2016 ANNUALINFORMATIONFORM (FiscalYearEndedMarch31,2016)             CORPORATEOFFICE 8585CheminCôte-de-Liesse Saint-Laurent, Québec June 15,2016CanadaH4T1G6


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TABLEOFCONTENTS  1.CORPORATESTRUCTUREOFCAE..5 1.1Name,AddressandIncorporation.5 1.2Inter-corporate Relationships.5 2.OVERVIEW OF CAE AND THE DEVELOPMENT OF ITS BUSINESS..5 2.1Overview..5 2.2Geographic and Segment Revenues and Locations.6 2.3CAE’sVision.9 2.4OurStrategyandOperations.9 2.5IndustryOverviewandTrends.11 2.6ResearchandDevelopment(“R&D”)11 2.7ProductionandServices.14 2.8SpecializedSkillsandKnowledge.15 2.9Competition.16 2.10Components.16 2.11IntangibleProperties.17 2.12Cycles.18 2.13Environmentalliabilities.18 2.14Employees.18 2.15ForeignOperations.19 3.DESCRIPTIONOFTHEBUSINESSSEGMENTS..19 3.1Civil Aviation Training Solutions(“Civil”)19 3.2CivilMarketTrendsandOutlook.21 3.3Defence and Security(“Defence”)23 3.4DefenceMarketTrendsandOutlook.25 3.5DefenceContracts.28 3.6Healthcare.29 4.RISKFACTORS..32 4.1Risksrelatingtotheindustry.32 4.2RisksrelatingtotheCompany.35 4.3Risks relating to the market41 5.DIVIDENDS AND DISTRIBUTIONS..43 5.1Dividends.43 5.2Repurchase and cancellation of shares.43 6.DESCRIPTIONOFCAPITALSTRUCTURE..44 7.MARKETFORSECURITIES..44 7.1TradingPriceandVolume.44 8.DIRECTORSANDOFFICERS..45 8.1NameandOccupation.46 8.2CeaseTradeOrders,Bankruptcies,PenaltiesorSanctions.52 9.TRANSFERAGENTSANDREGISTRARS..53 10.AUDITCOMMITTEE..53 10.1Mandate.53 10.2Membership.53


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11.APPROVAL
OF SERVICES..54 12.ADDITIONALINFORMATION..55 GLOSSARY..56 SCHEDULEA–SUBSIDIARIES AND OTHER
INVESTMENTS..58 SCHEDULE B – AUDIT COMMITTEE
MANDATE..64


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INFORMATION
INCORPORATED BY REFERENCE  CAE’s Management’s Discussion and
Analysis and our Consolidated Financial Statements for the year ended March 31,
2016, and the notes thereto (“Consolidated Financial Statements”) appear
in the Annual Report to Shareholders for the year ended March 31, 2016 (“Annual
Report”). The Consolidated Financial Statements were prepared in accordance
with Part 1 of the CPA Canada Handbook, referred to as IFRS. The information
contained in the Management’s Discussion and Analysis and the Consolidated
Financial Statements for the year ended March 31, 2016, and the notes thereto,
is specifically incorporated by reference into this Annual Information Form (“AIF”).
Any parts of the Annual Report not specifically incorporated by reference do
not form part of this AIF.  Unless otherwise noted, all dollar
references in this Annual Information Form are expressed in Canadian dollars.  References to fiscal 2016 refer to
the period from April 1, 2015 to March 31, 2016, references to fiscal 2015 refer
to the period from April 1, 2014 to March 31, 2015, and references to fiscal 2014
refer to the period from April 1, 2013 to March 31, 2014.  This AIF includes forward-looking
statements about our activities, events and developments that we expect to or
anticipate may occur in the future including, for example, statements about our
vision, strategies, market trends and outlook, future revenues, capital
spending, expansions and new initiatives, financial obligations and expected
sales. Forward-looking statements normally contain words likebelieve,
expect, anticipate, plan, intend, continue, estimate, may, will, should,
strategy, futureand similar expressions.  By their nature, forward-looking
statements require us to make assumptions and are subject to inherent risks and
uncertainties associated with our business which may cause actual results in
future periods to differ materially from results indicated in forward-looking
statements. While these statements are based on management’s expectations and
assumptions regarding historical trends, current conditions and expected future
developments, as well as other factors that we believe are reasonable and
appropriate in the circumstances, readers are cautioned not to place undue
reliance on these forward-looking statements as there is a risk that they may
not be accurate.  Important risks that could cause
such differences include, but are not limited to, risks relating to the
industry such as competition, level and timing of defence spending,
government-funded defence and security programs, constraints within the civil
aviation industry, regulatory rules and compliance, risks relating to CAE such
as product evolution, research and development (R&D) activities,
fixed-price and long-term supply contracts, procurement and original equipment
manufacturer (OEM) leverage, warranty or other product-related claims, product
integration, protection of our intellectual property, third-party intellectual
property, loss of key personnel, environmental liabilities, claims arising from
casualty losses, integration of acquired businesses, our ability to penetrate
new markets, information technology systems including cybersecurity risk, length
of sales cycle, continued returns to shareholders and our reliance on
technology and third-party providers, and risks relating to the market such as
foreign exchange, political instability, availability of capital, pension plan
funding, doing business in foreign countries including corruption risk and
income tax laws.


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Additionally,
differences could arise because of events announced or completed after the date
of this AIF. You will find more information in the Risk Factors section of this
AIF. We caution readers that the risks described above are not necessarily the
only ones we face; additional risks and uncertainties that are presently
unknown to us or that we may currently deem immaterial may adversely affect our
business.  Except as required by law, we
disclaim any intention or obligation to update or revise any forward-looking
statements whether as a result of new information, future events or otherwise.
The forward-looking information and statements contained in this AIF are
expressly qualified by this cautionary statement.   1.CORPORATESTRUCTUREOFCAE 1.1Name,AddressandIncorporation  On March 17, 1947 CAE Inc. (“Company”
or “CAE”) was incorporated as Canadian Aviation Electronics Ltd. under
the laws of Canada by letters patent. In 1965, the name of the Company was
changed to CAE Industries Ltd. and in 1993 the Company changed its name to CAE
Inc.  CAE was continued in 1977 under the
Canada Business Corporations Act (“CBCA”). In 1979, CAE’s articles were
amended to change its authorized share capital to an unlimited number of common
shares, and again in 1981 to authorize an unlimited number of preferred shares,
issuable in series, with such rights, privileges, restrictions and conditions
as the Directors of CAE may determine.  On June 9, 1995, CAE’s articles were
amended to authorize the Directors to appoint additional Directors in
accordance with the provisions of the CBCA. On April 1, 2001, the Company
amalgamated with CAE Electronics Ltd., our wholly-owned subsidiary.  CAE’s registered office is located
at 8585 Côte-de-Liesse, Saint-Laurent, Québec, Canada H4T 1G6, telephone: (514)
341-6780, fax: (514) 340-5530.  1.2Inter-corporate Relationships The direct and indirect subsidiaries and other
investments or ownership interests of CAE are set out in Schedule A hereto.   2.OVERVIEW OF CAE AND THE DEVELOPMENT OF ITS BUSINESS 2.1Overview CAE is a global leader in delivery of training
for the civil aviation, defence and security, and healthcare markets. We design
and integrate the industry’s most comprehensive training solutions, anchored by
the knowledge and expertise of our 8,000 employees, our world-leading
simulation technologies and a record of service and technologyinnovation spanning seven decades.


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Our global presence is the broadest in the
industry, with 160 sites and training locations in over 35 countries, including
our joint venture operations, and the world’s largest installed base of flight
simulators. Each year, we train more than 120,000 civil and defence crewmembers
and thousands of healthcare professionals worldwide. Our training solutions comprise a combination of
products and services, with nearly 60% of our business being derived from the
provision of services. Founded in 1947 and
headquartered in Montreal, Canada, CAE has built an excellent reputation and
long-standing customer relationships based on nearly 70 years of experience,
strong technical capabilities, a highly trained workforce and global reach. CAE’s common shares
are listed on the Toronto and New York stock exchanges under the symbol CAE.  2.2Geographic and Segment
Revenues and Locations  CAE’s consolidated revenue from continuing
operations in fiscal 2015 was $2.246 billion and in 2016 was $2.512 billion and
is broken down as follows:  RevenuebySegment(%)GeographicDistributionofRevenue(%)  2016
 2015
 
 
 2016
 2015Civil Aviation Training Solutions
 57
 58
 
 US
 35
 34Defence
  and Security
 39
 38
 
 Germany
 4
 4Healthcare
 4
 4
 
 Other
  European countries
 16
 16100
 100
 
 United
  Kingdom
 11
 11Other
  Asian countries
 9
 12Canada
 9
 7Australia
 3
 3China
 7
 6United
  Arab Emirates
 3
 3Other
  countries
 3
 4100
 100


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Thefollowingsetsout,bybusinesssegment,thelocationsofCAE’sprimarysubsidiaries’anddivisions’
material sites: Location
 Civil
  Aviation Training Solutions
 Defence
  and Security
 HealthcareCanadaMontreal,Québec
 ü
 ü
 üCalgary, Alberta
 
