consolidated revenue for the fourth quarter was up 42% to CAD 1 billion. Quarterly net income before specific items was CAD 127.5 million, or CAD 0.48 per share, which is up 55% compared to CAD 0.31 in the fourth quarter of last year. For the year, consolidated revenue was up 17% to CAD 3.3 billion. Annual net income before specific items was CAD 335.2 million, or CAD 1.25 per share, which is up 13% compared to CAD 1.11 last year. Specific items in fiscal 2019 include the cost of the acquisition and integration of Bombardier's BAT 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 CAD 116.8 million of free cash flow in the quarter. CAD 323.8 million 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 activities. Overall, a good year from a cash flow standpoint. We expected to continue our focus on maintaining non-cash working capital efficiency in the year ahead. Uses of cash involve funding capital expenditures for CAD 96.2 million in the fourth quarter and CAD 251.8 million for the year, mainly for the deployment of new simulators to our global training network in support of our customer-led growth opportunities.
In line with the customer-driven accretive investment opportunities that we see, we expect modestly higher CapEx in fiscal 2020, increasing by about 10%-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. 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 cash flows. Other uses of cash included the distribution of CAD 99.9 million in dividends for the year. In addition, we repurchased and canceled approximately 3.7 million common shares under the NCIB program during the year for another CAD 94.4 million.
In all, between the dividends and the share buybacks, CAE returned CAD 194.3 million 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 employed target with an increase to 12.9% from 12.7% last year, excluding the impact of specific items. We're maintaining our 13% ROCE target by fiscal year 2022 as we now integrate and ramp up the Bombardier BAT business acquisition and continue to find accretive growth opportunities. Net debt was CAD 1.88 billion at the end of March for a net debt to total capital ratio of 43.9%. This compares to CAD 649.4 million or 22% of total capital at the end of the year. The increase is mainly from the additional funding we required for the BAT acquisition and the monetization of our existing future royalty obligations.
We issued $450 million of unsecured senior notes and $150 million of term loans. With our continued strong cash generation, we expect to deleverage to the lower end of our net debt to capital target range of 35%-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 CAD 30 million, which takes into account the new debt as well as the treatment of leases under IFRS 16. Income taxes in the fourth quarter were CAD 19.3 million, representing an effective tax rate of 13%, compared to 8% for the fourth quarter 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 fourth quarter, but these were mostly offset by tax profits. 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%. Turning to our segmented performance. In Civil, fourth quarter revenue was up 50% year-over-year to CAD 593.4 million on higher training services volume and a high number of simulator deliveries. Operating income before specific items was up 54% to CAD 122.3 million for a margin of 20.6%. For the year, Civil revenue was up 15% to CAD 1.9 billion, and operating income before specific items was up 13% to CAD 351.1 million 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, fourth quarter revenue of CAD 387.9 million 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, fourth quarter operating income was up 42% to CAD 51.7 million for an operating margin of 13.3%. For the year, Defense revenue was up 21% to CAD 1.3 billion, and operating income before the AOCE-related expenses was up 9% to CAD 134.8 million, representing a margin of 10.3%. The Defense book-to-sales ratio for the quarter was 0.68 times, and for the year it was 0.83 times. Defense contracts often include contract options that go beyond the initial year of the contract, especially in the U.S. The book-to-sales ratio, including options for the quarter, was 1.28 times, and on the same basis for the year, it was 1.03 times.
In healthcare, fourth quarter revenue reached a new high of CAD 40.7 million, up 16% from CAD 35.1 million in Q4 last year. Healthcare segment operating income was CAD 4.2 million, or 10.3% of revenue in the quarter, compared to CAD 6.7 million, or 19.1% of revenue in Q4 of last year. For the year, healthcare revenue was CAD 121.6 million, up from CAD 115.2 million, and segment operating income was CAD 4.8 million, or 3.9% of revenue, down from CAD 8.8 million or 7.6% 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 Marc, I'll say a few words about the new accounting standard, IFRS 16, related to leases, which CAE adopted as of April 1, 2019.
This 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 expensed as incurred. Under the new standard, all leases will now be recorded on balance sheet as a right-of-use asset and a lease liability included in long-term debt. This change impacts the timing and nature of expenses related to lease contracts. Rent expense under the current lease standard will now be replaced by interest and amortization expense. CAE has adopted the standard using the modified retrospective application, and so will not be restating fiscal 2019 results for the IFRS 16. IFRS 16 is expected to have a negative CAD 0.01 EPS impact on our fiscal 2020 financial results.
