Airlines difficultly find pilots to meet their expansion plans in the coming years. But this will give the companies for training pilots a boost. Ryaniar, the largest low-cost airline, said this month that pilots’ strikes would affect its profit.
The US wage costs are also rising and the three largest carriers, United Airlines, Delta Air Lines and American Airlines, are recruiting more people and announcing opportunities for their employees to be trained for pilots.
The global air traffic should increase by about 4.6% per year by 2030, meaning that nearly 70,000 new pilots per year will be needed, according to the International Civil Aviation Organization (ICAO). Currently, however, there is a training capacity of some 44,000 people.
The pilots are mainly benefiting from this, but equity investors can also benefit. The lean Canadian CAE has a global network of pilot schools and trains 120,000 people per year. If this does not sound like a very good business model, the competition between schools is great. CAE controls almost 60% of the world civilian simulator market. Airlines want to expand simulator training because it is cheaper than using real airplanes. The company is also a major player in military airplane simulators. This market may expand as Western economies again increase their military budgets.
It is true that the CAE shares, which market capitalization reaches 6.6 billion CAD (5.1 billion USD), are no longer cheap. They rose more than twice in the past five years, compared to 19% growth for the Canadian Stock Exchange as a whole, and are traded at 19 times higher expected earnings, slightly above the level with other defense companies.
CAE, however, has low debt and double-digit margins, and there is growth potential through new joint ventures in Latin America and Asia, where the need for pilot training is the most acute.
The company is one of the few ways for investors to take advantage of the shortage of pilots.