CAE Inc. is a Canadian multinational company specializing in flight training and simulation technologies. The company operates through two segments: Civil Aviation and Defense and Security. Civil Aviation provides comprehensive training solutions for personnel in commercial, business, and helicopter aviation, as well as manufacturing flight simulation training devices. Defense and Security provides similar solutions, but to defense forces, government agencies, and other related end markets.
CAE is the market leader in manufacturing highly valuable flight simulators and operating training facilities for flight safety. The company also sells its technology to customers who conduct their own independent training of flight personnel.
CAE has underperformed in the past five years, delivering a return of -8.75% compared to a nearly 101.78% return for the five years prior. When the company reported its FY24 results, it missed analysts’ full-year expectations for revenue by about 5% and EPS by 4%. The company reported an operating loss of $185 million in Canadian dollars, mainly due to a non-cash impairment of Defense and Security goodwill and unfavorable contract profit adjustments.
CAE’s longtime president and CEO Marc Parent will resign from his post at the company’s next annual meeting in August 2025 as part of CAE’s ongoing succession plan. This has sparked interest from activist investor Browning West LP, which recently sent an open letter to CAE’s board, calling for the board to collaborate with the firm in the recruitment process for a new CEO.
Browning West is an independent investment partnership that focuses on long-term and fundamental investing, with a concentrated approach to investing. The firm’s strategy is to own a handful of companies for the long term and ensure that management’s interests are aligned with those of shareholders. Browning West has a history of assisting in CEO succession at its portfolio companies, including Gildan Activewear, where it helped reconstitute the board and appoint a new CEO, resulting in a 30% appreciation in the company’s shares.
Browning West’s co-founder and CIO, Usman Nabi, has extensive experience in conducting CEO searches and has served on and led nomination and CEO search committees at several companies. The firm has also generated strong returns at its other portfolio companies, including H Partners, which achieved returns of 242% and 399% at Tempur Sealy and Six Flags, respectively.
In response to Browning West’s letter, CAE’s board has a choice: it can engage with the firm to ensure a thorough CEO search process or resist and face potential outcomes similar to those at Gildan Activewear.
