At a facility in Montreal, Quebec, a flight engineer conducted a test flight in a CAE Inc. 7000 Series Boeing Co. 737-800 flight simulator, a sight captured on August 13, 2019. CAE Inc., a prominent figure in the simulation training and operational support sector, operates across various continents, with its operations divided into Civil Aviation and Defense and Security. The Civil Aviation division focuses on providing comprehensive training for flight, cabin, and maintenance crews in the commercial, business, and helicopter aviation arenas. It offers a wide array of services such as flight simulation training devices, pilot training, and crew sourcing services, alongside solutions for aircraft flight operations. On the other hand, the Defense and Security segment specializes in delivering training and simulation solutions aimed at enabling and enhancing readiness and security for defense forces and other associated organizations.
The company commands a stock market value of $7.56 billion, with each share priced at $23.73. Over the past year, CAE shares have shown varied movements, attracting attention from investment firms like Browning West LP. This Los Angeles-based investment partnership, established in 2019, adopts a focused and long-term investment approach, concentrating on North American and Western European markets. Although Browning West embraces activism selectively, it prioritizes leadership roles ensuring that management’s interests align with those of shareholders.
In a significant development on December 20, 2024, Browning West reached out to CAE’s board, proposing collaboration in the process of selecting a new CEO. CAE Inc. operates within a dynamically growing industry, maintaining a leader’s position with its simulation and training technology. Despite this leadership stature, the company has faced challenges, underperforming by recording a -8.75% return over the past five years. Its FY24 results missed revenue and earnings expectations, and the announcement of its long-time president and CEO stepping down adds another layer of complexity.
Browning West views this transitional phase as a pivotal moment, advocating for a thorough CEO selection process. The firm underlines its confidence in CAE’s market position and potential for growth, while urging the board to avoid a rushed recruitment endeavor. Browning West has extensive experience in CEO transitions, as seen in its successful engagements with companies like Gildan Activewear and Tempur Sealy, where activist initiatives led to significant turnarounds in company performance.
Considering Browning West’s approach, it’s evident that the firm is determined to collaborate on leadership transitions to ensure strategic growth. A public letter from Browning West suggests that discussions with CAE’s board might not have been productive, leading to calls for more openness and collaboration. The firm has a track record of successful activism, evident in past instances where their involvement drastically changed company trajectories. For CAE, the path forward could involve either resisting or engaging with Browning West’s proposal. Embracing their experience could yield strategic advantages, while resistance might pose challenges analogous to past confrontations other firms have faced.
Ken Squire, the author of this analysis, is noted for his expertise in shareholder activism and manages the 13D Activist Fund, which focuses on investments geared towards active engagement in company leadership and governance. His insights draw from a wealth of experience in monitoring and driving shareholder advocacy initiatives.
