Canadian company soars in training simulator market
Aircraft simulators used to train pilots to fly have landed CAE Inc. with customers in 190 countries and the company is now taking off in other training including health care, with new “human” simulators—manikins that give birth and experience medical issues.
(Photo courtesy of CAE Inc.)
Export success for the Montreal-based CAE Inc. comes through finding new markets, developing unique products and services, as well as discovering additional sectors where they can be used. It also means encouraging recurring business, pinpointing effective partners or distribution models abroad and innovating to remain on the leading edge of new technologies and practices.
A combination of all of these strategies has made CAE one of Canada’s most effective exporters, offering important lessons for companies looking for success in global markets.
Best known as one of the world’s leading providers of civil aviation training and simulation, the company has expanded into areas such as training solutions for defence and security and more recently health care.
Flight simulators—costing between $8 million and $20 million—perfectly replicate specific aircraft cockpit specifications, factors such as weather conditions and the surrounding environments that pilots face and the landing approaches of particular airports around the world. Health-care simulators include a manikin named Lucina that goes through childbirth and delivers a baby that cries and has an umbilical cord that can be cut and clamped.
(Photo courtesy of CAE Inc.)
Meanwhile, a growing focus on providing comprehensive training on all of these products has brought CAE recurring business in ever-widening markets, with the assistance of the Canadian Trade Commissioner Service (TCS).
“We’re always growing,” says Al Contrino, global leader of the business development and strategic partnership team for CAE’s civil aviation training solutions division.
The 70 year-old public company today has annual revenues of $2.7 billion, with 8,500 employees, customers around the world and a training network that spans the globe, including more than 65 training centres and flight schools in some 35 countries.
The company was founded in 1947 by an ex-Royal Canadian Air Force officer, and in 1952 had its first order for a flight simulator from the Canadian forces. “That contract changed our destiny,” says Contrino. CAE made its first simulator for commercial aircraft in 1955; by the 1970s it had reached 50 percent of the global market share in simulator sales.
Lucina gives birth to train health students
Lucina does not mind having health-care students practice their skills on her as she’s giving birth.
That’s because Lucina is a childbirth simulator designed by the Montreal-based CAE Inc. to help health-care students and practitioners learn important skills through realistic, hands-on training. The Fidelis Maternal Fetal Simulator looks like a manikin, but feels and acts more like a human. It is used to train medical practitioners for various birth scenarios from normal deliveries to emergency situations.
Lucina can breathe, cry, sweat, blink—even simulate a postpartum hemorrhage. Palpable, soft skin can simulate uterine contractions, while leg and hip articulation offers practice in childbirth positioning and birthing manoeuvres. The life-like fetus is delivered through a realistic birthing canal and produces fetal heart sounds. It cries upon delivery and has an umbilical cord that can be cut and clamped.
Experiencing real-life medical emergencies for the first time can be daunting; students who are exposed to such scenarios in a controlled environment using CAE’s technology may not find them as overwhelming. Simulated exercises allow health practitioners to train for procedures that are important for patient safety and comfort prior to having to tend to real-life situations.
Aside from childbirth training, Lucina enhances general classroom learning for students by helping them become more familiar with various scenarios, such as high blood pressure leading to complications including heart attacks, strokes and kidney damage.
The company achieved an important milestone in 1982, creating a product certified by the U.S. Federal Aviation Administration to be “so realistic, that since that day, all the training for commercial pilots around the world is done on flight simulators,” Contrino says.
By 2000, CAE had 70 percent of the market share in simulators worldwide, “but where could we go from there?” Contrino asks. The answer was to move into the vast training market, so the company began opening and acquiring aviation training centres.
“We estimate the total global civil aviation training market is six times larger than the market for selling simulators,” Contrino explains. “This is where we will be able to grow our business over the long term.”
With its increasing focus on training, services now account for 60 percent of CAE’s revenues, up from the 2001 level of 15 percent, which was primarily related to simulator maintenance.
In 2009, the company launched a health-care division, leveraging its experience in simulation-based training to improve safety and efficiency in the new sector, Contrino says. CAE’s lifelike manikins help medical practitioners train for everything from emergency procedures to anesthesiology and ultrasound techniques.
“We want to bring the culture of safety of aviation—which is the safest transportation mode in the world—into health care,” he says. “We found that simulation and training go well together in areas where lives are at stake—in the air, on the ground and in the medical field.”
More than 90 percent of CAE’s revenues now come from exports, with its business split almost evenly between the Americas, Europe and the rest of the world, including Asia. Civil aviation equipment and training generate about 58 percent of its overall revenues, with 38 percent coming from CAE’s defence division and 4 percent from health-care.
