A Financially Healthy Simulation & Training Market

A confluence of dynamics and forces has created a favorable financial environment for much of the simulation and training industry, from the OEM level down through lower-level content suppliers and service providers. Of added importance, these trends and developments transcend the military sector and are also evident in select, adjacent high-risk community training enterprises – civil aviation and safety critical industries. This article provides representative, high-level overviews of trends, activities and challenges contributing to the industry’s financial strength.

Strong Defense Sector Market

The author recently gained insights on the defense S&T market from Brian Gerner, Vice President and Theodore B. “Ted” Polk, Co-Head Industrials Investment Banking at Capstone Partners.

The two industry authorities first observed the following with respect to the training and simulation businesses that they have recently represented or currently are representing: the US military is increasingly willing to outsource training needs to contractors; global instability is adding time pressures to training requirements and is driving increased demand for remote training activities; and technology enhancements, particularly with respect to XR/MR technologies, are enabling more credible training experiences and supporting the increased demand for remote usage. “The use of VR/XR technologies is significantly reducing the cost of training while simultaneously increasing the repeatability and efficiency of training. As underlying hardware continues to improve, these technologies should witness further adoption,” Gerner and Polk further remarked.

With a focus on early 2025, the Capstone Partners’ executives said the overall current environment (state of economy, defense requirements, etc.) surrounding military training and simulation favors constructive and virtual training over live training activities. The industry experts explained constructive and virtual training are more cost-effective and easier to deploy.

Glancing at the US political environment, Gerner and Polk said at this point, they believe DOGE (Department of Government Efficiency) and its initiatives are closely monitoring the mission critical nature of any military spending programs that are under review, and they believe that any impact on the providers of training and simulation services will correlate with the importance of the programs being supported. “We do not envision that wholesale changes are going to be implemented any time soon.”

In another defense S&T market segment, the executives concluded the continued roll out of the major defense programs, such as the F-35/JSF or the adoption of the V-280 Valor rotary wing program in replacement of the Blackhawk helicopters creates demand for foreign military sales and demand for training services related to the equipment sold abroad. “It is an important ancillary benefit for the providers of training and simulation services to the US military.”

High Demand for One Company’s Ground Force Training Solutions

Glancing at budget trends elsewhere, one finds the US’s allies and partners increasing their defense spending beyond current fiscal year baselines. In one recent case, this 24 April Estonia announced its goal, whereby, “on average, 5.4% of the GDP will be allocated to defence until 2029.” And just prior to the Estonian government’s announcement, NATO called special attention to the efforts of Poland and Germany to “shift the dial” on their defense spending.

Hans Lindgren, Head of Business Development, Training & Simulation at Saab, provided the author with a bit more elucidation on his division’s contributing performance to the Dynamics business line.

The executive noted that in the area of Training & Simulation, Saab sees a continued strong demand from the global military market. “The demand is obvious in all our product areas, including live training, virtual training, live fire training as well as training services. We are also expanding our training offer to meet new aspects for training such as the use of drones with orders already secured and strong continued customer interest. During the year deliveries have been continuously ongoing in all our major programs including the US Marine Corps live training capability MCTIS.”

Saab observes requirements being received both from many of their more than 40 existing customer nations who are expanding its volumes and capabilities such as the UK and https://www.saab.com/newsroom/press-releases/2024/saab-receives-british-army-order-to-support-live-training-in-oman, as well as new customers which are interested in acquiring new market leading training solutions.

Lindgren added when it comes to “figures,” “Saab can not go into any details (beyond what has been disclosed in the official financial reports) but as an indication, one can look at the company’s operation in Huskvarna, Sweden, where the Training & Simulation business unit has its main operation.” The executive concluded, “During 2024 the workforce there has grown by more than 100 employees which is an indication of the strong demand. At a global level, the Training & Simulation business unit has approximately 1200 employees, distributed across 12 nations, which is a growth of more than 200 over the last few years.”

A Very Good Year for One Training Aircraft Supplier

In another defense S&T industry segment, the training aircraft sector, Pilatus is coming off a very good year according to its 2024 report unveiled this 19 February.

