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CAE Inc (NYSE:CAE)
Q1 2021 Earnings Call
Aug 12, 2020, 1:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the CAE First Quarter Conference Call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Mr. Andrew Arnovitz. You may now proceed, Mr. Arnovitz.

Andrew Arnovitz -- Vice President, Strategy and Investor Relations

Good afternoon everyone and thank you for joining us today. Before we begin, I'd like to remind you that today's remarks, including management's outlook for FY '21 and answers to questions contain forward-looking statements. These forward-looking statements represent our expectations as of today, August 12, 2020, and accordingly, are subject to change. Such statements are based on assumptions that may not materialize and are subject to risks and uncertainties. Actual results may differ materially and listeners are cautioned not to place undue reliance on these forward-looking statements. A description of the risk factors and assumptions that may affect future results is contained in CAEs annual MD&A available on our corporate website and in our filings with the Canadian Securities Administrators on SEDAR and the U.S. Securities Exchange Commission on EDGAR.

On the call with me this afternoon are Marc Parent, CAEs President and Chief Executive Officer, and Sonya Branco, our Chief Financial Officer. After the remarks from Marc and Sonya, we'll take questions from financial analysts and institutional investors. Following the conclusion of that Q&A period, we'll open the call to questions from members of the media.

Let me now turn the call over to Marc.

Marc Parent -- President and Chief Executive Officer

Thank you, Andrew, and good afternoon to everyone joining us on the call. I'll first discuss some of the highlights of the quarter and then Sonya will review the detailed financials. I'll come back at the end to talk about our outlook.

Much has been said over the last five months about the COVID-19 pandemic and the profound ways it's changed our daily lives, both personally and professionally, and the word unprecedented has since become synonymous with the crisis. No doubt the rapid onset and pervasiveness of the economic and social impacts of the pandemic are like nothing we've ever seen before. The impact on our employees and customers has certainly presented us with some very significant challenges. It's in the toughest moments, however, that we're truly put to the test and throughout all of this, I continue to be very proud of the responsiveness of CAE and its employees who've been adapting rapidly to this new reality by embracing new challenges, mitigating risks, and innovating new ways to best serve our customers as their partner of choice.

As we came to expect in early March this year, the full brunt of the pandemic would indeed hit us hard during our first quarter manifested by sharply lower demand and major disruptions to our global operations. Right at the start, we acted quickly to ensure the health and safety of our employees and customers by takings extensive measures and we safeguarded the company's financial position and liquidity. CAE has shown considerable agility and resiliency amid the most challenging conditions our company has ever faced.

In the first quarter, we managed to significantly mitigate our inevitable operating loss position to near breakeven on a normalized basis. We also improved our free cash flow performance compared to last year and critically, we maintain our resiliency with a solid financial base. Despite the challenging environment, we booked CAD417 million of orders in the quarter for 0.76 book-to-sales ratio and we ended the quarter with a solid CAD8.6 billion backlog.

Looking specifically at Civil, despite the major operational hurdles presented by mandatory temporary facility closures, including our training centers and main manufacturing sites, and extensive travel restrictions, we managed to deliver two full-flight simulators to airline customers in the quarter and we averaged 33% utilization of our training network. With more than half of our global training network either closed temporarily or at reduced operations, utilization reached a low point around the 20% range during the quarter. Since then, we've seen average training center utilization rise to upwards of 40% as our facilities reopened and flight crews resumed some of their critical training activities.

We also continue to book orders with Civil signing training solutions contracts valued at CAD194 million, including a contract for an Airbus A320 full-flight simulator to China Express; a four-year training agreement with Alitalia; a five-year training agreement with WAMOS Air; another five-year training agreement with long term business aviation partner, SC Aviation; and a two-year business aviation training agreement with Air Hamburg. On the OEM front, we also concluded a five-year training agreement with Boeing to support Boeing's ab initio Pilot Development Program.

We've been adapting quickly to new realities by introducing new virtual service offerings to support our customers as a response to border restrictions including remote support for the installation, acceptance and qualification of the simulators. We also recently obtained FAA and other Civil Aviation Authority approvals for virtual training in certain of our flight training organizations and we developed a remote instructor operating station solutions for live instructor interactions during training sessions. As a product of our ongoing digital innovation initiatives, we launched instructor-led online courses for aviation maintenance training and CAE Airside, a new digital community platform that provides training and career resources to pilots, which I would encourage you to visit at airside.aero.

In Defence and Healthcare, the pandemic has also caused significant disruptions, which has hampered customer demand and our ability to deliver our products and services. Notwithstanding the challenging environment, the Defence booked orders for CAD201 million, including contracts to provide the United States Air Force with upgrades and enhancements to both the KC-135 and C-130H aircrew training system programs and to continue providing a range of in-service support solutions for the Royal Canadian Air Force's CF-18 aircraft. Other notable contracts including providing Airbus Defence and Space support for the development of new and upgraded training capabilities for Germany's Eurofighter program. We also received an order to continue providing maintenance and support services for the Royal Navy's Merlin helicopter training system.

And in Healthcare, we've put our full weight into designing, developing and bringing to market the CAE Air1 ventilator. We didn't have any deliveries from this new product line in the quarter, but we did incur some start-up expenses and we've only -- and we're only going to see deliveries really ramp up from the 10,000 units ordered by the Government of Canada in the second half of the fiscal year. In response to the urgent needs of our customers, we've provided complimentary training seminars on how to prepare healthcare workers in the fight against COVID-19. We also launched simulation-based training solutions, both web- and hardware-based, to train personnel in the safe practice of ventilation and intubation, which is key to saving lives and released a COVID-19 ultrasound training suite to provide hands-on foundational training for physicians. Additionally, as institutions began -- begin to reopen and offer remote education, we've provided new tools and training on how to implement distance learning with our solutions, such as the Distance Learning for Nursing course.

With that, I'll now turn the call over to Sonya, who will provide a detailed look at our financial performance and I'll return at the end of the call to comment on our outlook. Sonya?

Sonya Branco -- Vice President, Finance and Chief Financial Officer

Thank you, Marc, and good afternoon everyone. It was indeed an extremely challenging quarter, but with all the measures that we've put in place in early April to safeguard our financial position and to ensure liquidity by reducing cost and preserving cash, we helped narrow the pandemic's operational impacts and we maintained our resiliency with a solid financial base.

Our net debt position at the end of the quarter was CAD2.4 billion for a net debt-to-capital ratio of 50.7%. All things considered, I am pleased this remains stable with our net debt position of CAD2.4 billion or 47.8% of total capital at the end of last year. And on an adjusted net debt-to-EBITDA basis, we ended the quarter with a ratio of 3.04 times, which is up 40 basis points compared to the end of the last fiscal year.

Bolstering our financial resources during the quarter, we concluded a new two-year CAD500 million senior unsecured revolving credit facility and expanded our receivables purchase program by $100 million. These transactions provided us with access to additional liquidity and further strengthened our financial position. All told, between cash and available credit, we continue to have upwards of CAD2 billion of liquidity, which we believe, in addition to the cash we expect to generate from operations, is enough to manage through the period ahead.