Today, the company is a global leader in civil aviation training, but “we still have a lot of room to grow in this market,” which is worth more than $3.5 billion annually and requires the company to have an international presence, Contrino says. “The motto of CAE is that we always try to bring training closer to our customers. We’re doing that all over the world, and we continue to do that as countries and airlines evolve.”
Credibility is important “for airlines to give us the responsibility of training their crew, which is a synonym of safety,” Contrino says. Although CAE is well-known and highly regarded in the industry, having the support of the Canadian government through the TCS can be “invaluable” in foreign markets, he notes.
“Especially when you’re setting up in a new location, to have the backing of Canada, and to have the backing of the ambassador and the Trade Commissioner Service office, especially if they’re localized in that country, it helps a lot,” he says. “They’ll help us get over the hurdles and make sure we don’t do anything incorrectly that will stall the process.”
The TCS can be useful for advice on everything from how to apply for a business licence to potential local law and accounting firms to use, he says. The TCS recently assisted the company in Asia, where CAE has expanded in fast-growing aviation markets such as Vietnam and South Korea.
In Vietnam, for example, the TCS has “helped us set up shop,” Contrino says, allowing CAE to incorporate a new local company to provide simulators and training to Vietnam Airlines. With TCS support, the authorities there fast-tracked the company’s business licence, allowed it to bring its simulators into country and has provided some tax concessions to CAE for support in the start-up period.
Pilots perfect skills using simulators
The majority of pilots currently flying around the world have trained on CAE equipment, according to the Montreal-based company, makers of flight simulators and other types of training products.
CAE’s mission is to make air travel safer, the company’s web site states. “People learn best by doing; simulation gives pilots the chance to pre-live the experience, which enhances safety.” CAE has “long been the world leader in simulation, and today is also first in training”.
Flight simulator facts:
- A simulator replicates in every detail the cockpit of the aircraft that it simulates;
- The simulator also reproduces, with great accuracy and realism, the visual environment the aircraft appears to be flying in, including clouds, thunderstorms and the landing approaches of airports around the world;
- Simulators also simulate sound and motion, including the banking and turning of the aircraft, accelerations and the feel of tires as they roll across the bumps and cracks in the runway. CAE’s visual system uses satellite imagery of the whole planet;
- A simulator can reproduce 250 to 400 incidents or malfunctions so that the pilot can practice and be ready for all sorts of scenarios: engine failures, smoke in the cockpit, wind shear, electronic or hydraulic failures, etc.;
- The electronic brain of a simulator is stronger than 30 Xboxes. A simulator weighs about 12 tonnes—the equivalent of four elephants;
- Simulators are environmentally-friendly: CAE estimates that 18.5 million gallons of jet fuel are saved annually by using a simulator for a Boeing 747 instead of an actual aircraft; and,
- The list price for a flight simulator can range from $8 to 20 million, depending on the type of aircraft and all the data, parts and equipment needed.
With files from CAE Inc.
Tam Anh Nguyen, a trade commissioner for the aerospace and defence sectors, based in Hanoi, says that CAE’s market-entry strategy in Vietnam has “set the stage” for it to expand both in the country and the wider region. CAE made regular visits and worked closely with the TCS there, participated actively in the Singapore Air Show, expanded its partner relationship with Vietnam Airlines, invested time and resources in understanding the country’s legal framework and patiently showed a commitment to the market, deepening its network of stakeholders and government agencies.
“This positioned CAE as partner of choice for Vietnamese airlines that are facing challenges associated with the rapid growth of the aviation industry here,” Nguyen says. “Civil aviation holds significant potential for Canadian companies in Vietnam. We are proud of CAE’s success here, which illustrates well the collaboration between Canada and Vietnam.”
In South Korea, Contrino says that CAE had always sold equipment but had never had a training centre. With the low-cost carrier market there growing quickly, CAE identified the country as a good place for expansion. The TCS helped CAE set up a local company “to level the playing field, so we were able to put in a training centre,” Contrino recalls. “We were able to compete and actually win over most of the business.”
Sangmyun Kim, a trade commissioner for the aerospace, defence and information and communications technologies (ICT) sectors, based in Seoul, notes that CAE has been working with airlines in Korea since 1979. In 2012, it started putting together a proposal for a flight training centre that the Korean government was interested in developing there. The TCS helped CAE by advocating to government officials, attending meetings and writing letters encouraging free and open competition for the centre. It also provided advice to CAE on how to manage the relationship with the government and potential customers in Korea.