 
 üCold Lake, Alberta
 
 üHalifax, Nova Scotia
 
 üMoose Jaw, Saskatchewan
 
 üOttawa,Ontario
 
 üPetawawa, Ontario
 
 üSaint John, Newfoundland
 üToronto,Ontario
 ü
 üTrenton, Ontario
 
 üVancouver,BritishColumbia
 üEuropeAmsterdam,Netherlands
 üBarcelona,Spain
 üBenson,Wallingford,UnitedKingdom
 
 üBrussels,Belgium
 üBudapest,Hungary
 
 üBurgessHill,UnitedKingdom
 ü
 ü
 üCopenhagen,Denmark
 üDublin,Ireland
 üGatwick,UnitedKingdom
 üMadrid,Spain
 üMainz,Germany
 
 
 üManchester,UnitedKingdom
 üOslo,Norway
 üOxford,UnitedKingdom
 üParis, France
 üPrague, Czech Republic
 üRome, Italy
 üSestoCalende,Italy
 
 üShannon,Ireland
 üStavanger,Norway
 üStockholm,Sweden
 üStolberg,Germany
 
 üVélizy,France
 
 üVeszprem,Hungary
 
 
 üUnitedStatesAltus, Oklahoma
 
 üAnchorage, Alaska
 üCharlotte, North Carolina
 üCorpus Christi, Texas
 
 üDallas/FortWorth,Texas
 üHolloman AFB, New Mexico
 
 üLittleRock,Arkansas
 
 üMesa,Arizona
 üMiami, Florida
 üMinneapolis,
  Minnesota
 üMorristown,NewJersey
 ü
 üOklahoma City,
  Oklahoma
 üOrlando,Florida
 ü
 üPhoenix,Arizona
  Redmond,Washington
 ü
 
 üRichardson,Texas
 
 üSan Francisco, California
 üSanJose,California
 
 üSarasota,Florida
 
 
 üTampa,Florida
 
 ü


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OtherAbu Dhabi, United Arab Emirates
 ü
 üAmberley,
  Australia
 
 üAuckland, New Zealand
 
 üBeijing,
  China
 üBengaluru,
  India
 ü
 üBrisbane,Australia
 
 üBrunei,Darussalam
 
 üDoha, Qatar
 üDubai,UnitedArabEmirates
 ü
 üGondia,India
 üHongKong,China
 üJohannesburg,SouthAfrica
 üKualaLumpur,Malaysia
 üLima,Peru
 üManila/Clark,Philippines
 üMelbourne,Australia
 ü
 üNewDelhi,India
 üOhakea, New Zealand
 
 üPerth, Australia
 üRichmond, Australia
 
 üSale, Victoria, AustraliaSantiago,Chile
 üSao Paulo, Brazil
 üSeoul,Korea
 üShanghai,China
 üSingapore, Republic of Singapore
 ü
 üSydney,Australia
 
 üTokyo, Japan
 üToluca, Mexico
 üZhuhai, China
 ü


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2.3CAE’sVision  Our vision is to be the recognized
global training partner of choice to enhance safety, efficiency and readiness.  2.4OurStrategyandOperations  Our strategy  We address the imperatives of
safety, efficiency and readiness for customers in three core markets: civil aviation,
defence and security, and healthcare.  Our
capital and other resource allocation decisions are guided by three overarching
strategic imperatives:focuson our three core markets;protectour leadership position through innovation; andgrowby providing the
most comprehensive solutions worldwide to enable us to be the recognized global
training partner of choice for our customers.  We
are a unique, pure-play simulation and training company with a proven record of
commitment to our customers’ long-term training needs.  Six
pillars of strength We believe there are
six fundamental strengths that underpin our strategy and position us well for
sustainable long-term growth: -High
degree of recurring business; -Strong
competitive moat; -Headroom
in large markets; -Underlying
secular tailwinds; -Potential
for superior returns; -Culture
of innovation.


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High degree of recurring business Nearly
60% of our business is derived from the provision of services and largely
involves long-term contracts and training demand from customers operating under
regulation that require them to train on a recurrent basis.  Strong
competitive moat We
pride ourselves in building strong customer and partner relationships, which in
many cases span several decades, and we are a market leader across all of our
market segments. We offer our customers unique comprehensive solutions with
market-leading global reach and scale.  Headroom
in large markets We
provide innovative training solutions to customers in large addressable markets
in civil aviation, defence and security and healthcare with substantial
headroom to grow our market share over the long term.  Underlying
secular tailwinds Industry
experts expect long-term commercial passenger traffic to grow at a rate of 4.2%
annually over the next decade. In defence and security, we see renewed defence
investment as a positive catalyst and an increasing use of simulation-based
training. We also see an increased propensity for customers in both civil
aviation and defence and security to outsource their training enterprises. In
the emerging healthcare market, we also see a rising adoption of simulation for
education and training of healthcare students and professionals.  Potential
for superior returns Our
rising proportion of revenue from training services provides potential for
lower amplitude cyclicality as training is largely driven by the training
requirements of the installed fleet. As well, we have potential to grow at a superior
rate to that of our underlying markets by growing market share.  Culture
of innovation We derive significant competitive
advantage as an innovative leader in simulation products and training
solutions. As well, we have a demonstrated flexibility by engaging customers
under a variety of partnership models.  Our operations  Weprovide integrated training solutions to
threemarkets globally: -The
civil aviation market includes major commercial airlines, regional airlines,
business aircraft operators, civil helicopter operators, aircraft
manufacturers, third-party training centres, flight training organizations
(“FTO”), maintenance repair and overhaul organizations (MROs) and aircraft
finance leasing companies; -The
defence and security market includes defence forces, OEMs, government agencies
and public safety organizations worldwide; -The
healthcare market includes hospital and university simulation centres, medical
and nursing schools, paramedic organizations, defence forces, medical societies
and OEMs.


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2.5IndustryOverviewandTrends  The civil,
defence and security and healthcare markets that CAE serves are driven by
factors particular to each market.  CAE believes the civil market is
most affected by the world gross domestic product, which in turn drives air
travel, measured in revenue passenger kilometers (“RPK”). This positive
RPK generation needs to be satisfied by aircraft deliveries in addition to the
existing fleet, and then corrected for attrition. Other factors influencing CAE
 include the nature, size and composition of aircraft fleets, aircraft delivery
schedules, pilot demographics, certification requirements, market demand for
commercial and business air travel and helicopter transport; the latter two in
particular are also influenced by corporate profits and activity in the oil and
gas sector.  CAE believes the defence and
security market is mostly influenced by a combination of defence spending and
the nature of military activity. Demand for CAE’s defence and security products
and services are also influenced by the degree to which governments globally
lean towards the outsourcing of functions to the private sector. As well, CAE’s
defence and security business is affected by the extent to which synthetic training
and mission rehearsal solutions gain market acceptance as a complement or alternative
to live training such as flying an actual aircraft or firing an actual weapon.  CAE believes the healthcare market
is influenced by developments in treatments for healthcare issues and, in some
markets, government spending. Demand for CAE’s healthcare products and services
are also influenced by the degree to which synthetic training and treatment
rehearsal solutions gain market acceptance as an alternative to the present
system of on-the-job learning assisted by seasoned clinicians. As well, CAE
believes the introduction of revolutionary medical technology will have a
bearing on the rate of adoption for simulation-based training solutions. New
medical devices and advanced procedures, such as Intra-Cardiac Echocardiography
(“ICE”), cardiac assist devices and mechanical ventilation enhancements,
require advanced training solutions, such as simulation, for internal product
development and customer training.  2.6ResearchandDevelopment(“R&D”)  CAE’s competitive strategy is based
on technology leadership of its products and services. This strategy is
underpinned by a strong innovation culture and a long-standing commitment to
performing R&D. Also, CAE’s competitive strategy is based on training
leadership. Following the appointment of  its Global Leader-Training Strategy
for Civil Aviation in April 2015, CAE launched its Flight Instructor Initiative
(FIIN) which focuses on recruiting, developing and retaining the best
instructors to make them part of our differentiators.  This initiative
leverages CAE’s ongoing development of instructor support infrastructures and
tools as well as basic research and experimentation with disruptive
technologies related to biometrics and virtual reality. CAE has also launched a
project focused on standardizing of its operations and next generation
training, which are a testament to CAE’s focus on its redefined vision of
becoming the recognized training partner of choice of its customers in its
fields of operations. CAE will leverage its R&D and Engineering
organization capabilities to support the strategic technologies objectives.