The market situation has evolved rapidly and reflecting the current impact on our business and the time anticipated for recovery in our end markets, we recorded non-operational costs of CAD108.2 million during the first quarter of fiscal 2021, relating mainly to impairment charges on property, plant and equipment, intangible assets, and certain financial assets as a result of the continued negative impacts of COVID-19 pandemic.

And since the end of the quarter, we announced that we are taking additional measures to best serve the market by optimizing our global asset base and footprint, adapting our global workforce and adjusting our business to correspond with the expected lower level of demand for certain of our products and services. These measures include the introduction and acceleration of new digitally enhanced processes, such as remote installations and certifications and work-from-home practices. As a result, we expect to record restructuring expenses of approximately CAD100 million over the next 12 months, consisting mainly of real estate costs, asset relocation and other direct costs related to the optimization of our footprint and employee termination benefits. Actions will include the consolidation of some of our facilities where overlap currently exists, so that we are getting the efficiencies of operating from larger centers. And we will also be relocating several training assets to optimize utilization. Real estate and asset optimization costs are expected to account for approximately 70% of the total restructuring expense. Taken together, these measures are expected to enable CAE to emerge from the current period from a position of strength and we expect to fully realize cost reductions of approximately CAD50 million annually, starting in our fiscal year 2022.

Now, turning to our operational performance and other highlights in the quarter. Consolidated revenue was CAD550.5 million, down 33% compared to CAD825.6 million in the first quarter last year. And segment operating loss before specific items was CAD2.1 million compared to the segment operating income of CAD113.3 million last year. Considering the extreme severity of the pandemic's impact on our ability to operate in the first quarter and near breakeven operating performance, it's a true testament to the resiliency of CAEs business model.

Quarterly net loss before specific items was CAD30.3 million or negative CAD0.11 per share, which compares to CAD0.24 that we reported in the first quarter last year. Also of note, we received approximately CAD56 [Phonetic] million in gross government's wage subsidies from several of our global jurisdictions during the quarter, of which approximately CAD44 million was credited to income. Substantially, all of this amount, either flowed directly to employees, according to the way the subsidy programs were designed in certain countries or the amounts were offset by the increased costs we incurred in bringing back some 2500 employees who were previously placed on furlough or reduced work weeks. I would underscore that we brought back these employees at the same time as implementing our cost savings measures and, in essence, the wage subsidies were applied as intended as a substitute for initial cost savings measures taken and to alleviate some of the impact on our affected employees.

Now looking at cash flow. Cash from operating activities before changes in non-cash working capital was positive CAD36.9 million for the quarter compared to CAD137.8 million in the first quarter last year. Free cash flow was negative CAD92.7 million in the quarter, which is an improvement over the negative CAD102.1 million free cash flow results last year. The increase results mainly from a lower investment in non-cash working capital, lower dividends paid, and lower maintenance capital expenditures, partially offset by a decrease in cash provided by operating activities. We continue to expect free cash flow to be negative for the first half of this fiscal year resulting from the acute impacts of the pandemic on demand and operations, and seasonally higher level of investment in non-cash working capital accounts. We also continue to expect to generate positive free cash flow in the second half of the fiscal year.

Return on capital employed before specific items was 8% this quarter compared to 10.7% last quarter and 11.9% last year. Income tax recovery this quarter was CAD35.4 million, representing an effective tax rate of 24% compared to 17% for the first quarter last year. The tax rate was higher due to the impact of impairment charges, partially offset by the change in the mix of income from various jurisdictions. Excluding the effect of the impairments, the income tax rate would have been 20% this quarter.

Now looking at our segmented performance. In Civil, first quarter revenue was down 48% year-over-year to CAD248 million as a result of the significantly lower-than-usual training utilization and the suspension of manufacturing and disruption of installations and deliveries of simulators products to our customers worldwide, to the government-mandated travel bans, border restrictions, lockdown protocols and self isolation measures. Civil's operating loss before specific items was CAD16.2 million. On the other front, Civil book-to-sales ratio for the quarter was 0.78 times and for trailing 12-month period, it was 1.02 times.

In Defence, first quarter revenue of CAD280.2 million was down 13% over Q1 last year as the COVID pandemic continue to contribute to delays in the execution of programs from backlog and in order intake, while operating income from specific items was up 15% to CAD17.3 million for an operating margin of 6.2%. The Defence book-to-sales ratio was higher this quarter at 0.73 times and it was 0.94 times for the last 12 months.

Lastly, in Healthcare, the first quarter revenue was CAD22.3 million, down 19% from CAD27.5 million in Q1 of last year. Segment operating loss was CAD3.2 million compared to a loss of CAD2.8 million in Q1 last year. About half of the operating loss is attributed to the start-up costs for our new ventilator contract which have not contributed yet to core revenue in the quarter.

With that, I will ask Marc to discuss the way forward.

Marc Parent -- President and Chief Executive Officer

Thanks, Sonya. At the outset of the pandemic, we faced two essential questions as it relates to our business. How long would the crisis last? And how bad would it get? With the benefit of some perspective over the last five months, the positive news is that we believe the worst of the pandemic's impact on CAE may now indeed be behind us. However, the pace of recovery is unlikely to be linear or quick, and it will most certainly be dictated by the progression of the pandemic, and the rate at which travel restrictions and quarantines can safely be lifted and economic activity improves.

Global air transportation and air passenger travel were especially hard hit with IATA currently forecasting commercial passenger traffic to be down 50% to 60% this year and a recovery that could take three years before getting back to pre-COVID levels.

We continue to view the current fiscal year as a tale of two halves with the first half of the new year marked by lower demand and disruptions and the second half to potentially begin to inflect more positively. The timing of market recovery remains unclear, but we're confident in the long term fundamentals of the market we serve and we know this too shall pass. Looking ahead, we're planning CAEs future from a position of resilience and strength. We have global leading market positions and recurring revenue streams, attractive end markets in the Civil, Defence and Healthcare, as well as a solid financial position.

In Civil, as the global fleet eventually resumes service, we expect to continue building on our previously positive momentum, increasing market share and securing new customer partnerships with our innovative training and operational solutions. We're currently in advanced discussions with a number of airline customers to potentially do more for them. I believe the current context will lead to more airline training outsourcing opportunities as the industry looks for ways to gain greater agility and resiliency in the post-COVID-19 era. In Business Aviation, which represents a substantial part of our Civil business, demand is driven largely from addressing the regulated training needs of the already active global business aircraft fleet and the delivery of large-cabin business jets.

From this perspective, we continue to believe this segment of the market will fare better than commercial in the downturn. It will also likely recover faster. Demand for Civil full-fligh simulators is closely linked to new aircraft deliveries, and while the total market for simulators is expected to be substantially smaller this fiscal year, we expect to maintain our leading share of the available full-flight simulator sales. We have the benefit of a large backlog of customer-funded full-flight simulator orders, though, and several full-flight simulator deliveries from backlog should indeed be delayed, but the risk of cancellation remains low and we expect to substantially deliver this backlog over the next couple of years.