“CAE was able to set up in the market,” Kim says, noting that through a partnership between CAE and the Korea Airports Corporation, a massive CAE training facility was opened in the summer of 2017 at Gimpo Airport. Called the CAE Korea Training Centre, it will include a total of 10 flight simulators.
CAE and the TCS “continue to maintain a very close relationship,” Kim says, noting that the company’s success is good for other exporters from Canada. “A Canadian global player such as CAE can actually make a difference in the market in enhancing the image of Canada.”
The recurring business that training brings to CAE is particularly critical, Contrino points out. Pilots train throughout their careers, for example each time they change aircraft, and continued training is mandatory every six to eight months, “so you know you're going to get repeat business,” he explains. “We have mathematical formulas for that, we do our business case and then we try to grow with our customers…You’re hard to displace that way, because as long as you continue doing a good job and you’re growing with them, they’ll tend to stay with you.”
CAE actually “spans the life-cycle of a pilot,” beginning with cadet schools and flight-training organizations where students are developed into pilots. Meanwhile, CAE also leases pilots to airlines when there is peak demand, with a database of thousands of pilots that it matches with airlines around the world.
In June 2017, CAE issued its Airline Pilot Demand Outlook report, suggesting that 255,000 new commercial airline pilots will be needed over the next 10 years to sustain the growth of the commercial air transport industry. This record demand—70 new pilots per day, or 25,500 a year—will challenge current recruitment channels, the report concluded.
“All those pilots will need to be trained,” Contrino says. “Our objective is that they train with CAE, either at our training centres or on our equipment.”
CAE faces significant competition, but “it’s hard to compete with us because we are really good at what we do,” Contrino says. “We have a proven leadership in training equipment and services, and strong customer intimacy.”
While the company already works with more than 300 airlines globally, it has “headroom to grow in large markets,” and often can complement operations and safety with airlines that do their own training. CAE positions itself as the “training partner of choice” because it has focus, staff and expertise, bringing economies of scale, while leveraging its network of more than 250 simulators worldwide. “We try to impress upon airlines that this is an area where outsourcing or partnering with CAE can be more beneficial than them training on their own,” Contrino says. “We've seen a lot of traction in that area.”
Massive traffic growth in the aviation industry and a serious pilot shortfall “are boosting the demand for pilot training,” Contrino says, and there’s rising interest for simulation-based training in the defence and security as well as health care sectors, which is also good news for CAE. “We are leveraging our leading market position to gain more business.”
Innovation remains at the heart of the company’s strategy, “and it’s what differentiates us,” he says, noting that CAE has invested more than $1.3 billion to remain at the forefront of new technologies over the past 10 years. “We return a lot of the money that we make into research and development; that keeps our growth potential up there.”
For example, CAE has developed next-generation technology that relays a wide range of information about pilot training sessions directly to flight instructors. The system provides data-driven insights showing whether a pilot’s performance is within exact tolerances, which is an efficient method for evaluating critical skills.
The company is also developing new tools on the equipment side. In its customer service department behind Contrino’s office, a television screen maps and monitors all of the CAE-built simulators in operation in more than 50 countries around the world. The help desk, manned 24 hours per day, tracks statistics and analytics to show when regular maintenance is needed on a simulator, issuing bulletins when parts are failing or software problems arise. Flagging such issues and quickly delivering fixes “brings cost-efficiencies to airlines,” he explains. “If a simulator is broken you can't train, and then your pilot potentially can’t fly. So, you want to make sure the equipment stays current.”
CAE trains more than 120,000 pilots in civil aviation, defence and security every year. “The majority of pilots flying today were either trained in one of our centres or in one of our simulators,” Contrino says. “As the worldwide leader in training, CAE is well-positioned as the airlines’ trusted partner to train their new pilots to the highest standards—and reap the benefits of this growth.”
Asked what tips he has for other Canadian exporters, Contrino says: “You need to have a product that goes across all the geographic markets. We picked a market segment that’s global, where airlines and airplane growth is exponential, and we’re just going to follow that.”
While CAE today is number one in selling simulators and in commercial aviation training, Contrino notes that its expansion to date “hasn’t been without its challenges…And to put in a plug for the Trade Commissioner Service: they supported that.”
CAE’s strategic plan over the next three to five years is to constantly “look at places where we’re not, or where airlines are growing and something has changed,” Contrino says. “We try to be a little more proactive than reactive.”
Partnerships and joint ventures with airlines to develop training centres are key for the company, especially in fast-growing markets. “This allows airlines to concentrate on revenue-generating activities, such as filling up airplanes, and for CAE to concentrate on what we do well, which is providing simulation-based training,” Contrino says.
“We have big plans,” he adds. “We’re still ambitious to grow with our customers, and in new locations and markets.”
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