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CAE uses
leading practices in the Global Engineering organization to ensure strategic
alignment of the technology roadmap with the business strategy. Making
innovation materialize at all levels within CAE’s products, services and
processes throughout the operational execution continues to be a strategic
priority. To this end, a company-wide “Open Innovation Challenge” process is
deployed to all employees using an internal social media platform to stimulate
innovation. Our employees are proud to contribute to the innovation journey
leading to new products and services.  Additionally, CAE’s R&D partnerships
with universities and research centers also help ensure a constant flow of the
best talent and leverage the latest technologies and expert knowledge to
improve CAE’s products and services.  We are pleased to report that the
strategic initiative of technology convergence has progressed as planned and is
already demonstrating benefits. This project consolidates the complete CAE
technology stack into a single common platform that will provide the building
blocks for all of CAE’s products for the future.  In FY2016, CAE developed its
first simulator using the new processes and hardware convergence breakthroughs
in less than a year, and the results are very promising for both civil and
defence simulators, in terms of expected lower maintenance efforts, lower power
consumption and overall weight of the simulator.  We were also pleased to introduce in
fiscal 2014 the new full flight simulator benchmark in the industry, the CAE
7000XRTM. This simulator defines new customer experience standards
for pilots, for instructors, for maintenance technicians, and for training centre
operators. It includes new customer interfaces, such as a next generation
instructor “office” which provides real time brief/debrief capabilities. It also
features new embedded training capabilities such as upset recovery training
systems as mandated by new regulations. This next generation instructor
environment is significant. The 7000XRTM also provides a novel
computing infrastructure that leverages cloud-based big data technologies to
provide a superior level of operational efficiency. In addition to the new
software design, the hardware for this simulator has been optimized to reduce
long-term life cycle operating costs. Furthermore, CAE has developed new data
collection and analytics algorithms which enable operational efficiencies,
evidence based evaluation, as well as the enhancement of the training systems.  Continuing on the success of the
3000 SeriesTM light helicopter simulator platform introduced in
2012, CAE has developed and launched a new larger version for mid to heavy
helicopters. The CAE 3000 SeriesTM simulator has successfully
entered the market with innovative design features such as a 12ft direct
projection visual system providing a more immersive experience.  Development of
new 3000 SeriesTM  helicopter platforms in 2016 include the
qualification and the launch of the Airbus Helicopters H225 training in its
Oslo training centre as well as the launch of the development of a CAE 3000
Series full-flight simulator (FFS) replicating the AW139 aircraft.  The new
AW139 FFS will be jointly developed by CAE and AgustaWestland and will be also
be qualified to Level D.  CAE has continued to advance its leadership
position in simulation synthetic environments with the release to market of its
Dynamic Synthetic Environment TM (“DSE”) product suite. The
complete Presagis software tool set and the complete CAE synthetic software
stack have been augmented to be fully dynamic, persistent and inter-operable.
This technology places CAE in a leading position to support the military
forces’ vision of joint synthetic training.  In February 2016 PresagisTM
released its latest modeling and simulation (M&S) software portfolio,
M&S Suite 15.  The M&S Suite 15 provides an open-standard simulation
development framework designed to support a full range of simulation
applications across the air, land, sea, and public safety market segments.  The
content creation tools,Creator and Terra Vista, the
visualization and simulations tools, Vega Prime and STAGE, the flight
simulation solutions, FlightSIM and HeliSIM, as well as Ondulus Radar – a
real-time, high-fidelity, and physics-based radar simulator, have all been
upgraded with major innovations to offer a more complete Suite.


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In August 2015, the Open Geospatial
Consortium (OGC), an international standards consortium supporting
interoperable solutions, recently approved the CAE Common Database (CDB) as an
OGC Best Practice.  The move paves the way for the continued proliferation of
the CDB as the preferred architecture for creating and maintaining
simulation-based synthetic environments to be used for geospatial applications
as well as training, mission rehearsal and decision-support.  As part of the
OGC CDB Standards Working Group, CAE will be continuing to work with other OGC
members, including industry, universities and government agencies, to develop
candidate OGC CDB standards.  Specifically for the defence and
security market segment, CAE continues to actively conduct research and
development initiatives related to distributed mission operations, high-fidelity
remotely piloted aircraft training systems and more realistic synthetic
environments.  These initiatives are designed to support the desire of defence
forces to conduct more integrated and networked virtual training and mission
rehearsal exercises, as well as optimize the overall efficiency through the
lifecycle of a training system.  Key advancements include the successful
integration of the NATO Flying Training in Canada (NFTC) program, the continued
development of technologies related to enduring platforms as well as
positioning to provide key technologies and capabilities to new platforms
addressing the need forimmersive, integrated and
interoperable training environments.  As a significant outcome of the 2016
R&D investment, CAE is pleased to report that it has been granted five
patents and has filed for twenty-eight patents covering the latest innovations
in its products.  CAE R&D teams have continued
their steady progress and achievements related to Project Innovate which was
launched in 2015 to develop CAE’s next generation of simulation platforms for
its civil aviation and defence markets. Project Innovate will enable CAE to
create a state-of-the-art modular system which will be more efficient and much
easier to deploy and maintain. The new system will also enhance the user
experience of CAE products. In addition, CAE will develop technologies and
training solutions geared towards joint and networked operations in order to be
a training systems integrator in air, sea and land domains.  CAE’s Healthcare R&D teams
continue to innovate and introduce novel products.  Among several other
innovations, in FY2015, CAE Healthcare introduced a childbirth simulator based
on widely accepted and validated models of maternal-fetal physiology, which
offers human-like vital signs and responses for practice of obstetrical
emergencies and labour and delivery scenarios.  Additionally, in January
2016, CAE Healthcare introduced AthenaTM, the most
sophisticated, high-fidelity female patient simulator available on the market. 
Athena will add a crucial element of realism and believability to female
patient scenarios that is needed to help learners gain confidence, develop
critical thinking and master higher level skills through simulation.


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2.7ProductionandServices  Production  CAE’s
manufacturing and assembly facilities are located in Montreal, Canada; Tampa, Sarasota,
U.S.; Sydney, Australia; Bengaluru, India; and Stolberg, Germany.  The manufacturing process for CAE
Full Flight simulators is complex, involving the coordination of more than
200,000 parts and millions of lines of software code. The manufacture of a
simulator includes six major stages: design, manufacture and assembly,
integration and testing, shipping, site installation and final qualification on
site. Military simulators, by virtue of their tactical environments and
weapons/sensor systems, are more complex and unique than civil simulators and
therefore may take more time to design, manufacture and test.  Manufacturing is organized into ten
manufacturing cells comprised of the following three major disciplines:
electronics (printed circuit board assembly), electrical (cables, cabinets,
aircraft instruments and avionics), and mechanical (sheet metal and machine
shop, precision assembly and hydraulics, structural assembly and final
assembly). Each cell has its own planning, methodizing and set of specific
products to deliver, which establishes clear accountability for manufacturing
performance.  Most of our manufacturing and
integration activities for civil and military simulation systems are conducted
at CAE’s facilities in Montreal, with some integration and update related work
also being conducted at the Tampa, Burgess Hill, Bengaluru, Sydney, and
Stolberg sites. The Tampa facility conducts military systems integration and
testing activities for simulation equipment destined for U.S. military-related
contracts.  Services  CAE’s training and service
facilities are based around the world. While our head office is located in
Montreal, Canada, CAE provides over 65 training centres across South America,
North America, Europe, the Middle East, India, China, Russia and Southeast
Asia.  These locations include Type Rating
Training Organizations (“TRTO”) offering pilot, maintenance and cabin
crew training to business and commercial aircraft operators; ab-initio training
centres which provide commercial pilot license training to aspiring pilots; and
several locations from which CAE offers technical support services to aviation
training centres.  CAE provides a range of technical
support services to civil and military simulator operators, including parts
replacement and repairs, installations, relocations, upgrades and technical
training. Customers use CAE’s technical services to answer questions,
troubleshoot and receive advice. This extends to service visits by CAE’s
engineers to assist in customer maintenance and repair activities. Defence and
civil upgrade services are not restricted to CAE products; CAE can upgrade most
other manufacturers’ simulators. CAE services are offered either in conjunction
with a sale of a simulator, through maintenance contracts or individual purchase
orders. CAE believes that our servicebusiness
provides opportunities to influence the upgrade of installed FFSs while
providing valuable insights into customer training needs.


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In Defence, CAE provides a range of
training support services such as contractor logistics support, maintenance
services, classroom instruction and simulator training at over 80 customer
sites around the world.  CAE also provides analytical and
engineering services that leverage modeling and simulation and other advanced
technologies to develop innovative solutions to our clients’ most complex
challenges. CAE offers clients a range of services and subject matter
expertise, including human factors and human system integration, capability
based planning, advanced synthetic environments, system and software
engineering for Command, Control, Communications, Computers, Intelligence,
Surveillance and Reconnaissance (“C4ISR”) and electronic warfare
systems, training systems and services, integrated information environments,
and in-service support for fleet operations and maintenance.  2.8SpecializedSkillsandKnowledge  CAE employs predominantly graduates
in engineering and software development, as well as pilots, instructors and
other flight training experts. As an industry leader, CAE is able to train our
staff in the technology and software required for simulation software and
equipment. Flight trainers are typically recruited from the ranks of former
airline or military pilots.  Recognizing that engineering talent is critical to
CAE innovation capability, CAE has an engineering career framework to develop
the talent pipeline within the CAE engineering community.  Our 2,000 flight instructors are
CAE’s second largest employee group after engineers and the company’s face in
front of customers. They’re also key to ensuring we become the industry’s gold
standard in training. We’ve implemented a number of initiatives to improve our
instructor capability under our new training organization. We created the new
position of Global Leader in Training Strategy to enhance our value proposition
in aviation training and engage instructors in achieving our vision. Sixty CAE
leaders gathered to develop a strategy to recruit, develop and retain the best
instructors. This strategy includes identifying the attributes of best-in-class
instructors and setting the industry standard for instructor performance
management to enhance our competitive edge. It will serve to elevate the
profile of our instructors both internally and externally. This initiative will
also help us build the right HR infrastructure around instructors and give them
the tools they need to excel.  To optimize training leadership, CAE
is investing in three areas: -Enhance instructor performance - As a result, CAE will strengthen the
instructor support infrastructure, including new functions, processes and
technical support tools; -Enhance course offering by investing in courseware development and
training delivery support tools; and -Training service innovation - CAE is investing in R&D to innovate
the training service offering and will leverage on its engineering organization
and capabilities to support strategic training solutions.


