CAE (NYSE:CAE) executives told investors the company delivered what they characterized as a “solid” third quarter for fiscal 2026, with strength in defense offsetting softer-than-expected activity in civil aviation, while management advanced a multi-phase transformation plan focused on portfolio sharpening, tighter capital discipline, and operational performance improvement.
Quarterly financial results
Interim CFO Constantino Malatesta said third-quarter consolidated revenue rose 2% year over year to CAD 1.25 billion. Adjusted Segment Operating Income increased 3% to CAD 195.8 million, and adjusted earnings per share were CAD 0.34, up from CAD 0.29 a year earlier.
Net finance expense fell to CAD 54.1 million from CAD 56.6 million, which management attributed mainly to lower debt borrowings, partially offset by higher expenses on lease liabilities. Income tax expense was CAD 29.6 million, translating to a 21% effective tax rate on both a statutory and adjusted basis; the company reiterated it expects an effective tax rate “run rate” of approximately 25% going forward.
On cash generation, Malatesta said net cash flow from operating activities was CAD 407.6 million, while free cash flow was $411.3 million, slightly higher than the year-ago quarter. Capital expenditures totaled $50.6 million, with about 75% invested in growth. He added that CAE has further reduced its fiscal 2026 CapEx outlook and now expects full-year capital expenditures to be more than 10% lower than last year, driven by a further reduction in civil CapEx that is expected to be about 30% lower year over year.
Malatesta said net debt ended the quarter at roughly $2.8 billion, with net debt to adjusted EBITDA of 2.3x, which surpassed the company’s prior goal to reach 2.5x by fiscal year-end.
Segment performance: civil softness, defense strength
In the civil segment, third-quarter revenue declined 5% to CAD 717.2 million and adjusted operating income fell 6% to CAD 141.8 million, for a 19.8% margin. Management attributed the declines to lower simulator sales and lower utilization in training centers, partially offset by the sale of used simulators across the network.
Training center utilization was 71%, down from 76% a year earlier, and CAE delivered 15 full-flight simulators compared with 20 in the prior-year quarter. Civil results included CAD 4.9 million of transformation-related expenses, which management said reduced the segment margin by about 70 basis points.
Defense results were notably stronger. Revenue increased 14% to CAD 534.9 million and adjusted operating income rose 38% to CAD 54 million, producing a 10.1% margin. Malatesta said this marked the first time in more than six years that defense margin reached or exceeded 10%, driven by higher activity and profitability on new, higher-margin program awards and contract ramp-ups in the U.S. and Canada. Defense results included $2.4 million of transformation-related expenses, which reduced the segment margin by about 40 basis points.
Updated outlook: civil downshift, defense raised
CEO Matthew Bromberg said the company still expects the fourth quarter to be the strongest of the year for civil, but CAE’s outlook has softened. For the full year, he said CAE now expects a mid-single-digit percentage decline in annual adjusted segment operating income versus last year, with civil adjusted segment operating income margin in the 20% range.
Bromberg attributed the change in civil outlook to three factors:
- softer-than-expected market conditions,
- U.S. dollar translation impacts, and
- accelerated rationalization of the commercial simulator network.
He said the network actions are intended to align capacity with current and expected demand and improve utilization, returns, and resilience over time. As CAE prioritizes opportunities that meet return and capital objectives, Bromberg noted some previously forecast full-flight simulator orders and deliveries have “shifted to the right,” and he acknowledged some near-term revenue impact is expected as actions ramp.
In defense, Bromberg said performance year to date has been better than expected. CAE raised its outlook for defense adjusted segment operating income growth to more than 20% year over year, up from prior guidance of low double-digit growth, while maintaining an expectation for full-year defense margin of approximately 8.5%. In Q&A, he said the strong third-quarter defense margin benefited from a favorable contract mix that management does not expect to recur, and he indicated there are still legacy programs to wind down.
Transformation plan: divestitures, network rationalization, shared services
Management framed the transformation as a multi-year effort. Executive Chairman Calin Rovinescu said CAE has already made organizational changes, identified opportunities for network rationalization and potential non-core divestitures, and reduced capital expenditures, with specific targets expected after the next quarter. Bromberg described the plan as centered on three focus areas—portfolio sharpening, capital discipline, and performance improvement—and said CAE is now “harvesting” prior growth, even if certain actions reduce near-term revenue.
On portfolio moves, Bromberg said CAE’s review identified several non-core assets representing about 8% of revenue, with strategic alternatives to be explored. During Q&A, he said the assets span both civil and defense and emphasized they are “good businesses” but not core to the company’s chosen focus, suggesting they may “do better with another owner.” He said advisors have been engaged and the company will move through an execution phase, with announcements to come when counterparties, markets, and economics align.
In civil, Bromberg said the largest near-term opportunity lies in the training network. CAE operates 373 full-flight simulators globally, including 250 for commercial airline training. The company plans to move about 10% of deployed commercial airline simulators as it rationalizes capacity. He said execution is expected to take 12 to 24 months due to customer contracts, facility leases, and regulations. In response to analyst questions, Bromberg said CAE has started customer conversations and described initial discussions as positive, while reiterating the network was “overbuilt” for current demand. He also said that if the targeted simulators could be removed immediately and customer volume retained—something he stressed cannot happen overnight—civil utilization would rise by roughly 400 basis points to about 75%.
Beyond network actions, Bromberg said CAE launched a shared services outsourcing initiative and signed a global partnership to transition about 80 finance and HR processes into a modernized shared service model using GenAI-enabled tools, with an expectation of reduced corporate administrative costs and improved scalability over time. He also discussed a review of R&D projects, saying those that do not meet return thresholds will be curtailed or ended, and that R&D spending is expected to moderate over time.
Program highlights and leadership updates
Bromberg cited recent program wins and partnerships across both segments. In defense, he highlighted a partnership agreement with Saab on the GlobalEye platform and said CAE was selected to deliver Australia’s Future Air Mission Training System, described as an initial 10-year program valued at more than $270 million. In civil, he said CAE had a “highly successful” Singapore Airshow, signing eight agreements totaling more than $160 million, and noted CAE was selected to provide training solutions for advanced air mobility companies Joby Aviation and Embraer Eve Air Mobility.
On leadership, Bromberg reiterated that Ryan McLeod will join CAE as CFO, and he thanked Malatesta for serving as interim CFO through what he described as a period of significant change.
Looking ahead, Bromberg said CAE expects to complete the evaluation phase of the transformation plan by the time it reports year-end results in May, when the company plans to provide its fiscal 2027 outlook and more specific longer-range targets.
About CAE (NYSE:CAE)
CAE Inc is a global leader in training and simulation technologies, headquartered in Montréal, Canada. The company specializes in the design and manufacture of high-fidelity flight simulators and training systems for civil aviation, defense and security, and healthcare markets. Leveraging advanced software and hardware integration, CAE delivers comprehensive training solutions that address pilot proficiency, mission readiness and patient safety across a wide range of platforms.
In civil aviation, CAE partners with major airlines, aircraft manufacturers and flight schools to provide pilot training services, courseware development and crew scheduling solutions.