In Defence, we also benefit from a large backlog of contracts with government customers to provide training solutions and mission support services that are considered essential to national security. This week, we announced that Dan Gelston will become CAEs new Group President, Defence & Security, transitioning from Heidi Wood, CAEs EVP, Business Development & Growth Initiatives, who currently serves as Interim Group President. Dan brings a wealth of experience as a proven leader with more than 20 years of experience in the U.S. military, intelligence community, and the global defence industry. And he will be joining us on August 24 and based out of our Washington DC office.

In the current fiscal year, COVID-19-related issues are slowing Defence's progress toward program milestones on work in backlog, including for some of our more complex programs. The pandemic has also led to delays in contract awards globally and the structural effects of low oil prices has further impacted the rate of expected contract awards in the Middle East. More recently, the acceleration of new COVID cases in the United States has impacted our ability to deliver training service system from certain of our sites. Although Defence continues to be hampered by COVID-19 in fiscal year '21, the long term outlook for Defence continues to be for growth supported by a large addressable market for our innovative solutions and a realization of the benefits of our new leadership. Despite the near term headwinds, we're maintaining our leading position as a training and mission support partner, thanks to our leading-edge capabilities in translating the physical world into the synthetic world. We're expanding beyond training to become a leader in digital immersion. And with our expertise in the integration of live, virtual and constructive training, we believe that we will make attractive inroads into that market in the years ahead.

And in Healthcare, our purpose mission and passion is to make healthcare safer. We believe the significant changes brought about by this pandemic will result in a bigger role for e-learning and healthcare simulation and training. Looking forward, the secular shift ahead appear promising. We continue to believe CAE Healthcare is well-positioned to capitalize on this change in the appreciation of the benefits of healthcare simulation and training to improve safety and to help save lives, not only during a healthcare crisis, but also during more normal times. And with its innovative products and demonstrated agility, CAE Healthcare will be -- it is our expectation that CAE Healthcare will become a more material part of the company over the longer term.

We have a deeply rooted culture of innovation and a proven ability to adapt quickly to dynamic market conditions. The CAE Air1 ventilator, we just developed in Healthcare is a testament to CAEs agility and innovation. We rapidly applied the full gamut of our technical capabilities in response to the crisis and now are fielding new opportunities globally in the design, manufacture and sale of lifesaving ventilators. Tough times require new thinking and across all of our markets, we've adapted our offerings by introducing new ways to leverage virtual reality and distance learning technologies to serve our customers' critical needs.

CAE is a high technology company providing solutions at the leading edge of digital immersion. Our extended outlook remains highly compelling with potential for compound growth and superior returns over the long term. CAE employees, our most valuable assets, are imbued with a culture of innovation, empowerment, excellence and integrity and we expect to emerge from the pandemic even better positioned.

Our restructuring program is expected to yield approximately CAD50 million of annual recurring cost savings starting in fiscal year 2022 from initiatives including the introduction and acceleration of new digitally enhanced processes, and the optimization of our global asset base and footprint. At the same time, we're keeping up the pace of our investment and focus on technological innovation to reimagine the customers' experience and broaden our aperture to revolutionize training and operational support solutions. As our core end markets recover, the new normal that emerges could present novel challenges for our customers. We believe certain trends will arise in greater force post-COVID-19, such as e-learning, remote work, and even greater imperative on safety, and the accelerated digital transformation and virtualization of the physical world.

CAEs core capabilities aligns very well with these future needs and we fully intend to use the current period to further strengthen our technological expertise, and expand the aperture of how and what we bring to market. We're leaning forward to capture more organic growth by leveraging our leading-edge understanding of man-to-complex-machine interfaces and we continue to assert our leadership in attractive markets with long term secular tailwinds. Already, we are seeing excellent customer receptivity to our recent new technology developments in the area of machine learning-enabled data analytics, remote delivery and virtual reality/augmented reality and we'll be driving forward to excel on these new fronts, now more than ever.

To conclude, we are effectively managing the things we can control within this unprecedented environment. And we're decisively focused on the future and I expect we'll be ultimately stronger for it.

With that, I thank you for your attention, and we're now ready to answer your questions.

Andrew Arnovitz -- Vice President, Strategy and Investor Relations

Thank you, Marc. Operator, we'll now want to open the lines to financial analysts and institutional investors for questions.

Questions and Answers:

Operator

Certainly. Thank you. [Operator Instructions] And we'll get to our first question online from Fadi Chamoun with BMO Capital Markets. Go right ahead.

Fadi Chamoun -- BMO Capital Markets -- Analyst

Okay, thank you. Good afternoon.

Marc Parent -- President and Chief Executive Officer

Hi.

Sonya Branco -- Vice President, Finance and Chief Financial Officer

Hi.

Fadi Chamoun -- BMO Capital Markets -- Analyst

Just a couple of questions on the cash flow, maybe, Sonya. So if I look at your cash flow from operation before working capital, you've kind of more than covered your capex and development costs this quarter. Can we infer from that, that the Civil Aviation segment was also positive before working capital this quarter?

Sonya Branco -- Vice President, Finance and Chief Financial Officer

Thanks, Fadi. So, I think, I'm glad that you highlight this, so, despite the fact that more than half our training facilities were closed or reduced capacity and our Civil manufacturing was closed for more than half the quarter, overall, free cash flow was improved. And as you point out cash from ops, although much less -- or cash from ops before working capital, although much lower than last year, was still positive. So the business, overall, despite the challenges, was cash positive before working capital. And this applies to each of the segments, including our Civil overall and our training networks. So, despite living through one of the most challenging quarters in our history, I think it's a great demonstration of the resiliency and the cash generative model of CAE that our cash from ops was positive in this quarter.

Now, of course, we invested in non-cash working cap. Some of that has seen a bit of slowdown in some payments that we're managing through or with some of our airline customers, but a lot of it was still the impacts of the usual seasonality that we see. So if you take a look at the working capital accounts, a lot of the investment was on accounts payable side and that's really a reflection that we see every year of the higher production levels and activities in Q4, which then flow through in the first quarter, but at lesser revenue and obviously very much exacerbated in this quarter with a -- the fall on the revenue side. So, yes, to your point, overall, the cash from operations before working cap's positive and that's in all segments, including our training business.

Fadi Chamoun -- BMO Capital Markets -- Analyst

Okay. No, it's impressive that you can be cash flow positive before working capital, I guess, in a quarter where utilization are in the low 30%. But do you expect working capital to be kind of neutral, reverts back in the nine months coming? Like how do you kind of think about that for the balance of the year?

Sonya Branco -- Vice President, Finance and Chief Financial Officer

Yeah. And to your point, Fadi, so -- I think it's impressive, there's resiliency, but also it reflects a lot of the measures we've put in place on cost containment and levers to preserve cash and so that all contributed to the positive cash position. In terms of working capital -- so the first half usually is -- seasonality will drive some investments and then some reversal in the second half. And especially, I think that will be reinforced with kind of the second half inflection positive on free cash flow. So I expect on the free cash flow side, continue to be negative in the first half, positive in the second half and some of that will also, I expect, come from working capital as well.