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2.9Competition  We sell our
simulation equipment and training services in highly competitive markets. New
participants have emerged in recent years and the competitive environment has
intensified as aerospace and defence companies position themselves to try to
take greater market share by consolidating existing commercial aircraft
simulation companies and by developing their own internal capabilities. Section
4.1.1of this AIF contains more information regarding competition as a risk
factor for CAE.  CAE’s future success will depend in
large part upon our ability to improve existing product lines, attract
incremental training onto CAE’s network of simulators, deliver more training
solution services, develop new processes and products in the same or related
fields, improve delivery intervals and reduce the costs we incur in producing
our products and services.  2.10Components  CAE deals
with a variety of goods and services suppliers across our business segments.
Although we are not overly dependent on any single supplier for any key
manufacturing components or services, CAE’s products contain sophisticated
computer systems that run on software and operating systems supplied to us by
third parties. Such computer systems and software may not always be available
to CAE to license or purchase.  The production of CAE simulators is
often dependent upon receipt by CAE of data, including confidential or
proprietary data, concerning the functions, design and performance
characteristics of a product or system, the performance of which CAE’s
simulator is intended to simulate. CAE cannot guarantee that we will be able to
obtain such data on reasonable terms, or at all. Original manufacturers of
these products and systems could object to the simulation by CAE of components
of, or the totality of their products or systems, or could request high license
fees that could negatively impact CAE’s profit margins.  Most of the raw materials used in
manufacturing (such as sheet metal, wires, cables and electronic integrated
circuits) are available off the shelf from multiple commercial sources. The
unique parts are the aircraft parts. These are usually available from aircraft
manufacturers, the resale market, decommissioned or surplus aircrafts as well
as through simulated part manufacturers.  The availability of most parts in a
timely manner facilitates a relatively smooth production flow. Aircraft parts,
in some instances, may be an exception, especially on new/prototype aircraft
types or those out of production. The timely delivery of these parts is often
the responsibility of CAE’s customers. CAE’s contracts normally link these
aircraft parts delivery dates to the simulator delivery schedules. In cases
where such aircraft parts cannot be made available, CAE’s customers rely on
CAE’s ability to make simulated parts.


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2.11IntangibleProperties  We rely, in
part, on trade secrets, copyrights and contractual restrictions, such as
confidentiality agreements, patents and licences, to establish and protect our
proprietary rights. These may not be effective in preventing a misuse of our
technology or in deterring others from developing similar technologies. We may
be limited in our ability to acquire or enforce our intellectual property
rights in some countries.  Intellectual property  Our products contain sophisticated
software and computer systems that are supplied to us by third parties. These
may not always be available to us. Our production of simulators often depends
on receiving confidential or proprietary data on the functions, design and
performance of a product or system that our simulators are intended to
simulate. We may not be able to obtain this data on reasonable terms, or at
all.  Infringement claims could be brought
against us or against our customers. We may not be successful in defending
these claims and we may not be able to develop processes that do not infringe
on the rights of third parties, or obtain licences on terms that are
commercially acceptable, if at all.  Litigation related to our
intellectual property rights could be lengthy and costly and could negatively
affect our operations or financial results, whether or not we are successful in
defending a claim.  CAE owns certain patents and has
filed applications in respect of additional patents. CAE enters into agreements
containing non-disclosure and confidentiality clauses with third parties and
has similar provisions in place with our employees to protect our proprietary
information and trade secrets. CAE also has internal policies concerning both
ethics and intellectual property which guide our employees in their dealings
with CAE’s intellectual property and that of third parties.  Given the lengthy delay in obtaining
patents, during which some technology may evolve into newer generations, the
required detailed patent application disclosure which may permit competitors to
reverse-engineer an invention, and the cost of maintaining and defending
patents, CAE believes that certain intellectual property is adequately
protected by either maintaining it as a trade secret or selectively disclosing
enough of it to forestall anyone else from subsequently claiming it as their
own original innovation.  CAE’s agreements with Industry
Canada and Investissement Québec (“IQ”) restrict, in some cases, CAE’s
ability to license (other than to customers) or transfer ownership of
intellectual property developed with the program’s support until all funding
has been repaid or consent has been obtained.  Given CAE’s many decades of success
in the field of aviation simulation and training, CAE believes that the CAE
brand and some of our trademarked products have value in the markets we address.


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2.12Cycles  The Defence segment
sells to government customers such that there is no evident cycle to the intake
of orders, but such order levels may vary significantly from quarter to quarter
because of the irregular timing of government orders.  The Civil segment’s equipment sales
to airlines are affected by the cycles of expansion and contraction of the
entire commercial airline industry, as well as the availability of credit and
general economic conditions. Demand for training services is to a lesser
extent, also affected by the longer wave cycles of the commercial airline
industry. The Civil segment also experiences a significant degree of
seasonality; in times of peak travel (holiday periods, etc.) airline and
business jet pilots are often too busy flying aircraft to attend training sessions.
As well, production of CAE’s simulators is affected by the company’s annual
summer shutdown, which principally affects manufacturing activities in our main
plant in Montreal.  Healthcare is subject to the
irregular timing of orders by hospitals, universities, government entities and
defence forces.  2.13Environmentalliabilities  We use, generate,
store, handle and dispose of hazardous materials at our operations, and used to
at some of our discontinued or sold operations. Past operators at some of our
sites also carried out these activities.  New laws and regulations, stricter
enforcement of existing laws and regulations, the discovery of previously
unknown contamination, new clean-up requirements or claims on environmental
indemnities we have given may result in us having to incur substantial costs.
This could have a materially negative effect on our financial condition and
results of operations.  CAE believes our current operations
are in compliance in all material respects with environmental laws and
regulations. Environmental protection requirements do not have material
financial or operational effects on CAE’s capital expenditures, earnings or
competitive position.  2.14Employees  CAE strives to have practices in
place that drive employee development and engagement through employee
communications, processes such as its Annual Leadership Development Process (“ALDP”).
The Company invests in its employees through technical and leadership training,
as well as developmental career moves.  CAE employs approximately 8,000
employees; of these approximately 1,400 are unionized and covered by 26
different collective agreements all over the world. The Company maintains
constructive relationships with its unions and strives to achieve mutually beneficial
relationships while maintaining cost competitiveness.


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2.15ForeignOperations  For the
fiscal year ended March 31, 2016, sales to customers outside Canada made up
approximately 90% of CAE’s revenue. CAE expects sales outside Canada to
continue to represent a significant portion of revenue in the foreseeable
future. As a result, we are subject to the risks of doing business
internationally, including geopolitical instability.   These are the main
risks we are facing: -Change
in laws and regulations; -Tariffs,
embargoes, controls, sanctions and other restrictions; -General
changes in economic and geopolitical conditions; -Complexity
and corruption risks of using foreign representatives and consultants.  The impact of these factors is
difficult to predict and any one or more of these factors could adversely
affect CAE’s operations in the future.   3.DESCRIPTIONOFTHEBUSINESSSEGMENTS 3.1Civil Aviation Training Solutions(“Civil”)  We provide
comprehensive training solutions for flight, cabin, maintenance and ground
personnel in commercial, business and helicopter aviation, a complete range of
flight simulation training devices, as well as ab initio pilot training and
crew sourcing services.  We address the total lifecycle needs
of the professional pilot, from cadet to captain, with our comprehensive
aviation training solutions.We are theworld’slargest provider of commercial
aviation training services and the second largestinbusiness aviation training services.Our deep industry
expertise and credibility, installed base, strong relationships and reputation
as a trusted partner enable us to access a broader share of the market than any
other company in our industry. We provide aviation training services in 30
countries and through our broad global network of training centres, we serve
all sectors of civil aviation including airlines and other commercial, business
and helicopter aviation operators.  Among our
thousands of customers, we havelong-term training centre operations andtraining services agreements and joint ventures withapproximately
40major airlines and aircraft operators around the world.Ourrange of training solutionsincludes productsand servicesofferings forpilot,cabin crewandaircraft maintenance
technician training,training centre operations,curriculum development, courseware solutions and consulting
services. We currently operate261 FFSs, includingthoseoperating in our joint ventures. Weoffer
industry-leading technologywith a full solution capability
to integrate flight data and simulator datato better understand the
performance of trainees.In the formation of new pilots, CAE
operates the largest ab initio flight training network in the world with9academies and afleet of over 165
aircraft.In the area of resource management, CAE is
the global market leader in the provision of flight crew and technical
personnel to airlines, aircraft leasing companies, manufacturers and MRO
companies worldwide.


