Raytheon’s T-6 trainer is used by the Air Force and Navy for basic pilot training.

WASHINGTON: CAE’s acquisition of L3Harris’s Military Training unit continues the Canadian firm’s efforts to expand and broaden its US defense portfolio, especially with the Air Force, say company officials and industry analysts.

“CAE will be a very good parent, hungry to grow its USAF training portfolio, plus become a larger DoD contractor,” one US market analyst said in an email.

“The proposed acquisition represents a significant value creation opportunity for all CAE stakeholders. It accelerates our growth strategy in Defence and Security and is highly complementary to our core military training business, broadening our position in the United States,” said Marc Parent, CAE’s president and CEO in a statement this morning announcing the buy.

For L3Harris, the sale helps it reach its stated goal of divesting 8 to 10 percent of revenue as part an overarching effort to reshape its business portfolio, industry sources explained. When the sale goes through, the firm will be about 80 percent of the way to meeting the top end of its target, one industry official said.

“With today’s announcement, we have now completed or announced divestitures of businesses with a combined $1.4 billion of revenue for $2.5 billion in expected proceeds, and our portfolio shaping process is ongoing,” William Brown, L3Harris chairman and CEO said in an email statement provided to Breaking D.  “These agreements place our Military Training and Combat Propulsion Systems and related businesses with well-suited buyers, while positioning L3Harris to further focus on its core technologies and execute its strategic priorities.”

L3Harris is targeting about an 18 percent 2021 sector operating margin across the entire company, the US market analyst said. “Any sector that does not generate at least ~18% sector operating margin is dilutive, and is susceptible to being sold,” the analyst explained.

“The military training business was one of many non-core assets they have sold — EOTech, baggage screening/conveyors, and land vehicle propulsion being the others,” Gautam Khanna, an analyst at Cowen Group said in an email today. “The next will be commercial aviation pilot training (Glasgow, Scotland), but they have not confirmed this.”

The market analyst added another factor in the L3Harris move is the fact that the aviation sector, especially in the commercial world, has been hit hard by COVID-19. “Essentially, L3Harris is slowly-liquidating the non-core ~$3.4B Aviation Systems Sector,” the analyst said, which currently is carrying only about a 14 percent operating margin.

The $1.05 billion price tag brings CAE “significant experience in the development and delivery of training systems for fighter and bomber aircraft, Army rotary-wing platforms, submarines and remotely piloted aircraft,” the statement adds. Specifically, the business units involved are:

  • Link Simulation & Training, one of the leading providers of military training solutions in the United States;
  • Doss Aviation, a provider of initial flight training to the Air Force;  and
  • AMI, design and manufacturing facility for simulator hardware.

With them comes a “backlog and position on key programs, including the USAF Simulators Common Architecture Requirements and Standards (SCARS) program, USAF F-16 Simulators Training Program (STP), US Navy/Marine Corps F/A-18 aircrew training systems, USAF Ground Based Strategic Deterrent (GBSD) training and USAF B-2 training system,” the statement says.

When the deal is finalized, the L3Harris Military Training business would operate under CAE USA, headquartered in Tampa, Fla.