Fadi Chamoun -- BMO Capital Markets -- Analyst

Okay, just one clarification. The cash flow guidance -- free cash flow guidance does not include the impact, like the cash impact from the restructuring plan that you announced or...

Sonya Branco -- Vice President, Finance and Chief Financial Officer

It does.

Fadi Chamoun -- BMO Capital Markets -- Analyst

...is that included? Does it...

Sonya Branco -- Vice President, Finance and Chief Financial Officer

Yeah, we have -- yes, it does. So, we've incorporated the cash impact of the restructuring. And as I mentioned in my remarks, it will -- we will execute this all throughout the next year. And so the cash profiling will follow some of that execution and so it will -- but it has -- it is incorporated in the free cash flow.

Fadi Chamoun -- BMO Capital Markets -- Analyst

Okay. And based on all of this that you just told me and given the expectations that things should get better in the next six to nine months as the business aviation market kind of recover, then the aviation market will recover, I'm thinking H1 plus H2 cash flow you're saying positive and then -- I mean, it'll be negative then positive, we should arrive at some outcome that is generally neutral to positive for the balance of -- like for the year at all.

Sonya Branco -- Vice President, Finance and Chief Financial Officer

We had -- both has. We will come to an outcome. We haven't provided guidance for the full year, a lot of variables, still. But the fact that we haven't guided strongly either way, negative or positive, kind of, infers with what you're thinking. Yes.

Fadi Chamoun -- BMO Capital Markets -- Analyst

Okay. One other question quickly. I mean, you talked a lot about the digitization of the model and there will be opportunities that probably come out of crisis like this. Is there a way for us to think about how much of the training that is conducted is not necessarily need to be conducted at the center -- at the training center itself, like you don't need a simulator to do it? It's a classroom kind of training. How much of that kind of training happen to be in the classroom that could potentially move into an online model in a permanent way going forward and maybe optimize this whole training solution further as we go into the next few years?

Marc Parent -- President and Chief Executive Officer

I'll take that, Fadi. I think that we don't have a number for it. But if you're taking an initial course, for example, wanted to fly an aircraft, typically you might spend -- if you look to your business aircraft, you may spend three, four weeks at the training center. And you're doing probably the equivalent of 2.5 weeks of that sitting in a classroom, but that's just a ballpark. Okay. It depends by aircraft. The rest, you're doing seven, eight rides in a simulator. So, I mean, that can give you some idea, but when we talk about the restructuring savings that we have and achieving permanent cost reductions going forward, so the $50 million we talked about, some of that is basically taking advantage of some of what you just talked about.

We've learned to do new things virtually during the pandemic, and at the same time, we've been investing quite substantially in digital over the last couple of years and we announced our Project Digital Intelligence, you'll remember, a CAD1.5 billion investment in R&D a couple of years ago that we did launch in Montreal. That, by the way, is why -- that investment is why we can turn ourselves around and go virtual, literally, overnight, because of the ability to do that.

But now, post-COVID, everything is going virtual. Okay -- and probably I shouldn't say that, but the world is obviously going virtual but definitely it -- digitization multiplied, maybe just exaggerating for effect, it increased tenfold. So, the investments that we made here, the processes leveraging digital is going to have substantial impact on how we deploy training in the classroom, specifically how we deliver simulators as well. So all these things that we're going after, getting permanent savings, that's where you're going to see it.

Fadi Chamoun -- BMO Capital Markets -- Analyst

Okay. Thank you.

Operator

Thank you very much. We'll get to our next question on the line from the line of Doug Taylor with Canaccord Genuity. Go right ahead.

Doug Taylor -- Canaccord Genuity -- Analyst

Yeah, thanks, good afternoon. One more question on the cash flow guidance. I'd just like to understand whether your guidance is contingent on utilization rates for the Civil Aviation business moving materially higher than the 40% that they've been -- you mentioned they're at presently or if you can achieve that same positive free cash flow with 40% throughout the balance of the year, for example.

Sonya Branco -- Vice President, Finance and Chief Financial Officer

I think it's a bit too early to give predictions on the level of utilizations. But we do expect the ramp-up to be slower than we saw. And so we factored that into our free cash flow predictions. That said, we do expect some sort of inflection in the second half to drive a better performance in the second half and that will be the driver of free cash flow improvement.

Doug Taylor -- Canaccord Genuity -- Analyst

Okay. The utilization, I mean, during the summer months usually is a bit slower, given the demand for products. I'm just wondering if that is at all a factor this year or if that whole seasonality thing can be completely thrown in the trash for this year when we look at utilization in July, August versus the fall and winter.

Marc Parent -- President and Chief Executive Officer

I'm sorry. We missed the first part of your question.

Andrew Arnovitz -- Vice President, Strategy and Investor Relations

I think I got it. [Speech Overlap] Doug, there is normally some seasonality to training demand. The way to think about it is when pilots in various regions are very busy flying, they're less busy on the ground in the training centers training. So in Europe, for example, the summer months are usually quieter in terms of training demand and they'll plan out their annual recurrence -- their recurrent training according to the demands of the flying schedules. But to your second point, everything is out of whack in this environment. I mean, having had the kind of operational disruptions that we saw through the first quarter and the demand shock, we got down to utilization levels, on average, in the network in the 20% range. So that's unheard of.

Doug Taylor -- Canaccord Genuity -- Analyst

Yeah. The way I suspect..

Sonya Branco -- Vice President, Finance and Chief Financial Officer

I may...

Doug Taylor -- Canaccord Genuity -- Analyst

Go ahead.

Sonya Branco -- Vice President, Finance and Chief Financial Officer

Just to add a bit more color on kind of some of the assumptions kind of underpinning the second half. We do expect some recovery, but also a higher level of deliveries. As you saw, we only saw two deliveries this quarter and so we do expect the deliveries to be very second half-weighted as well. So that will drive some of the cash flow performance as well.

Doug Taylor -- Canaccord Genuity -- Analyst

Okay. And one more question on the Civil side. I mean, I wonder if you could provide an update on what some of the regulatory bodies are doing with respect to relaxing the training requirements, which, I mean, certainly was a factor early in this COVID pandemic. I mean, would you say that's back to normal across your geographies or is that -- how do you expect that to continue to evolve over time?

Marc Parent -- President and Chief Executive Officer

No, but I haven't heard much about it at all in the last, literally, three months. So I think that was a one-off that would literally cater for the fact that people literally couldn't get to the training centers because of border restrictions, things like that. So, I think that one-off situation is behind us.

Doug Taylor -- Canaccord Genuity -- Analyst

That's helpful. I'll leave it there. Thank you for taking my questions.

Andrew Arnovitz -- Vice President, Strategy and Investor Relations

Thank you.

Marc Parent -- President and Chief Executive Officer

Thank you.

Sonya Branco -- Vice President, Finance and Chief Financial Officer

Thank you.

Operator

Thank you very much. We'll get to our next question on the line from the line of Kevin Chiang with CIBC. Go right ahead.

Kevin Chiang -- CIBC -- Analyst

Hi, thanks for taking my question here. If I could just dig into the utilization rate. Where we sit here today, the 40%, is there a way to think about what that looks like across your key regions, Asia, North America and Europe? And then if I were to split that between business and commercial training, is there a way to think of the difference in utilization between the two or is it all pretty static around 40%?