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Quality, fidelity
and reliability are hallmarks of the CAE brand in flight simulation and we are
the world leader in the development of civil flight simulators. Wecontinuously innovate our processes andlead the market in
thedesign,manufacture and integration ofcivil FFSs for major
and regional commercial airlines, third-party training centres and OEMs. We
haveestablisheda wealth of experience in developing first-to-market simulators for more than
35 types of aircraft models includingtherecent
development of simulators for the Airbus A350 XWBandA320Neo, Cirrus SF50,Mitsubishi
Regional Jet (MRJ), ATR42/72-600, Bombardier
CSeries, Global 5000/6000andGlobal 7000/8000,
Dassault Falcon 5X and theCommercial Aircraft Corporation of
China, Ltd (COMAC) ARJ21 and C919.Our flight
simulation equipment, including FFSs, are designed to meet the rigorous demands
of their long and active service lives,oftenspanninga number
of decadesof continuous use.We also provide best-in-class support with a full range of services
and by leveragingour extensive worldwide network of
spare parts and service teams.  Civil Aviation Training Solutions obtained
contracts with an expected value of $1,683.0 million, including contracts for
53 full-flight simulators.  New Programs and Products -We
achieved Level D qualification for world’s first A350 XWB full-flight
simulator, located at the Airbus Training Centre in Toulouse, France. We also
received qualifications for the A350 fixed based flight training device used
for pilot Common Type Ratings; -We
qualified the world’s first simulators equipped with EASA-approved,
FAA-approved and ICAO-compliant Upset Prevention and Recovery Training
instructor stations; -We
achieved Level D qualification for the Airbus Helicopters H225 FFS located at
our training centre in Oslo, Norway. Our training centre was also designated an
Approved Simulation Centre by Airbus Helicopters making us the first
independent simulation training provider to receive this distinction; -We
announced, together with Bombardier Commercial Aircraft, that we achieved
Interim Level C qualification on the FFS for the new CS100 aircraft.  Expansions -We
announced five new aviation training programs that are, or will soon be, ready
for training. The training programs are for Bombardier, Gulfstream and Dassault
business jets and Sikorsky and Eurocopter helicopters; -We
achieved FAA Level D qualification for the Falcon 900/2000 EASy, located at the
Dallas East Training Centre in the U.S.; -We
announced, with Líder Aviação, the expansion of our joint venture training
program in Brazil to support initial and recurrent training for AW139 pilots
and enable mission specific training for various operating profiles;


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-We
entered into a partnership with Gulf Aviation Academy (GAA) to offer additional
Embraer 170/190 training services in Europe. We have relocated GAA’s CAE-built
Embraer 170/190 FFS and flight training device to our training centre in
Amsterdam to cater to the increased demand for such training in Europe; -We
inaugurated the second A320 FFS at our Barcelona training centre as part of our
training services agreement with Vueling Airlines, S.A. We also announced that
the centre will be extended to provide further classrooms and training
facilities to meet Vueling’s growing training demand requirements. -On
May 2, 2016, we completed the acquisition of Lockheed Martin Commercial Flight
Training from Lockheed Martin Corporation.  3.2CivilMarketTrendsandOutlook Market Trends and Outlook  Demand for
training solutions in the civil aviation market is driven by the following: -Pilot
training and certification regulations; -Safety
and efficiency imperatives of commercial airline operators; -Expected
global growth in air travel; -Growing
active fleet of commercial aircraft; -Demand for trained aviation professionals.  Pilot training and certification
regulations  Civil aviation training has a high
degree of recurring business driven by a highly-regulated environment through
global and national standards for pilot licensing and certification, amongst
other regulatory requirements. These mandatory and recurring training
requirements are regulated by national and international aviation regulatory
authorities such as the International Civil Aviation Organization (ICAO),
European Aviation Safety Agency (EASA), and Federal Aviation Administration
(FAA).  Recentpilot certification processesand regulatory requirements
drivemore simulation-based training. Simulation-based pilot
certification training is taking on a greater role internationally with theMulti-crew
Pilot License (MPL), with stall and
upset prevention and recovery trainingand with the Airline Transport
Pilot (ATP) requirements in the U.S.Variousnational and regional aviation regulatory agencies haverecentlypublished regulatory requirements, standards and guidance on
thesespecifictopics.  TheMPL is an
alternative training and licensing methodology whichweoffer,in addition tothe ATP
licence. MPLplaces more emphasis on simulation-based
training to develop ab initio students into First Officers of airliners in a
specific airline environment.On average, current MPL programs in the
industry consist of two thirds of ab initio training in flight simulation
training devices and the balance in actual aircraft, whereas traditional
training for ab initiolicences average 80% to 90% in
actual trainer aircraft.Today, there are approximately 50
nations that have MPL regulations in place andmore than15 of these nations already use these regulations with training
providers and airlines. CAEdeliversMPL programs in
Asia, the Middle Eastand Europewith various
airlines. As the MPL methodology continues to gain momentum,
it will result in increased use of simulation-based training.


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Safety
and efficiency imperatives of commercial airline operators The commercial
airline industry is competitive, requiring operators to continuously pursue
operational excellence and efficiency initiatives in order to achieve adequate
returns while continuing to maintain the highest safety standards and the
confidence of air travelers. Airlines are finding it increasingly more
effective to seek expertise in training from trusted partners such as CAE to
address growing efficiency gaps, pilot capability gaps, evolving regulatory and
training environment, and the large number of new aircraft programs being
executed. Partnering with a training provider like CAE gives airlines immediate
access to a world-wide fleet of simulators, courses, programs and instruction
capabilities, and allows them flexibility in pursuing aircraft fleet options
that suit their business. Expected
global growth in air travel Secular growth trend in air travel
results in higher demand forflight, cabin, maintenance and
ground personnel, which in turn drives demand for training solutions.  In
commercial aviation, the aerospace industry’s widely held expectation is that
long-term average growth for air travel will continue at 4.2% annually over the
next decade.In calendar 2015, global passenger traffic
increased by 6.5% compared to calendar 2014. For the first three months of
calendar 2016, passenger traffic increased by 7.0% compared to the first three
months of calendar 2015. Emerging markets continued to outperform with
passenger traffic in the Middle East, Asia and Latin America growing at 10.8%,
8.6%and5.3%respectively,
while Europe and North America increased5.4%and4.7%respectively.  According to the FAA, the total
number of business jet flights, which includes all domestic and international
flights, remained active with 1.4% growth over the past 12 months. There is a
strong relationship between the level of corporate profitability and economic
growth and demand for business jet travel. In helicopter aviation, demand is
driven mainly by the level of offshore activity in theoil
and gas sector, as helicopter operators catering to this sector make up
the majority of a relatively small training segment.The current protracted downturn in petroleum prices has negatively
impacted offshore activity for helicopter operators.  Potential
impedimentsto steady growth in air travel include major disruptions
such as regional political instability, acts of terrorism, pandemics, natural
disasters, prolonged economic recessions or other major world events.  Growing
active fleet of commercial aircraft As an integrated
training solutions provider, our long-term growth is closely tied to the active
commercial aircraft fleet. The global
active commercial aircraft fleet has grown by an average of 3.2% annually over
the past 20 years and is widely expected to continue to grow at an approximate
average rate of 3.6% annually over the next two decades as a result of
increasing emerging market and low-cost carrier demand and fleet replacement in
established markets.From March 2015 to March 2016,
the global commercial aircraft fleet increased by 4.2%, growing by 8.3% in the
Middle East and 7.6% in Asia and increasing moderately by 3.3%, 3.2% and 2.0%
in Latin America, Europe and North America respectively.


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Our strong
competitive moat, as defined by our extensive global training network,
best-in-class instructors, comprehensive training programs and strength in
training partnerships with airlines allow us to effectively address training
needs that arise from a growing active fleet of aircraft. We are well
positioned to leverage our technology leadership and expertise, including CAE
7000XR Series FFSs and CAE SimfinityTM procedures trainers, in delivering
training equipment solutions that address the growing training needs of
airlines that continue to operate their own training centers. Major business
jet OEMs are continuing with plans to introduce a variety of new aircraft
models in the upcoming years. Examples include Bombardier’s Global 7000/8000,
Cessna’s Citation Longitude and Hemisphere, Dassault’s Falcon 5X, Gulfstream’s
500/600, Cirrus’ SF50 and Pilatus’ PC-24. Our business
aviation training network, comprehensive suite of training programs, key long
term OEM partnerships and ongoing network investments, position us well to
effectively address the training demand arising from the entry-into-service of
these new aircraft programs. Demand
for trained aviation professionals We have large
headroom in the training services market driven by a sustained secular demand
for trained aviation professionals. Demand for trained aviation professionals
is driven by air traffic growth, pilot retirements and by the number of
aircraft deliveries. The expansion of global economies and airline fleets have
resulted in a shortage of qualified personnel needed to fulfil this growing
capacity. Pilot supply constraints include aging crew demographics and fewer
military pilots transferring to civil airlines. In a study released in 2011,
ICAO reports that approximately 26,000 new pilots will be needed per year by
2030 globally to support growth in passenger travel. In support of this growth,
the aviation industry will require innovative solutions to match the learning
requirements of a new generation, leading to an increase in demand for
simulation-based training services and products.  3.3Defence and Security(“Defence”)  We
are a training systems integratorfor defence forces
across the air, land and naval domains, and for government organizations responsible
for public safety.  We are a global leader in the development and delivery of
integrated live, virtual and constructive (LVC) training solutions for defence
forces. Our expertise spans a broad variety of aircraft, including fighters,
helicopters, trainer aircraft, maritime patrol, tanker/transport aircraft and
remotely piloted aircraft, also called unmanned aerial systems (UAS). We also
offer training solutions for land and naval forces, including a range of
driver, gunnery and maintenance trainers for tanks and armoured fighting
vehicles, constructive simulation for command and staff training, and naval
warfare tactical training systems. We offer training solutions to government
organizations for emergency and disaster management.