The document noted, in part, the “High demand in both Business Units” and stated in its Government Aviation business, “Pilatus signed an important contract for 19 PC-21s and associated simulators with the Royal Canadian Air Force. In early February, the Netherlands also opted to buy eight PC-7 MKXs, thereby underlining the importance of this advanced Basic Trainer.”

The snapshot of the company’s recent military sales presents an intriguing development in the training aircraft market that we’ll be watching evolve. While some fast-jet training requirements at the accession- and even model conversion levels will require advanced jets, the Pilatus business model of offering increasingly capable training aircraft with advanced simulation and ground-based training will offer more options to training enterprises preparing pilots for duty in current and planned fleets of fighter aircraft.

Not for Defense Only

Recent S&T industry growth is not the exclusive purview of the defense sector. Indeed, several public documents highlight the favorable sector contracts, partnerships and other activities Halldale observes at its events, in the safety critical industries and CAT .

Simulators + Digital Twin Helped Propel Kongsberg

In one representative case, Kongsberg Digital is strengthening its portfolio with the digital twin, increasingly robust simulators and other technologies and content, for training audiences in commercial maritime, industry and other high-risk settings. The author’s attention was drawn to Kongsberg’s Financial Results for Q4 2024 released this 7 February. The document noted Kongsberg Digital’s operating revenues were MNOK 514 (MUSD 47.1) in Q4, up 17 per cent from the same period in 2023. Recurring operating revenues were MNOK 240 in the quarter, up from MNOK 206 in Q4 2023. The growth compared to the 4th quarter last year was mainly driven by strong development in the sale of simulators, and an increased number of Kognitwin dynamic twin solutions for industrial assets, equipment and vessels.

Meeting the Commercial Aviation Market’s Surging Demand

Let’s not forget the commercial aviation training sector – responding to the still persistent demand for pilots, maintainers, cabin crews and other industry professionals as noted in two attention-getting documents https://www.airbus.com/en/products-services/commercial-aircraft/global-market-forecast and https://www.cae.com/aviation-talent-forecast-2023/en/pilot.html.

On this sector, Capstone Partners’ Gerner and Polk observed, “We also believe that the ongoing commercial pilot shortage will continue to drive strong demand for training academies and the like.”

And shifting to CAE’s third quarter fiscal year 2025 report released this 13 February, Marc Parent, CAE’s President and CEO, said “We achieved a standout third quarter, generating a record $410 million in free cash flow while further securing CAE’s future with $2.2 billion in new orders and a record adjusted backlog of $20 billion.” A glimpse of CAE’s Civil sector in the quarter, reported the sector “signed training solutions contracts valued at a record $1.5 billion for a range of long-term commercial and business aviation training agreements, including a five-year, over $500 million extension of its exclusive training agreement for FlexJet. Orders also include digital flight services contracts, and 15 FFS sales.” The author has watched CAE’s civil business expand the technology underpinnings of its’ training products and services through the years. In one of many instances of technology advancement, CAE’s visual system is based on a gaming-engine. To point, the CAE Prodigy Image Generator (IG) leverages Epic Games’ Unreal Engine, a state-of-the-art gaming engine that delivers high-fidelity graphics and physics-based simulation.

AI

While artificial intelligence remains in its formative stages as a learning (training and education) enabler for safety critical organizations, use cases for the technology are cascading. And, by extension, companies entering or strengthening their presence in the space are increasing. Within a recent period Halldale posted various AI developments from around the globe, one in the commercial and another in the military sectors. We’ll remain attentive to the AI sector’s rapid evolution by way of topics embedded in our podcasts, live events and editorial programs.

Monitoring the S&T Sector’s Vital Signs

The S&T community’s fiscal vitality and evolution will remain a topic of interest across Halldale’s products. While defense spending levels are increasing in many nations, we’ll be gleaning details of military departments’ investments in S&T with their new-found funding levels. Similarly, the civil aviation and safety critical industries sectors increasingly understand safety = training and training = safety – with the support of S&T.  We look forward to observing and commenting on our industry’s developments in our next S&T Pioneers e-newsletter and in our other products and programs.