Marc Parent -- President and Chief Executive Officer

I think you'll find business aircraft's little bit more than Civil -- than commercial. The -- as an overall number, the -- I think I wouldn't really get big differences across the world. So let me just go to look at my notes here, but in the end, I know -- do have more details on it yourself with regards to data?

Sonya Branco -- Vice President, Finance and Chief Financial Officer

I have. So what we're seeing is that BAT is trending better than commercial comparing quarter over quarter. And in terms of regions, I think what we're seeing -- the hardest hit is really in -- the hardest hit is Europe. And that's what we're seeing. Asia, still impacted but doing pretty resilient but really Europe is where there is the hardest impact.

Marc Parent -- President and Chief Executive Officer

Yeah. North America really -- good training in North America continues to lead the way from that point of view. We've seen less impact there. Borders -- really as you saw the ramped up utilization, it was really -- really affected a lot with the opening of borders. And so, for example, Dubai opened up recently. So our Business Aviation activity will have -- will pick up quite substantially there because, for example, customers in the far east can't get to North America, because there's restrictions and we can serve their training demands on Business Aircraft in Dubai. That's just one example.

Kevin Chiang -- CIBC -- Analyst

Okay, that's very helpful color. And then secondly for me, just on the restructuring -- just wondering what the impact, if any, that has on the simulators deployed in your own network. Does this restructuring result in a shrinking of that network as maybe you get rid of simulators that might be tied to aircraft that has seen a significant decline in demand as airlines adjust their own fleet? Just wondering how that number trends as you go through this restructuring.

Sonya Branco -- Vice President, Finance and Chief Financial Officer

Yeah. So, I think one of the main impacts was the consolidation of some facilities, where we have overlaps. Now, by no means, are we exiting any markets, but really consolidating to create larger center, drive more efficiencies. Another part of that restructuring includes relocation of assets, so between training centers and then matching them up across our geographies to better align to where the demand is, and optimizing utilization. As a part of that, there will be some assets with excess capacity that will be sidelined and ultimately sidelined until volume comes back. So we expect about -- and about 20 units of assets that will be relocated across the network in total, and/or around 20, ultimately. And less than that -- that would be -- much less than that, that would be reduced.

Kevin Chiang -- CIBC -- Analyst

Okay, that's helpful. And maybe just last one for me, just maybe following on some of the previous questions around the increase in virtual training. And I appreciate, I guess, some of the cost savings there. But wondering, do you see that impacting maybe the relative capital intensity of Civil moving forward in the sense that it might reduce the footprint you might need when you think of what that -- the training center has to be in terms of size to flow a number of pilots? Like, is there a capital savings associated with the increase in virtual training or does that not impact that line item?

Marc Parent -- President and Chief Executive Officer

Well, I think it would impact it for sure. I think that the -- there's benefits from us, there's benefits from customers as well, right, if they have to spend less time at the training centers, very big cost savings for them, because they don't have to travel as much, be out of the line as long. So there is benefits on both sides. But, yeah, there is -- there will be some capital savings as well. I wouldn't call it a first order effect, but it definitely will affect things.

Kevin Chiang -- CIBC -- Analyst

Okay. Perfect. That's it from me. Thank you for taking my questions and best of luck for the remainder of the year.

Marc Parent -- President and Chief Executive Officer

Thank you.

Operator

And we'll proceed to our next question on the line. It's from Cameron Doerksen with National Bank Financial. Go right ahead.

Cameron Doerksen -- National Bank Financial -- Analyst

Thanks, good afternoon. A question on the, I guess, the Defence segment. So you've got a new leadership coming in there. Marc, I'm wondering if you could maybe talk a bit about what his priorities are going to be or, I guess, maybe what his marching orders are for the Defence segment, if there's anything different that you want to do there or any key priorities.

Marc Parent -- President and Chief Executive Officer

Well, I think, look, we're, first of all, very happy to have Dan on board. As I mentioned he has very, very strong credentials and track records in the defence industry in the jobs that he has done, as well as in the -- in U.S. military and Intelligence Committee. So I think, look, he's picking up the baton from Heidi Wood who has done a great job over the last few months at stabilizing our Defence business and laying a path for growth. And for me, it's all about executing growth. Look, you've heard me talk a lot about but that -- I think, look, this -- I think, this year 2021 is a transition year for Defence. There are lots going on, we -- as we won't go back on everything we said. But I guess just what I -- just give you one data point right now, because of the impact of resurgence of COVID in United States, look, our activity at our training center in Florida on C-130J's where we train primarily our foreign customers is most -- is more -- is harder hit now than it was back in March and April. So that gives you one idea.

So -- but to me it's -- the priority is growth. There is a growth market, we see a very, very sizable market. We've talked about that many times, and Dan really seizes upon that and his makeup is a growth-oriented individual, has a solid track record, used to working, by the way, in the kind of construct that we are and having special security agreements and selling into, for example, U.S. market. So I think we're going to -- I think that for me is -- it's all about growth, growth beyond this year. Because this year is about stabilizing what we have and in -- because this is a tough year, but stabilizing and growing.

Cameron Doerksen -- National Bank Financial -- Analyst

Okay. No, that's great. And maybe second question from me, just on the -- your -- shifting over to Civil. You mentioned that you're in some, perhaps, advanced discussions with some airlines about potential outsourcing opportunities. Is that something you think you can execute on, this fiscal year and then what's your willingness to deploy capital into any of those opportunities?

Marc Parent -- President and Chief Executive Officer

Yeah, I think we definitely can secure some of those opportunities this year. Look, I don't hold the customers pen on signing the contract, but clearly I think there is a -- we have a very compelling solution to bring to bear, especially in these times. So I do think we'll see the opportunities, and we're in advanced discussions with a number of customers, as I talked about. And yeah, we will deploy capital, because as we've demonstrated over the past few years, when we deploy capital in our training network, it's very accretive and relatively fast. So we're quite happy about that business. Of course, it's our core business. We know it well. So, yeah, absolutely, we will seize upon those opportunities and I think we can secure some.

Cameron Doerksen -- National Bank Financial -- Analyst

Great. That's all for me. Thanks very much.

Marc Parent -- President and Chief Executive Officer

Thank you.

Operator

Thank you. We'll go to our next question on the line. It's from Konark Gupta with Scotiabank. Go right ahead with your question.

Konark Gupta -- Scotiabank -- Analyst

Thanks, and good afternoon. Sorry to beat the dead horse here. Just on the utilization, if I go back to your comments back in May, I think you were suggesting 20% [Technical Issues] in April at the low point and then 25% to 30% in May. So if I do the math, perhaps you might have been in the mid 40% range in June to get to the 33% for the full quarter. So first, is that math correct? And have you seen that mid 40% sustained in the first 40 days of this current quarter?

Marc Parent -- President and Chief Executive Officer

Well, we -- I think we averaged about 33% as we said in the quarter. And we're in the 40s and look, it's pretty much in line with the growth of the fleet. I mean, the correlation between the globe -- you take the fleet of aircraft flying around in the world today and look at the increase, I think, you will find a very high degree of correlation between that fleet activity and the level of utilization in our training centers, which you might expect, because, of course, it's a regulated market. So that's about what I would say on it, Konark.