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Defence forces seek to
increasingly leverage virtual training and balance their training approach
between live, virtual and constructive domains to achieve maximum readiness and
efficiencies. As such, we have been increasingly pursuing programs requiring
the integration of LVC training and these tend to be larger in size than
programs involving only a single dimension of such a solution. CAE is a
first-tier training systems integrator and uniquely positioned to offer our
customers a comprehensive range of innovative LVC solutions, ranging from
academic, virtual and live training to immersive, networked mission rehearsal
in a synthetic environment. Our solutions typically include a combination of
training services, products and software tools designed to 
cost-effectively maintain and enhance safety, efficiency, mission readiness and
decision-making capabilities. We have a wealth of experience delivering and
operating training solutions across different business models, including
government-owned; government-operated; government-owned contractor-operated; or
contractor-owned contractor-operated facilities. Our offerings include training
needs analysis; instructional systems design; learning management information
systems; purpose-built facilities; state-of-the-art synthetic training
equipment; curriculum and courseware development; classroom, simulator, and
live flying instruction; maintenance and logistics support; lifecycle support and
technology insertion; and financing alternatives.  We have delivered
simulation products and training systems to more than 50 defence forces in
approximately 35 countries. We provide training support services such as
contractor logistics support, maintenance services, classroom instruction and
simulator training at over 80 sites around the world, including our joint
venture operations. Recently, we have increased our support for live flying
training, such as the live training delivered as part of the NATO Flying
Training in Canada (NFTC) program, as we help our customers achieve an optimal
balance across their training enterprise.  Defence and security won contracts
valued at $985.6 million of orders in FY2016.  New ProgramsandProducts  -We
supported the Royal Australian Air Force's (RAAF) participation in Coalition
Virtual Flag 15, one of the world's largest virtual air combat exercises, so
that live-flying and simulated aircraft could participate in this joint,
multi-national live-virtual-constructive training exercise; -The
Open Geospatial Consortium (OGC), an international standards consortium
supporting interoperable solutions, approved the CAE-developed Common Database
(CDB) as an OGC Best Practice, thus paving the way for the continued
proliferation of the CDB as the preferred architecture for creating and
maintaining simulation-based synthetic environments; -We
signed a Memorandum of Understanding with Conair to develop a Wildfire Training
and Simulation Centre in British Columbia, Canada.  Expansions   -We
delivered a comprehensive CH-147F Chinook training solution to Garrison
Petawawa that was used to formally graduate the Royal Canadian Air Force’s
first class of CH-147F aircrews;


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-We
expanded our collaboration agreement with Eurofighter Simulation Systems
related to the provision of visual systems on the Eurofighter Typhoon Aircrew
Synthetic Training Aids program; -We
announced that our CAE Brunei Multi-Purpose Training Centre (MPTC) was
certified as an Approved Training Organization according to the guidelines and
procedures established by EASA, which will allow the CAE Brunei MPTC to offer
instructor-led training on the Sikorsky S-92 helicopter; -We
commenced the provision of maintenance and support services on the New Zealand
Defence Force's SH-2G(I) helicopter synthetic training devices; -We
expanded our C-130 training center located in Florida, U.S. with the addition
of a new C-130H/L-382 full-mission simulator featuring the Rockwell Collins
Flight2 glass cockpit; -We
delivered a comprehensive T-6C ground-based training system to the Royal New
Zealand Air Force and have now commenced the provision of maintenance and
support services at RNZAF Base Ohakea; -We
delivered a new training centre facility and KC-130J weapon systems trainer to
the Kuwait Air Force and have now commenced the provision of on-site training
support services.  3.4DefenceMarketTrendsandOutlook  Demand for training solutions in the
defence and security markets is driven by the following:  -Installed
base of enduring defence platforms and new customers; -Explicit
desire of governments and defence forces to increase the use of synthetic
training; -Desire
to integrate training systems to achieve efficiencies and enhanced
preparedness; -Attractiveness
of outsourcing of training and maintenance services; -Need
for synthetic training to conduct integrated, networked mission training,
including joint and coalition forces training; -Relationships
with OEMs for simulation and training;  Installed
base of enduring defence platforms and new customers  CAE generates a high degree of
recurring business from its strong position on enduring platforms, including
long-term services contracts. Most defence forces in mature markets such as the
United States have slowed down production of new platforms and delayed new
acquisition programs, which has required military forces to maximize use of
their existing platforms. Upgrades, updates, and life extension programs allow
defence forces to leverage existing assets while creating a range of
opportunities for simulator upgrades and training support services. Enduring
platforms, such as the C-130 Hercules transport aircraft that is operated by
more than 60 nations, provide a solid installed base from which to generate
business. Because of our extensive installed base of simulators worldwide, our
prime contractor position on programs such as the U.S. Air Force KC-135 Aircrew
Training System and MQ-1Predator/MQ-9 Reaper aircrew
training, and our experience on key enduring platforms, CAE is well-positioned
for recurring product upgrades/updates as well as maintenance and support
services. In addition, there is strong demand for enduring platforms such as
the C-130, P-8A, MH-60R and MQ-1/MQ-9 in markets with growing defence budgets
such as Asia and the Middle East, thus providing opportunities to provide new
training systems and services for platforms where CAE has significant
experience.


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Explicit desire of governments and defence forces to increase
the use of synthetic training  One
of the underlying drivers for CAE’s expertise and capabilities is the
increasing use of synthetic training throughout the defence community. More
defence forces and governments are increasingly adopting synthetic training for
a greater percentage of their overall training approach because it improves
training effectiveness, reduces operational demands on aircraft, lowers risk
compared to operating actual weapon system platforms and significantly lowers
costs.Synthetic training offersdefence forcesa cost-effective way to provide realistic training for a wide
variety of scenarios while ensuring they maintain a high state of readiness.The higher cost of live training and the desire
to save aircraft for operational use are two factors prompting a greater
adoption of synthetic training. The nature of mission-focused training demands
at least some live training; however, the shift to more synthetic training is
advancing. TheU.S.Navy reports the share of simulation-based training on someof
their existing aircraftplatforms couldincrease to
nearly50% by 2020, and for new
aircraft such as the P-8A the training program has been designed for
approximately 70% synthetic training.Because of thehighcost associated with conducting live training exercises, mostdefence forces are beginningto rebalance the mix ofLVCtraining and shift more of the training curriculum to virtual and
constructive simulation.An example are the contracts
that CAE won under the U.S. Air Force KC-135 program to upgrade a range of
KC-135 aircrew training devices so that they can be used on the United States
Air Force’s Distributed Training Center Network, thus providing them the
ability to conduct distributed, virtual tanker training.  Desire to integrate training systems
to achieve efficiencies and enhanced preparedness Increased operational tempo combined
with limited personnel and budget pressures have prompted defence forces around
the world to seek reliable partners who can help develop, manage and deliver
the training systems required to support today’s complex platforms and
operations. Increasingly, defence forces are considering a more integrated and
holistic approach to training. To help manage the complexities and challenges,
many training programs are calling for an industry partner to help design and
manage the total training system. CAE refers to this approach as training
systems integration (TSI) and has positioned the Company globally as an
independent, platform-agnostic training systems integrator. The overall intent
for defence forces is to maximize commonality for increased efficiencies, cost
savings, and most importantly, enhanced capability for mission preparedness. A
training systems integrator can address the overall LVC domain to deliver
comprehensive training – from undergraduate individual training all the way
through to operational, multi-service and joint mission training.


