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Mechtronix preparing to add widebody aircraft simulators to offering

Dec. 29, 2008, Montreal - Flight simulator manufacturer Mechtronix hopes to add widebody aircraft training devices to its product lineup within three years.


December 29, 2008
By Ross Marowits

Dec. 29, 2008, Montreal – Flight simulator manufacturer Mechtronix hopes to add
wide body aircraft training devices to its product lineup within
three years as it prepares to ride a long-term global wave in the
aerospace industry.

“We've done just about every single aisle airplane so we will
probably go to twin aisles, which means widebody, in due time,''
Xavier-Henri Herve, the company's president and chief operating
officer, said in an interview.

Sitting in the cockpit of an Airbus320 full-flight simulator
being tested ahead of shipment to China, Herve said he has high
hopes for the Montreal company he helped found with some Concordia
University graduates two decades ago.

“It's kind of like we're at the Olympic Games and so far we're
winning bronze and I think we're very quickly going to be winning
silver.''

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With about $70 million in annual sales, Mechtronix is the world's
third-largest aircraft simulator manufacturer behind Montreal
neighbour CAE Inc. (TSX:CAE) and France's Thales Group.

Only a decade after it began to sell simulators, the company
claims to control between 10 and 20 per cent market share. Its sales
have grown about 40 per cent annually in the last four to five years
by offering cheaper devices that cater to smaller Tier 2 and Tier 3
airlines. A new three-storey office building with 100 work stations
is slated to open early next year.

“We've grown by servicing markets that were not serviced
before,'' Herve said, noting that 90 per cent of the company's
products are sold outside North America.

By replicating the training experience using computers instead of
old airline parts, Mechtronix removed 80 per cent of the wiring to
offer an alternative to classic simulators.

The move has pushed down simulator prices, which range between $5
million and $15 million.

Video footage of airports around the world help software
developers to make pilot training life-like.

Evaluation pilot Harry Warth said every emergency situation,
weather condition and airport configuration is programmed into dat
bases purchased by customers to offer the required pilot training.

“(The program) changes every time a significant event takes
place,'' he explained, noting recent upgrades resulting from wind
shear and icing incidents.

On a recent test flight, a wanna-be pilot who has earned his
stripes practising on video games, used a joy stick to navigate
around a thunderstorm before the fibreglass enclosed simulator
thrust suddenly as the mock aircraft landed at Hong Kong's airport.

In addition to simulating flying on A320 and Boeing 737s,
Mechtronix, which has 280 employees, also services the market for
initial pilot licences in smaller aircraft such as Cessnas.
 
Global demand for simulators is expected to grow over the next
two decades as emerging markets particularly in Asia and the Middle
East seek to train an estimated 20,000 new pilots. Retirements and
updating of fleets in North America and western countries will also
boost demand.

Aircraft manufacturers Boeing (NYSE:BA) and Airbus have order
backlogs for thousands of airplanes as flying becomes more common
around the world.

While the long-term looks solid, the financial credit crisis and
the slowing global economy may undermine growth in 2009, said Herve.

“I suspect you're going to have quite a slowing in the market
orders in the first six months of the year,'' he said, adding that
no one really knows how the recession will affect simulator orders.

Some customers have sought payment delays. But new orders for
entry level training, often a first sign of the health of the
industry, continue to be strong.

Herve said Mechtronix is in a good position to withstand market
changes and slower sales. Herve said the manufacturer's smaller size
gives it flexibility in its cost structure to adjust to market
flows. And its financial position was recently bolstered following a
$39-million equity infusion from Richardson Capital Ltd.

The long-term private equity investor joins the Caisse de depot
et placement du Quebec as outside shareholders.

“We wanted to clean our debt structure and be more balanced in
terms of debt to equity,'' he said, adding that Mechtronix's banks
weren't comfortable with its high debt levels.

The cash infusion also paved the wave for a corporate
restructuring. Mechtronix World Corp. becomes the new holding
company with three units: the simulator manufacturing business known
as Mechtronix Systems, financial assistance offered by Mechtronix
Capital, and staffing provided to customers by Mechtronix Aviation
Services.

Aerospace analyst Cameron Doerksen, who covers CAE for Versant
Partners, wouldn't comment specifically on Mechtronix but said the
simulator business's long-term prospects are solid.

“There's some uncertainty short-term because the customers are
exclusively airlines. But longer term there's going to be
significant growth in pilot training, which by definition requires
more simulators,'' he said in an interview.

THE CANADIAN PRESS