Konark Gupta -- Scotiabank -- Analyst

Okay. Thanks, Marc, for that. And then just trying to reconcile some numbers here. So if I look at the training center utilization, as well as the military deliveries in Q1, they were both down more than 50% versus last year, but the revenue was down only 48%. So just trying to understand the mix, it seems like it's coming from Business Aviation, as you said, the utilization was better and which we probably do not see in the utilization numbers. Is there anything to the mix and revenue that should have driven revenue better than utilization and deliveries?

Sonya Branco -- Vice President, Finance and Chief Financial Officer

Not really. I think there's so many different elements to the Civil portfolio. I think 48% down on revenue and about half on -- more than half on the utilization. So it's pretty much aligned and we kind of see similar level of reductions across the board on the portfolio item.

Konark Gupta -- Scotiabank -- Analyst

Okay. That's great, Sonya. And on the backlog side, so obviously the order activity was reasonably OK, I guess, compared to where the revenue loss. But there was some adjustments in the backlog that kind of led to, I think, a decent decline in the backlog. Can you kindly help us understand the nature of those backlog adjustments in terms of the amount or nature of maybe cancellations or adjustments? Thanks.

Sonya Branco -- Vice President, Finance and Chief Financial Officer

No cancellations on any front, so no cancellations included in that adjustment number. It is larger than usual and one of the items was there is a meaningful negative effects element, more than CAD100 million. The Canadian dollar appreciated quite a bit since the March and we always revalue the backlog to the current FX. So, quite a large impact on FX and the remaining really reflects the impact of the training requirements and demand that we see from customers who've gone through their planning and their process of realigning operations and their fleets and working with us. So that captures some of that revised training demand in the near future.

Konark Gupta -- Scotiabank -- Analyst

Great. And last one for me. On the working capital side, so the inventory seems to have gone up sequentially. Are you building any white tails[Phonetic] in anticipation of any last-minute orders or that inventory balance is entirely for the contractual revenue in the second half?

Sonya Branco -- Vice President, Finance and Chief Financial Officer

Yeah. So, no, there are no investments in white tails. We're actually being quite rigorous and frugal on inventory management as part of our cash preservation and non-cash working cap management measures. What you see there is really a reflection of the fact that we only delivered two simulators in the quarter. And so you're building up your working process in anticipation of deliveries for the rest of the year.

Konark Gupta -- Scotiabank -- Analyst

Great. That's it for me. Thank you.

Operator

Thank you very much. We'll get to our next question on the line from Derrick Gut with JFL. Go right ahead with your question.

Derrick Gut -- Jarislowsky Fraser Limited -- Analyst

Hey, Marc, thanks for taking the question. On the topic of virtual training, do you think longer term, that you'll get FAA approvals and approvals around not having to come into your centers? Do you think that lowers the bar for competition and brings the moat down thinking longer term and the ability on you to increase pricing power in this vein?

Marc Parent -- President and Chief Executive Officer

No, I don't see it. I really don't. I think it makes us stronger to be very frank with you. I mean, people still have to come to the training center to do the full-flight simulator training and to the extent that -- with the tools that we can provide to be able to do it virtually, that makes -- and using all of our simulation suite that we can make it seamless for them, I think it makes us even stronger, better. So I would have the reverse conclusion.

Derrick Gut -- Jarislowsky Fraser Limited -- Analyst

Sure. Thanks.

Operator

Thank you very much. We'll get to our next question on the line from the line of Benoit Poirier with Desjardins Capital Markets. Go right ahead.

Benoit Poirier -- Desjardins Capital Markets -- Analyst

Yeah, good afternoon, everyone. Looking at simulator delivery, I understand that the Q1 was pretty abnormal with only two, but when we look at the last two years, you delivered 58 and 66 deliveries. So how should we be thinking in fiscal '21 and fiscal '22, given the current market conditions?

Marc Parent -- President and Chief Executive Officer

Well, I won't go into fiscal '22. I think I would tell you that our assumption is we'll deliver about 35 to 40 this year, very much geared toward the back half, because, for obvious reasons, we're delivering all over the world, and some places we're -- that we're delivering to are -- still have restrictions on how we can get there. So, like I said, 35 to 40 for this year -- back, really much in the back half. And I'm not getting into the next year, we'll update that as we go forward.

Benoit Poirier -- Desjardins Capital Markets -- Analyst

Okay. And Marc...

Andrew Arnovitz -- Vice President, Strategy and Investor Relations

Hi, Benoit.

Benoit Poirier -- Desjardins Capital Markets -- Analyst

Yes.

Andrew Arnovitz -- Vice President, Strategy and Investor Relations

The only thing, maybe, I'd add to that, we did say in our earlier remarks that we have a large backlog there that's funded by customers that we expect to substantially deliver over the next couple of years. It is just that it is a large backlog. And while we can't, at this point, precise what those delivery numbers would look like into the next fiscal year, I think you could infer that there is a large backlog there and as things ease up, we will substantially deliver it. So if you're sensing of whether there is a sort of a cliff impending, I wouldn't think that.

Marc Parent -- President and Chief Executive Officer

Now, that's -- one of the effects that we have is the large backlog that provides a level of support for our business for quite a while.

Benoit Poirier -- Desjardins Capital Markets -- Analyst

Okay. And if we stay in Civil, what are you seeing in terms of demand for training services in second half in the context of the training bubble that you talked about in Q1?

Marc Parent -- President and Chief Executive Officer

Well, I think, look, we made certain assumptions. I would tell you that it's very very fluid. We -- airlines are in large cases are predicting their training demand month by month, literally. So we're staying close to our customers, we have made certain assumptions, when we talked about predictions for cash for this year. I don't think we've made outlandish assumptions with regard to what that bubble will be. But I think we sized ourselves to be able to seize the opportunity, but the situation is very fluid, as I said. So it's hard to predict how and when that will happen.

Benoit Poirier -- Desjardins Capital Markets -- Analyst

Okay. And if we go on Defence, the active bid proposal increased substantially from CAD3.6 billion in Q4 to about CAD5 billion. So could you talk about the reasons behind the increase and also from a margin standpoint, what we should see in fiscal '21, given the mix between services and equipment?

Marc Parent -- President and Chief Executive Officer

Well, I think that, what I'll tell you, I think the size of the backlog -- sorry, the amounts of business proposals is going up. We've been -- we haven't stopped on that front. We're still writing proposals and that's the key to this business. Now what you see is a couple of things. Right? First of all, we're bidding on larger contracts, we have the ability to be able to do that. At the same time, the awards have magnified [Phonetic] so that's -- the ones that we would have liked to already have the order at hand is still in the bids and proposals. So, that's more than the negative part. Look, in terms of margin, I think we'll just stay or may let Sonya comment on that, but no big guidance on that one. Well, you want to...