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Attractiveness of outsourcing of training and maintenance services Another
driver for CAE’s expertise and capabilities is the efficiency gained by our
customers from outsourcing some training and support services. Defence forces
and governments continue to manage expenditures to find ways to reduce costs
while not impacting readiness levels, and allow active-duty personnel to focus
on operational requirements. There has been a growing trend among defence
forces to consider outsourcing a variety of training services and we expect
this trend to continue, which aligns directly with CAE’s strategy to grow
long-term, recurring services business. We believe governments will
increasingly look to industry for training solutions to achieve faster
delivery, lower capital investment requirements, and training support required
to achieve desired readiness levels. For example, we are continuing deliveries
of new flight training devices that will support comprehensive T-44C aircrew
training services for the U.S. Navy and Marine Corps. These deliveries are part
of a long-term contract for CAE to provide T-44C aircrew training services
under a contractor-owned contractor-operated training services program, which
is one of the first of its kind in the United States. We believe this type of
training service delivery program will become increasingly attractive to
defence forces globally.  Need for synthetic training
to conduct integrated, networked mission training, including joint and
coalition forces training  There is a growing trend among
defence forces to use synthetic training to meet more of their mission training
requirements, and increasingly to integrate and network various training
systems so military forces can train in a virtual world. Simulation technology
solutions enable defence customers to plan sophisticated missions and carry out
full-mission rehearsals in a synthetic environment as a complement to
traditional live training or mission preparation. Allies are cooperating and
creating joint and coalition forces, which are driving the demand for networked
training and operations. Training devices that can be networked to train
different crews and allow for networked training across a range of platforms
are increasingly important as the desire to conduct mission rehearsal exercises
in a synthetic environment increases. For example, the Royal Canadian Air Force
(RCAF) has released its Simulation Strategy 2025, which specifically calls for
leveraging LVC domains within a networked common synthetic environment. The
RCAF is transforming its training approach from one that relies on aircraft to
one that exploits new technologies to train aircrews in a simulation-focused
system that creates a virtual battlespace. The U.S., U.K. and Australian
defence forces have published similar strategies. We are actively promoting
open, standard simulation architectures, such as the Common Database, to better
enable integrated and networked mission training.  Relationships with OEMs for
simulation and training  We are a desirable partner to
original equipment manufacturers because of our experience, global presence,
and innovative technologies. We partner with manufacturers in the defence and
security market to strengthen relationships and position for future
opportunities. OEMs have introduced new platforms and continue to upgrade and
extend the life of existing platforms, which drives worldwide demand for
training systems. For example, Boeing has developed the P-8A maritime patrol
aircraft and has subcontracted CAE to design and develop P-8A operational
flight trainers for the U.S. Navy and Royal Australian Air Force. Boeing
continues to market the P-8A internationally and recently signed a contract to
deliver the P-8A to the United Kingdom, which will create further opportunities
for CAE. Other examples of CAE’s relationship with OEMs on specific platforms
creating opportunities for training systemsinclude
Airbus Defence and Space on the C295, which is being offered in Canada on the
Fixed-Wing Search and Rescue program, Leonardo Aircraft (formerly Alenia
Aermacchi) on the M-346 lead-in fighter trainer, which is being offered in the
United States as the T-100 on the U.S. Air Force’s T-X program and Lockheed
Martin on the C-130J Super Hercules transport aircraft, which is being acquired
by several additional international militaries.


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CAE is also
part of Team Seahawk in partnership with the U.S. Navy and companies such as
Lockheed Martin/Sikorsky which is offering the MH-60R helicopter under the
foreign military sales program to international customers. In addition, we have
a global partnership with General Atomics to offer training solutions for the Predator/Reaper
family of remotely piloted aircraft.  3.5DefenceContracts  The majority of CAE’s contract
revenue in Defence result from contracts with militaries or government bodies
performed under predominantly fixed-price contracts with only a small number of
cost-plus contracts.  In most instances, under government
regulations, certain costs, including certain financial costs, portions of
R&D costs, representation expenses, certain types of legal expenses and
certain marketing expenses related to the preparation of bids and proposals are
not allowed for pricing purposes and calculation of contract reimbursement
rates under flexibly-priced contracts. Governments also routinely regulate the
methods under which costs are allocated to government contracts.  CAE is subject to a variety of
audits performed by government agencies. These include pre-award audits that
are performed at the submission of a proposal to the government. The purpose of
the pre-award audit is to determine the basis of the bid and provide the
information required for the relevant government to effectively negotiate the
contract. During the performance of a contract the government has the right to
request and to examine any labor charges, any material purchase, and any
overhead changes to any contract that is active. Upon a contract’s completion,
the government may perform a post-award audit of all aspects of contract
performance to ensure that CAE has performed in accordance with the terms of
the contract.  Government
contracts are generally, by their terms, subject to termination by the
government either for convenience or default by the contractor. Fixed-price
contracts provide for payment upon termination for items delivered to and
accepted by the government and, if the termination is for convenience, for
payment of fair compensation of work performed plus the costs of settling and
paying claims by terminated subcontractors, other settlement expenses and a
reasonable profit on the costs incurred. Cost-plus contracts generally provide
that, upon termination, the contractor is entitled to reimbursement of its
allowable costs and, if the termination is for convenience, a total fee
proportionate to the percentage of the work completed under the contract. If a
contract termination is for default, however, typically:  ·Thecontractormaybepaidanamountagreeduponforcompletedandpartiallycompletedproductsandservicesacceptedbythegovernment; ·Thegovernmentmaynotbeliableforthecontractor’scostswithrespecttounacceptableitems,andmaybeentitledtorepaymentofadvancepaymentsandprogress
payments,ifany,relatedtotheterminationportionofthecontract;and


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·Thecontractormaybeliableforexcess costs incurredbythegovernmentinprocuringundelivereditemsfromanothersource.  In addition to the right of the
government to terminate, government contracts are often conditioned upon the continuing
availability of appropriations. Consequently, at the outset of a major program,
such contracts are usually partially funded and additional monies are normally
committed to the contract by the procuring agency only as appropriations are
made for future fiscal years. Failure to obtain such appropriations normally
results in termination of the contract and compensation to the contractor at
less than the full value of the contract.  3.6Healthcare We
design, manufacture and market simulators and audiovisual andsimulation
centre management solutionsand offer consulting and courseware
for training of medical, nursing and allied healthcare students as well as clinicians
in educational institutions, hospitals and defence organizations worldwide.  Simulation-based training is one of
the most effective approaches to prepare healthcare practitioners to care for
patients and respond to critical situations while reducing the overall risk to
patients. We are leveraging our experience and best practices in
simulation-based aviation training to deliver innovative solutions to improve
the safety and efficiency of this industry. The healthcare simulation market is
growing rapidly, with simulation centres becoming the standard in nursing and
medical schools.  We offer the broadest range of
medical simulation products and services in the market today, including
patient, ultrasound and interventional (surgical) simulators, audiovisual and simulation
centre management solutions and courseware for simulation-based healthcare
education and training. We have sold simulators to customers in more than 80
countries that are currently supported by our network in Australia, Brazil,
Canada, Germany, Hungary, India, Singapore, the U.K. and the U.S. We lead the
market in high-fidelity patient simulators that are uniquely powered by complex
models of human physiology to mimic human responses to clinical interventions. One
of our recent innovations, a childbirth simulator for both normal labor and
delivery and rare maternal emergencies, was designed to offer exceptional
reliability and realism in the high-fidelity patient simulation market.  Our offerings include ongoing
service, supportand unlimited, exclusive access to training.
We provide comprehensivesimulation centre management solutions for
healthcare, where we are a market leader. Through our Healthcare Academy, we
are the only company to deliver peer-to-peer training at customer sites and in
our training centres in the U.S., U.K., Germany and Canada. Our Healthcare
Academy includes more than 50 adjunct faculty consisting of nurses, physicians,
paramedics and sonographers who, in collaboration with leading healthcare
institutions, have developed more than 500 Simulated Clinical Experience(SCE)coursewarepackages for our
customers.We offer consulting, professional services
and turnkey project management for healthcare simulation programs, and we
recently announced a partnership with the American Society of Anesthesiologists
to develop screen-based simulation training for practicing physicians. The new
platform will deliver Maintenance of Certification in Anesthesiology (MOCA)
education and allow us to expand access to simulation-based clinical training.


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Our OEM
team delivers custom training solutions for medical manufacturers, and most
recently, developed a specialized interventional simulator to train physicians
to place the new AbioMed Impella heart pump under ultrasound and fluoroscopy
guidance.  New programs and products  -We
announced the release of CAE VïvoTM, a tablet-operated, facilitator-driven
software that allows full control over METIman’s physiology and responses; -In
partnership with the International Nursing Association for Clinical Simulation and
Learning (INACSL), we introduced the INACSL – CAE Healthcare Simulation
Fellowship program for healthcare educators and professionals; -We
delivered a next generation training solution to AbioMed for its Impella heart
pump training programs which integrated our ultrasound and patient simulation
technology for the first time; -We
released our new Blue Phantom Musculoskeletal ultrasound training model, the world’s
first training model for ultrasound-guided evaluation and procedures for the
knee; -We
announced the release of Athena, the only high-fidelity female patient
simulator with modeled physiology for healthcare; -In
partnership with the National Research Council of Canada, we announced the
launch of NeuroVR, the world’s most advanced virtual reality neurosurgery
simulator for cranial and endoscopic brain surgery procedures; -In
partnership with the American Society of Anesthesiologists, we announced a
collaborative agreement to develop screen-based simulation education for
practicing physicians.  Expansions  -We
partnered with MedAffinity to integrate their Electronic Health Records system
into our LearningSpace simulation centre management solution, providing more
realism in healthcare simulations; -We
signed an exclusive distribution rights agreement with Strategic Operations
(STOPS) for Surgical Cut Suit and other simulation training products globally
outside of the United States and further expanded our partnership to include
distribution rights for U.S. civilian training centers and U.S. military
customers.  Healthcare
market trends and outlook Demand for our simulation products
and services in the healthcare market is driven by the following:  -Increasing
use of simulation in healthcare; -Growing
emphasis on patient safety and outcomes; -Limited
access to live patients during training; -Medical
technology revolution.


