(Bloomberg) -- The chief executive officer of Canadian flight simulator company CAE Inc. will step down after 15 years amid weak profitability in its defense and security business.
Marc Parent will leave next August and the board has hired a search firm to evaluate candidates, the Montreal-based company said in a statement Tuesday. The announcement comes after a period in which CAE’s defense segment delivered disappointing results and its share price underperformed.
CAE reports two main business lines: civil aviation, which trains pilots for commercial aircraft, and defense and security, which includes contracts to train pilots for countries’ air forces. In May, CAE announced a C$568 million ($407 million) goodwill impairment on the latter division, plus C$126 million in contract adjustments and impairment on assets related to the contracts.
At the same time, CAE moved Nick Leontidis to chief operating officer with a mandate to seek synergies between the two divisions. Two months later, the company announced that Chief Financial Officer Sonya Branco was stepping down.
CAE’s share price is down more than 5% this year and is about 35% below where it was just before the Covid pandemic hit.
“There’s a valuation dislocation where you pay zero today for defense,” Jarislowsky Fraser Ltd. portfolio manager Charles Nadim said at a National Bank of Canada conference on Oct. 16. “There are changes needed there.”
Jarislowsky is the third-largest shareholder in CAE with a 7% stake, according to data compiled by Bloomberg. Nadim briefly mentioned his views on CAE while discussing opportunities in the Canadian stock market on a panel.
Parent said in an interview in October that the company still has a strong competitive position in defense. “When you think about defense, all 43,000 pilots in the US military are at some point in their career trained by CAE,” he said. “So that gives you a sense of the scale that we have.”
CAE reported revenue of C$1.14 billion for the fiscal second quarter ended Sept. 30. Civil aviation produced adjusted operating income of C$116 million, compared with C$33 million for the defense segment.
The company earned 24 Canadian cents a share on an adjusted basis, beating analysts’ expectations for 19 cents, according to data compiled by Bloomberg.
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