Sonya Branco -- Vice President, Finance and Chief Financial Officer

Yeah. So as Marc mentioned, I think we will continue to see short-term visible disruptions throughout the year on execution of contracts and advancements as these travel restrictions and lockdowns continue. So we're kind of seeing this as a transition year, growth beyond, but a bit of a transition year and it -- the margin will be impacted by the level of advancement on these programs because, as you know, they're mostly product programs. So they're highly contributive to the SOI [Phonetic] margin disproportionately so, and also on order intake. Right? So we've seen delays in Q4 and Q1 on order intake, especially on the product side, and so that's contributing as well. So as that continues to impact us, I think, we'll continue to see a bit of impacts on Defence throughout the year.

Benoit Poirier -- Desjardins Capital Markets -- Analyst

Okay. And what would be the mix between equipment and services in Q1, specifically for Defence and are you expecting a big shift toward the Q2 in the second half, Sonya?

Sonya Branco -- Vice President, Finance and Chief Financial Officer

Not necessarily in the second -- in the second half, we do see some shift in order to support kind of like a stronger second half. In this quarter, it was in the 30s which is much lower than usual.

Benoit Poirier -- Desjardins Capital Markets -- Analyst

Okay, that's great. Okay. And last question for me. With respect to government subsidies, what should we expect in terms of subsidies in Q2 and maybe the second half?

Sonya Branco -- Vice President, Finance and Chief Financial Officer

It is hard to say, because some of these programs, the criteria keeps -- or gets updated. We are operating in three different countries and these measures are really shifting in every country. The most important one is here in Canada, of course. For the most part, certain locations like Europe, etc, these subsidies are straight flow throughs to employees that have been furloughed or impacted. So on the Canadian side, it really will depend on the -- on CAE's eligibility criteria. So we were eligible in this quarter and so we continue to monitor on whether we will continue to be eligible in the coming months.

Benoit Poirier -- Desjardins Capital Markets -- Analyst

Okay, perfect. Thank you very much for the time.

Marc Parent -- President and Chief Executive Officer

Welcome.

Sonya Branco -- Vice President, Finance and Chief Financial Officer

Welcome.

Operator

Thank you very much. [Operator Instructions] And we'll go to our next question on the line from Tim James with TD Securities. Go right ahead.

Tim James -- TD Securities -- Analyst

Hi. Thanks, good afternoon. Maybe a question here for Marc. The press release that you put, CAE is applying digitally immersive technologies to further differentiate solutions and address a wider range of customer needs. I'm just wondering if you could please expand on sort of what that wider range of needs could include.

Marc Parent -- President and Chief Executive Officer

I guess, I won't get into too much right now, Tim. But you might think about -- look, at the end of the day, CAE is a technological power and we've demonstrated -- I talked about that in my notes that we've demonstrated speeds, how we could bring that to bear in an extremely short amount of time in the development certification of the simulator. This was not a -- I'm sorry, the ventilator, and I keep coming back to that because it's the quintessential example of what can be done. This is not a simple device. It's a life saving device, certified the highest levels of Health Canada, not a watered down pandemic requirement -- a real requirement for use on most critically ill patients in an ICU setting, [Indecipherable]. So the fact that we're able to do that, again, not a build to print, a new design and completely build it and now are producing 10,000 units for the Government of Canada is testimony to the technological capabilities of this company and the culture by which we do it. So you think about how that can be translated if you're -- and by the way, we demonstrated that in the ventilator, but if you think about what we've -- what -- who we are, we've always been a technology-based company.

We -- our focus has been on the -- a world of training in our core markets and that -- we will continue to excel at that. But if you should think about a ventilator, a ventilator is not a training device. Now it is, when we combine it with a full training suite, in fact, we could basically -- the expertise that we have to be able to -- subject matter expertise that we need to be able to develop came from the fact that we're training experts. So there is a lot more we can do with that technological capability. In Canada, for example, just as a, for instance, if, I think, Canada walked into this crisis with no indigenous capability to be able to do ventilators in Canada, that's why Prime minister Trudeau announced three Canadian companies to be able to do so. Now, I don't think Canada ever wants to get flatfooted again in that kind of situation. So there is a talk about self-sufficiency. Just the fact that Canada buys -- makes it's own ammunition for weapons, not because it couldn't source it from anywhere else in the world, because of the fact that there was an emergency war time, kind of, like situation, they don't want to have to rely on somebody else for bullets.

Well, now that kind of thinking has been turned to medical equipment. Obviously, we hear a lot about it, personal protective equipment that kind of thing. So if we have this competitive edge, and we do believe it's competitive, by the way, right out of the box. You might think that -- and we are seriously looking at that, can we continue providing that type of equipment, not only in Canada. And that's just one example. Well, I can think of a whole host of example. I brought in Heidi Wood as our Head of -- at my level Executive VP of Business Development and new growth opportunities. And I think what's important here, as I brought her in before this pandemic ever was -- had seen the light of day, because we've -- we have been thinking for a while that there is a lot of areas that we can leverage our technological capability. But now, of course, post-COVID in the Civil Aviation market that -- with all of the -- we're not going to be a Pollyanna and think that's going to come back anytime soon.

But we think, there are a lot of things that we can do to -- that are -- be able to grow within the -- well, obviously we do things like capture more outsourcing opportunities, grow Defence, grow Civil, but take the technological capabilities that we have, including very large capabilities in digital and leverage that into other areas, not necessarily new markets, markets we're in, but deepening our share of wallet with customers. And that's right in line with what we do, because we always -- right embedded in our vision of the company is partner of choice and that's what we do. We get into with our customers. We don't -- we're like, yeah, we'll try to sell you a simulator, we'll try to sell you training, we'll supply you with -- but more importantly, we get into a relationship and we stay connected because of our focus on delighting that customer and providing technological-based solutions that enable them to answer some of those critical needs that they have. So that's what we're talking about.

So watch -- Well, I think I'll have to watch those over the next few quarters and watch stuff we'll do, but certainly we're going to put some bets down. We're going to put some bets down. I think we should do that and I think that we're very good at agile and if you've heard the term I like, it's -- and that's well used in Silicon Valley and places like that, it's about fail fast, try things, use agile methodologies and fail fast, test them on your customers, get some customer feedback and see if they work, see if you get traction. That's the kind of things we do. Long answer, not a lot of specifics but that's what I'd give right now, Tim.

Tim James -- TD Securities -- Analyst

Okay. Thanks, Marc. My next question. I'm wondering if you could talk about that portion of Civil equipment revenue that isn't just the big ticket full-flight simulators. Approximately how significant is that portion of Civil equipment revenue relative to full-flight simulator sales? And is it more or less stable under current conditions or conditions of weakness because it's easier to meet milestones, deliver the product, it's not impeded by travel restrictions, etc?

Marc Parent -- President and Chief Executive Officer

I think what we would call the aftermarket PDS [Phonetic] type services, I don't think we've ever supplied the breakdown.