We provide additional detail on the expected impact in Note 2 of our consolidated financial statement and in our supplemental Q4 FY 2019 presentation. With that, I will ask Marc 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 CAE's 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, we're indeed very enthusiastic about the company's prospects to continue growing and generating attractive returns in larger markets where CAE benefits from an excellent position and a high degree of recurring business. In civil, we expect to continue growing our market share as a 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. 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, I believe our well-differentiated position gives us even greater potential for more long-term recurring training partnerships for CAE. In business aviation, we're also bringing digital to the fore, pushing the boundaries of aviation training and enhancing our customer's experience. The Bombardier BAT acquisition is transformative for CAE as we now integrate this business. It will expand 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 training solutions, including maintaining a leading share of full-flight simulator sales and the integration of the first full year of the Bombardier BAT 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 CAE 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 CAD 4.5 billion. 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 Surface Combatant Ship Program, where CAE will play a key role in Canada's largest ever Defense procurement, initially to support training needs analysis and to provide engineering support. The CSC program will further extend our experience in naval 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. Finally, in Healthcare, our new products have 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 its 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 CAE Healthcare's long-term potential, and for the year ahead, we expect double-digit % growth. In summary, we look forward to superior and profitable growth. We have the benefit of an increasingly recurring base of business in 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, increasingly, the recognition of CAE by customers as the worldwide training partner of choice. With that, I thank you for your attention, we're now ready to answer your questions.
Thank you.
Operator, we would now be pleased to take questions from analysts and institutional investors.
Thank you. If you would like to register a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. One moment, please. Our first question comes from Benoit Poirier of Desjardins Capital Markets. Please go ahead.
Yeah, good afternoon.
Hi, Benoit.
Yeah. First question is on the IFRS 16. Could you maybe quantify, Sonya, what should we expect in terms of amount of depreciation and finance expense that will be added from the IFRS 16 this year? How does the IFRS 16 impact your guidance in terms of operating income?
First, all of the IFRS 16 has been reflected on the operating income guidance. The main impact of the new standards is to bring all the leases on balance sheet, and the lease liability. On the asset side, we see about CAD 230 million of additional right-of-use assets and about CAD 250 million on lease liabilities. On the P&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 some timing and classification. The interest guidance that I just mentioned of a new run rate of about CAD 30 million a quarter reflects the impact of the new debt that we just issued and also the impact of IFRS 16.
There is some timing leakage that happens, hence we see about an EPS headwind of about CAD 0.01 for FY 2020.
Perfect. That's great color. Looking at healthcare, Marc, 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.
I think double digit would apply to top and bottom line, Benoit. I think the strategy is just basically seizing on the momentum that we have and taking us to the next level. Rekha Ranganathan, our new leader, has a very strong track record of doing that. She was the head of Philips Healthcare, one of the 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 the next level. The products we've developed to attack the new sectors that we targeted the last couple of years in nursing specifically are paying off. The momentum is good. It's really now a question of obviously selling more. I think if we look at the past year, fourth quarter was very good.
It took us a while to ramp up the sales force. That's been the drive that you see on the bottom line mainly, plus the development costs themselves. Those additional sales force and products are starting to pay off. I think that the partnerships we've made with society, all of that is factored into the guidance I have. I think the strategy of making changes, basically we'll report that as we get on our feet and take a look at the market and see if we might make any changes. I think right now it's steady as she goes.
Okay. Last question, if we look at the civil business, Marc, 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.
On the MAX, you would understand that I'm not going to say much on that. It's CAE's policy in any event like this, no matter what it is, never to comment on the situation itself, for obvious reasons. There are investigations underway. Suffice to say that for us, that you would assume that as a world leader in aviation training, we're going to have a role to play in maintaining the safety and efficiency of the air transportation system as a major player. For us, we've got the capability, we've got the capacity to support whatever transpires to get the airplanes back in the air, to support them, support our airline customers, OEMs, our regulators, to ensure their training needs are met. That's all I'll say about that. Your previous question with regards to Asia?
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. To a certain extent, you always see some airlines going out of business. What we see is the demand being picked up pretty much immediately by other carriers. At the same time, we continue to win share. Like I said, you saw the contracts we signed this year for the ones I mentioned, like Avianca, easyJet, Asiana, just to cite those three. Overall, basically things in terms of passenger traffic for us 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 Kristine Liwag calling in for Ron. Following up on your commentary on the 737 MAX, I was wondering, can the Boeing 737 NG simulators be converted to a 737 MAX simulator? If it can, what does that entail?
