Company head says failure to win US Army contract could be a sign of things to come

CAE's failure to win a C$1 billion ($740 million) contract from the US Army for Flight School XXI to train helicopter pilots could be a sign of the new reality facing Canadian aerospace firms dealing with the USA, says CAE head Derek Burney.

CAE's joint bid with Boeing was 16% lower than the "all-American" Computer Sciences winning team, Burney says.

He adds that the real lesson of the loss is that "Canadian firms may now have to overcome two handicaps when competing in the key American market - the longstanding handicap that they are not American and a new handicap in the post-Iraq environment that they are Canadian.

"CAE has been successful with other US defence contracts and expects more in the future. However, we are under no illusion that the task will be more difficult in the absence of an improvement in Canadian-American relations," Burney says.

But one analyst says this position may be overstated. The push by US lawmakers for a "buy American" clause in the 2004 defence authorisation bill poses a bigger problem for non-US aerospace firms than a refusal to send troops to fight in Iraq. The proposed clause would prevent US armed forces from using foreign-made military equipment.

Burney also defends CAE's decision to accept an offer by a syndicate of investment bankers to purchase new common shares via a bought deal at a guaranteed value of C$6.58 a share for a total of C$175 million.

One Toronto newspaper columnist blamed Burney for "poor disclosure" and called the deal a "debacle and ugly" because CAE revealed it had lost the Flight School contract before it had the money, which caused CAE stocks to plunge.

Burney argues the investment bankers knew a decision was imminent, but no announcement was made when the deal was done.

"The bankers assumed this risk knowingly, with the bought deal in no way contingent on the outcome of the US competition," he says.

Source: Flight International