Andrew Arnovitz -- Vice President, Strategy and Investor Relations

Yeah. Tim, we don't actually break that out, but I would say that it's a fairly significant part of the business we do in Civil. It's mainly driven by regulation. So that is to say whenever an aircraft is updated usually every couple of years, the aircraft systems, the simulators needs to be updated and then there are regular maintenance items as well. I mean a simulator will run day in and day out for 25 years or more. So you can imagine that there are things that have to be updated just by virtue of where and others that need to be updated by virtue of regulation. So typically, on a simulator that we'll sell, we'll generate about CAD1.5 million to CAD2 million of PDS revenue or updates and upgrades over its life span on it in the installed base.

Tim James -- TD Securities -- Analyst

And is it fair to say that, that aftermarket revenue source is more stable during times like this than just the outright sale and delivery of flight simulators, I assume?

Marc Parent -- President and Chief Executive Officer

Well...

Sonya Branco -- Vice President, Finance and Chief Financial Officer

It -- go ahead.

Marc Parent -- President and Chief Executive Officer

No, I think it's affected as well. Everything at the airlines that has been affected by this crisis and that has been affected as well.

Sonya Branco -- Vice President, Finance and Chief Financial Officer

And travel restrictions.

Marc Parent -- President and Chief Executive Officer

Yeah. Travel restrictions. Within a lot of cases, to be able for us to deploy those solutions, we have to travel and with the restrictions that we have, we haven't been able to travel as well. So I wouldn't make the assumptions that, that is -- I mean, maybe a little bit more stable, but I wouldn't say materially.

Tim James -- TD Securities -- Analyst

Okay, thank you. My last question, just want to turn to the 737 MAX. I mean, over the next couple of years, it's going to be sort of moving a little differently, I think, relative to a lot of the commercial aircraft platforms, given the challenges that it had in the past. Do you have any sense for the timing of kind of deliveries at this point and training demand outlook for that platform and when you expect that, that could begin to positively impact financial results? Is it as simple as kind of thinking about when the grounding is lifted and deliveries of the aircraft resume that coincidentally, sort of, your revenue will ramp up?

Marc Parent -- President and Chief Executive Officer

Well, most certainly and even before, because they obviously have to train their crews ahead of time. So I think we work very, very closely with Boeing, specifically, in assisting them through with the certification efforts and a supportive activity for -- as it relates to training and of course you would expect us to be doing that because we have the lion's share of all the simulators that have been sold on the 737 Max. So we're very close to that story. And we think that Boeing's making great headway with the certification authorities. I think we saw recently the FAA's through their notes to propose rule-making with a commence date that's very soon. So that to me is a signal that things are closed. And they have to get it certified for that certification of the aircraft and certified for operations. I think that should follow pretty quick, I would think. But you'll have to ask Boeing for that.

But I think suffice to say that as soon as that restrict is lifted and airlines will -- I'm sure will be taking the airplanes, that's an airline to airline situation, but we are -- well, you saw Michael O'Leary at Ryanair saying he's definitely going to take all his aircrafts. That's what he said, and they're our good customer. So I'm sure that they're maintaining their training on the 737 MAXs. So I think we'll be in lockstep with delivery of the -- the return to service of the various fleets of aircraft.

Tim James -- TD Securities -- Analyst

Great, thank you very much.

Andrew Arnovitz -- Vice President, Strategy and Investor Relations

Operator. I see we've gone over the -- a lot of time, a bit here. So I think we'll conclude the Q&A session for analysts and investors now. And we'll open up the lines to the members of the media.

Operator

Certainly. [Operator Instructions] And we'll get to our first question on the line from the media from Allison Lampert with Reuters. Go right ahead.

Allison Lampert -- Reuters -- Analyst

Thanks. Are you seeing any increase in pilot training on wide-body models like the Boeing 757 [Phonetic] due to the industry's demand for cargo flights?

Marc Parent -- President and Chief Executive Officer

Well, we definitely see cargo going up for sure. The cargo carriers are having a really high level of activity because of -- almost everything is online shopping, which certainly is the big thing in my house. So I think that -- yeah, we are seeing more opportunities for cargo carriers. Absolutely.

Allison Lampert -- Reuters -- Analyst

Can you specify at all, is the training on the wide bodies in your centers?

Marc Parent -- President and Chief Executive Officer

I can't really know. We -- look, I would tell you, we don't have a huge amount of wide bodies in our training centers. It's more -- and we have some, but it's more a narrow-body fleet. Now what you see though is more airlines actually using even narrow bodies to carry the increased levels of cargo because the lion's share of -- even though there's dedicated cargo carriers, a large lion's share of the cargo is carried in the belly of aircrafts. So there may be less passengers, but there is more cargo in a lot of cases. So I can't really be more specific than that, to be honest Allison.

Allison Lampert -- Reuters -- Analyst

And just one last follow-up. How much demand do you see for pilot training in the United States or opportunity given the retirements you've just seen and potential furloughs in October?

Marc Parent -- President and Chief Executive Officer

I think, look, this -- the level of activity for training right now in North America is pretty good, it's pretty high. I would say -- one thing I would point to you, it's not necessarily simulators-based training but I'd point you with the -- on the training of pilots, it's interesting, you might think that -- you talked about furloughs of pilots or that there will be no demand for pilots, but when we look at the industry overall dynamics over the next few years, two, three years, there will be a need for pilots -- new pilots because of the ones that are being furloughed that I think it's -- we now have just one contract that we received -- that we announced in my notes from Boeing where they put us on a contract for pilots.

So therefore you see they are being bullish on the fact that there will be pilots needed for the future -- new pilots. And I would add to that and we're the largest -- we're the largest company in the world in terms of training pilots to become pilots, so not using simulators, but using our training aircraft in our various training operations. And what I can tell you is none of the airlines that we trained, and we trained a lot of cadets for airlines, none of them have reduced their level of activity, which again is testimony to the fact that, yes, there is a tough time right now and there's aircrafts being parked, so there is furloughs, there's early retirements. But, if you like, if you thought about what we were talking about literally in February is how -- where are we going to get all these pilots. Now we have a situation of furloughs, but things will come back and it takes two -- depending on where you are in the world, it takes two to three years to train a new pilot. So we see it renew in demand and I think if a youngster wants to become a pilot, it's still a good time, as far as I'm concerned.

Andrew Arnovitz -- Vice President, Strategy and Investor Relations

Okay. Operator. I see there are no more questions queued up. And so I want to thank everybody for joining us this afternoon for listening to our remarks. If you'd like to get a transcript of today's remarks, they will be made available on CAE's website at cae.com. And again thanks for joining us.

Operator

[Operator Closing Remarks]

Duration: 74 minutes

Call participants:

Andrew Arnovitz -- Vice President, Strategy and Investor Relations

Marc Parent -- President and Chief Executive Officer

Sonya Branco -- Vice President, Finance and Chief Financial Officer

Fadi Chamoun -- BMO Capital Markets -- Analyst

Doug Taylor -- Canaccord Genuity -- Analyst

Kevin Chiang -- CIBC -- Analyst

Cameron Doerksen -- National Bank Financial -- Analyst

Konark Gupta -- Scotiabank -- Analyst

Derrick Gut -- Jarislowsky Fraser Limited -- Analyst

Benoit Poirier -- Desjardins Capital Markets -- Analyst

Tim James -- TD Securities -- Analyst

Allison Lampert -- Reuters -- Analyst

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