Well, look, I think, again, Kristine, I'm going to go back and I'm not going to comment much about anything related to the MAX simulator because of the situation that's unfolding. Your short answer, it's pretty much any one of our simulators, no matter what type, can be converted to another aircraft type. We do that all the time. We've even taken simulators from other manufacturers and converted them to quasi CAE simulators, and that's part of our aftermarket business that we do. Short answer, yes. It's possible, just any type is possible to do that.
I see. 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 were able to recover in the past year. Remember, during our last fiscal year that we just reported on, we had a five-week work stoppage because of the strike in our manufacturing facility in Montreal. We lost five weeks worth of production, we were still able to completely ramp up and stand up separate production lines and basically recover all of the deliveries that we had and then some, which demonstrates our capability to flex. We have significant capability left in our factories. We're not on three shifts. We're about one and a half shifts. We could ramp up to meet any demand, like any of the big orders.
I think that substantial capacity on any aircraft type, and we've demonstrated that we've got 1 million square feet of manufacturing capability in Montreal, and we always find a way to be able to optimize what we do. Long answer, but yes, we can scale up.
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 if Sonya, if you have it offhand. It's a mix of both.
Yeah. It's a mix of both. We don't necessarily have or disclose the split. 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 Tim James of Scotiabank. Please go ahead.
Yes. Hi, good afternoon. Thank you for taking my question. I guess, firstly on the civil side, Marc, I'm wondering if you can just comment a little bit about the order flow. You obviously had a few pretty strong years of order flow on the FFS side, with certainly at 78 orders this year. When you talk to your sales channels, 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?
Well, no. Look, we had a high number, more than we even anticipated. Often, as you can well imagine, at the end of the year, all it takes is a couple of weeks for some to fall out of the year or go into the year, and we don't work that way. We sign them when they're ready to be signed. Look, I think the manufacturer's production lines are at very high rates. They have very high backlogs, and the delivery of full-flight simulator or the orders for full-flight simulators is very highly correlated to the delivery of aircraft as a manufacturer, because mainly Boeing and Airbus. That's really what dictates the demand for simulators. Now, if I take a training as a whole, there's a lot of headroom in training. It's simply initial double within the next 10 years, for sure.
That's a lot of training demand coming our way, including simulators.
Thank you. I guess just one more from me on the margins in D&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? Also, do you expect margin expansion at D&S in 2020?
Well, I think I'll let Sonya maybe comment in more detail, but I think I've always been pretty consistent in saying you never should look at order intake or margins or even possibly revenue for Defence on a quarterly basis, because it's largely a contract business. Depending on which contract you execute during the quarter, you can have pretty interesting swings, as we've seen in the past. When you sign contracts, it can vary. It's best to look at these on a 12-month basis. Maybe, yes, Sonya, you want to comment.
No, I agree. We shouldn't look at it on a quarterly basis because the variability is really a reflection of the defense business. As we've seen in the past quarters, the mix of products and services and the progressions of the programs and when they hit their milestones has a significant impact. Overall, the backlog as a whole, we continue to see it at 11%-12%, but it will vary as it flows through the income and as we execute. That's why we remain focused on the annual outlook and operating income growth as a whole. Our outlook for next year is mid to high single-digit % growth for 2020.
The backlog, you said, Sonya, was at 11%-12%?
That's right.
Thank you very much.
Thank you. As a reminder, you may press the one followed by the four to register a question or comment. Our next question comes from Fadi Chamoun of BMO Capital Markets. Please go ahead.
Hi, just on for Fadi Chamoun. My first question's 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 the numbers excluding special items?
Excluding what, sorry?
The special items.
Yes, sorry. 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. Sonya, you want to expand?
Yeah, no. The way that we see the deliveries and kind of the order backlog flowing through, it will be like other years, kind of H2 heavier. In terms of the outlook, it's on the number before specific items, adjusted for specific items.
My second question just on, you have a great training franchise with the dominant market position, but your capital intensity remains kind of high. Are there levers that you guys could utilize to improve asset returns and improve your cash flow and ROIC?
We've spent about CAD 250 million in CapEx this year, and we do see a bit of an increase next year. Really, this is
A reflection of the good momentum that we see in the market. We continue to see really good opportunities to serve market demand, continued outsourcing. To the extent we see these opportunities, we'll continue to invest in accretive growth, accretive to earnings, and accretive to return on capital. 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, 30% accretive incremental returns and cash flow. 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. Our first priority remains investing in growth.
