TORONTO (Reuters) - Flight simulator maker and training company CAE Inc said on Thursday it plans to lay off 700 employees, or 10 percent of its workforce, mainly to offset softness in the aerospace market.
The Montreal-based company said the job cuts would come in two phases, with 380 layoffs over the coming weeks, and the remainder in the fall.
CAE said it expects just 20 orders for flight simulators in the current fiscal year, down from 34 last year.
At the same time, the company said its quarterly operating earnings rose 9 percent from a year earlier, helped by a strong backlog and an increase in military orders.
“The measures we’re taking are to make sure that we can maintain our leadership in the market,” Robert Brown, CAE’s president and chief executive, said during a call with analysts and reporters.
About 600 of the layoffs will be in Montreal, where CAE builds the simulators. The rest will be in various locations in the 20 countries in which CAE operates.
The company said a majority of the jobs being lost relate to the manufacturing of simulators, with some engineering jobs also being cut and 70 management positions eliminated.
“By these measures, 90 percent of the employees are ensuring their position,” Brown said. We’re “also in a period where people have to go out and renew lines of credit from banks, so we’ve got to continue to show good performance to make sure that we can attract the investors and make sure the banks are going to continue to fund us.”
Other cost savings measures include a company-wide salary freeze, mandatory unpaid days off, new limits on overtime, and early retirement incentives to qualifying employees.
CAE said it expects a restructuring expense of about C$34 million ($28.8 million) related to the layoffs to be recorded in the first quarter. It said those charges would be offset by cost savings of about C$15 million annually.
In February, the Canadian government announced that CAE, along with a group of other companies, had been awarded a C$329.5 contract to build flight simulators for military transport aircraft.
CAE said the program would create about 330 jobs in the group of companies in the first three years of the contract, and that 50 jobs would be maintained to support the program over the next 20 years.
Brown said on Thursday that the federal contract meant that the decrease to the company’s engineering workforce was more muted compared with cuts to other areas.
The CAE staff cuts echo those of Montreal-based Bombardier Inc, which said in early April that it planned to lay off 3,000 people globally due to the downturn in the aerospace market. Those cuts came on top of 1,300 layoffs announced by the plane and train maker in February.
CAE’s fourth-quarter earnings from continuing operations were C$51.3 million, or 20 Canadian cents a share, up 9.1 percent from C$47 million, or 18 Canadian cents a share, a year earlier.
Analysts had forecast an average profit of 19 Canadian cents a share, before exceptions, according to Reuters Estimates.
Net earnings were C$51.3 million, versus C$35.6 million a year earlier.
Revenue rose 19.7 percent to C$438.8 million.
CAE closed the quarter with a backlog of C$3.2 billion in orders, up from C$2.9 billion a year earlier.
The company said its military contracts totaled C$1.09 billion in the quarter and its training and services civil aviation unit signed contracts valued at about C$464 million.
CAE shares were down 13 Canadian cents, or 1.8 percent, at C$7.12 on Thursday on the Toronto Stock Exchange.
Reporting by John McCrank; editing by Rob Wilson