Perfect. Thank you.
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.
Please press the one followed by the four on your telephone keypad. Our first question comes from One moment please. Allison Lampert of Reuters. Please go ahead.
Yes, thanks. Just to get back to the MAX. Given the publicly expressed interest by certain regulators and pilot 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? Just to give us an idea, how much would it roughly cost to make such a conversion?
Look, again, as I was saying to the analysts, I'm not going to comment much about the specific MAX situation itself. What I can tell you that's factual is that we've sold 43 Boeing 737 MAX simulators to date, which is a high proportion of the because of our market share of the simulators that have been sold. We've delivered 10 so far. I don't want to comment about the changes in the dynamics. To be frank, that dynamic will continue to be paced by the delivery of aircraft, unless there was some dramatic change in how training is done. I'm not going to comment or opine on that one way or another because it's still in the hands of regulators.
What about the cost? How much does it roughly cost to make such a conversion?
Convert from what to what? I'm sorry.
Convert. You said that it's possible to convert, for example, an NG simulator to a MAX simulator.
Again, I'm not going to go with that because you would have to assume that what is the change that you're trying to make? I can't really comment because the scope of what you're asking can be very. You could go from a small change to a massive change that reflects everything in the aircraft, which you don't necessarily have to do to absolutely represent a 737 MAX. I can't answer your question with any precision. Frankly, I really, again, going back to what I said, don't want to comment because it's our policy never to comment on specific situations involving accidents.
Thank you. Our next question comes from Sylvain Larocque, Quebecor. Please go ahead.
Oui, bonjour. J'ai une question concernant les contrôles fiscaux au Canada. On parle d'une incidence défavorable. C'est lié à quoi, et on parle de combien en termes d'impact financier?
Oui. On a reconnu des actifs d'impôts cette année suivant l'acquisition qu'on a faite. Plantation de profits qui nous a permis de reconnaître des actifs fiscaux. Durant la même période, il y a eu aussi des impacts de vérification fiscale. Au net, l'impact a été minime durant le quart. Ils se sont neutralisés.
OK. C'est quoi l'impact spécifique des contrôles fiscaux?
Vous voulez dire les actifs qu'on a reconnus durant l'année?
Non, je veux savoir les contrôles fiscaux, ça a coûté combien? Spécifiquement les contrôles fiscaux.
Qu'est-ce que vous voulez dire par les contrôles fiscaux?
J'imagine que c'est Revenu Canada qui est allé voir CAE pour dire qu'il y avait des choses qui ne fonctionnaient pas. On parle d'une cotisation de combien?
Non, ce n'est pas nécessairement à cause qu'il y a des éléments qui ne fonctionnaient pas. C'est toujours des différences et des ajustements fiscaux sur des positions, interprétations. C'est CAD quelques millions, mais ce n'est pas nécessairement des ajustements négatifs, c'est vraiment des interprétations et ajustements suivant des vérifications normales.
OK. Donc quelques millions. C'est lié à un secteur en particulier ou à une activité en particulier?
Non. C'est au cours des vérifications générales normales des autorités fiscales.
OK. Est-ce que c'est la première fois que CAE d'avoir des contrôles fiscaux de plusieurs millions comme ça?
Non, c'est très irrégulier d'être en vérification.
As a reminder for the media to register any questions, you may press the 1 4. 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 that all OEMs have got a service strategy and Boeing's not the only one out there. What I would tell you is that as a lot of companies, actually most companies in the aerospace industry, sometimes we partner, particularly on the defense business. Like, for example, with Boeing, we're the exclusive provider of Boeing P-8A simulators for Boeing, and we're very proud of that, and I think we have a very great working relationship. We cooperate on a number of sectors. Yeah, they have a strategy to grow in aftermarket services, as I said, as all OEMs 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. We do what we can to satisfy the needs of our end customers.
I think we've grown a very successful franchise as the largest training company in the world. You would expect us to be able to do that because CAE is really a pure-play training company, and it's the largest in the world in what we do. Largest in selling simulators, largest in terms of deployed network, largest airline training company in the world. For us, we stay focused on our game, and it's a large market. 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. I can't answer for them.
We play our own game, 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. 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 thank all participants, members of the financial community and media for joining us this afternoon. I'll remind you that a transcript of today's call can be found on CAE's website. Thank you.
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