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Increasing
use of simulation in healthcare  Third-party
assessments of the global healthcare simulation market, which includes products
and services, value the market at approximately $860 million in 2014 and
reports that it is predicted to grow at a compound annual growth rate of 19.1%
from 2014 to 2019. North America is the largest market for healthcare
simulation, followed by Europe and Asia. The healthcare simulation market
includes both products and services, which are segmented by high-fidelity
patient simulators, interventional simulators, mid/low fidelity task trainers,
ultrasound simulators, audiovisual and simulation centre management solutions,
simulated clinical environments and training services. In the U.S., significant
demand for healthcare services is driven by, among other factors, longer life
expectancy and the baby boomer generation, resulting in higher healthcare
spending.  The U.S. Centers for Medicare and
Medicaid Services (CMS) projects that annual national health spending will grow
at an average rate of 5.8% annually over the next decade. Increasingly,
hospitals are given incentives to become safer and more efficient, which will
drive higher demand for training. There is a growing body of evidence
demonstrating that medical simulation improves patient outcomes and reduces
medical errors, which can help mitigate the rate of increase in healthcare
costs.  Growing
emphasis on patient safety and outcomes According to a new study by
patient-safety researchers published in the British Medical Journal in May
2016, medical errors in hospitals and other health-care facilities are the
third-leading cause of death in the U.S. Training through the use of simulation
can help clinicians gain confidence, knowledge and expertise for improving
patient safety in a risk-free environment. Simulation is a required or
recommended element in a growing movement towards High Stakes Assessment and
Certification. Examples in the U.S. include MOCA, Fundamentals of Laparoscopic
Surgery (FLS) and Advanced Trauma Life Support (ATLS). Moreover, the
Accreditation Council for Graduate Medical Education (ACGME) is evolving
towards outcome-based assessment with specific benchmarks to measure and compare
performance which favours the adoption of simulation products and training.  Limited
access to live patients during training Traditionally, medical education has
been an apprenticeship model in which the student cares for patients under the
supervision of more experienced staff. In this model, students have a limited
role and access to high-risk procedures, rare complications and critical
decision-making skills. The use of simulation in professional education
programs complements traditional learning and allows students exposure and
practice to hone their clinical and critical thinking skills for high risk, low
frequency events. Simulation provides consistent, repeatable training and
exposure to a broader range of patients and scenarios than one may experience
in normal clinical practice. As an example, our Lucina childbirth simulator is
designed to allow healthcare teams to practice both normal deliveries and
complex procedures. The training and education model is evolving, as evidenced
by military branches around the world and most recently the U.S. Pentagon,
prohibiting the use of live tissue testing in most medical training. CAE
Healthcare simulators provide a low-risk alternative for practicing life-saving
procedures, interprofessional team training, major disaster response and
anaesthesia administration.


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Medical technology revolution Advancements in medical technology
are driving the use of simulation. New medical devices and advanced procedures,
such as Intra-Cardiac Echocardiography (ICE), cardiac assist devices, and
mechanical ventilation enhancements, require advanced training solutions, such
as simulation, for internal product development and customer training.
Regulatory and certification agencies are increasingly stringent in requesting
that clinicians be trained before adopting new disruptive technologies, an
undertaking for which simulation is well suited. As a Partner of Choice with
leading OEMs, we continue to collaborate to deliver innovative and custom
training for new technologies, such as the AbioMed Impella heart pump.   4.RISKFACTORS  We operate in several industry
segments that have various risks and uncertainties. Management and the Board
discuss quarterly the principal risks facing our business, as well as annually
during the strategic planning and budgeting processes. The risks and
uncertainties described below are risks that could materially affect our
business, financial condition and results of operation. These risks are
categorized as industry-related risks, risks specific to CAE and risks related
to the current market environment. These are not necessarily the only risks we
face; additional risks and uncertainties that are presently unknown to us or
that we may currently deem immaterial may adversely affect our business.  In order to mitigate the risks that
may impact our future performance, management has established an enterprise
risk management process to identify, assess and prioritize these risks.
Management develops and deploys risk mitigation strategies that align with our
strategic objectives and business processes. Management reviews the evolution
of the principal risks facing our business on a quarterly basis and the Board
oversees the risk management process and validates it through procedures
performed by our internal auditors when it deems necessary.One should carefully consider the following risk factors, in addition to the
other information contained herein, before deciding to purchase CAE common
stock.  4.1Risksrelatingtotheindustry 4.1.1Competition  We
sell our simulation equipment and training services in highly competitive
markets. New participants have emerged in recent years and the competitive
environment has intensified as aerospace and defence companies position
themselves to try to take greater market share by consolidating existing
commercial aircraft simulation companies and by developing their own internal
capabilities. Predominantly defence companies such as Textron and L-3
Communications have acquired commercial aircraft simulator competitors and, in
the case of L-3 Communications, a competing FTO, as a means to diversify their
overall exposure to defence markets and seek growth in the civil aviation
market. Lockheed Martin is another example of a defence company that entered
the commercial aircraft simulation market; it has subsequently sold its
commercial flight training business to CAE. Most of our competitors in the
simulation and training markets are also involved in other major segments of
the aerospace and defence industrybeyond simulation
and training. As such, some of them are larger than we are, and may have
greater financial, technical, marketing, manufacturing and distribution
resources. In addition, our main competitors are either aircraft manufacturers,
or have well-established relationships with aircraft manufacturers, airlines
and governments, which may give them an advantage when competing for projects
with these organizations. In particular, we face competition from Boeing, which
has pricing and other competitive advantages over us.


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OEMs
like Airbus and Boeing have certain advantages in competing with independent
training service providers. An OEM controls the pricing for the data, parts and
equipment packages that are often required to manufacture a simulator specific
to that OEM’s aircraft, which in turn is a critical capital cost for any
simulation-based training service provider. OEMs may be in a position to demand
licence fees or royalties to permit the manufacturing of simulators based on
the OEM’s aircraft, and/or to permit any training on such simulators. CAE also
has some advantages, including being a simulator manufacturer, having the
ability to replicate certain aircraft without data, parts and equipment
packages from an OEM and owning a diversified training network that includes
joint ventures with large airline operators which are aircraft customers for
OEMs. In addition, we work with some OEMs on business opportunities related to
equipment and training services.  Both
Boeing and Airbus have introduced aircraft data simulation packages to supply
to all simulator manufacturers for the new B737 MAX and A350 aircraft, which
could potentially reduce CAE’s content related to the simulation of aircraft
systems.  We
obtain most of our contracts through competitive bidding processes that subject
us to the risk of spending a substantial amount of time and effort on proposals
for contracts that may not be awarded to us. A significant portion of our
revenue is dependent on obtaining new orders and continuously replenishing our
backlog. We cannot be certain that we will continue to win contracts through
competitive bidding processes at the same rate as we have in the past. The
presence of new market participants as noted above, and their efforts to gain
market share, creates heightened competition in bidding which may negatively
impact pricing and margins.  Economic growth
underlies the demand for all of our products and services. Periods of economic
recession, constrained credit, government austerity and/or international
commercial sanctions generally lead to heightened competition for each
available order. This in turn typically leads to a reduction in profit on sales
won during such a period. Should such conditions occur, we could experience
price and margin erosion.  4.1.2Level and timing of defence
spending  A significant portion of our
revenues is generated by sales to defence and security customers around the
world. We provide products and services for numerous programs to U.S.,
Canadian, European, Australian, and other foreign governments as both prime
and/or subcontractors. As defence spending comes from public funds and is
always competing with other public interests for funding, there is a risk
associated with the level of spending a particular country may devote to
defence as well as the timing of defence contract awards. Significant cuts to
defence spending by mature markets such as the U.S., Canada, Germany, U.K. and
Australia could have a material negative impact onour
future revenue, earnings and operations. In order to mitigate the level and
timing of defence procurements, we have established a diversified global
business and a strong position on enduring platforms.


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4.1.3Government-funded defence and security programs  Like most companies that supply
products and services to governments, we can be audited and reviewed from time
to time. Any adjustments that result from government audits and reviews may
have a negative effect on our results of operations. Some costs may not be
reimbursed or allowed in negotiations of fixed-price contracts. As a result, we
may also be subject to a higher risk of legal actions and liabilities than
companies that cater only to the private sector, which could have a materially
negative effect on our operations.  4.1.4Civilaviationindustry  A significant portion of our revenue
comes from supplying equipment and training services to the commercial and
business airline industry.  A decrease in jet fuel prices may
have a positive impact on airlines’ profitability; however, the long-term
ramifications on the commercial aviation industry remain uncertain. We will
continue to monitor the impact on the industry and our operations.Helicopter aviation training, which represents less than 5% of our
Civil Aviation Training Solutions revenue, is driven mainly by the level of
offshore operator activity servicing customers in the oil and gas sector. Aprotracted
downturn in petroleum prices couldnegatively impact
offshore activity which may, in turn, affect our operating results.  If jet fuel prices attain high
levels for a sustained period, there could be a greater impetus for airlines to
replace older, less fuel-efficient aircraft. However, higher fuel costs could
also limit the airlines’ available financial resources and could potentially
cause deliveries of new aircraft to be delayed or cancelled. Airlines may slow
capacity growth or cut capacity should sustained high fuel costs make the
availability of such capacity not economically viable. Such a reaction would
negatively affect the demand for our training equipment and services.  Constraints in the credit market may
reduce the ability of airlines and others to purchase new aircraft, negatively
affecting the demand for our training equipment and services, and the purchase
of our products.  We are also exposed to credit risk
on accounts receivable from our customers. We have adopted policies to ensure
we are not significantly exposed to any individual customer. Our policies
include analyzing the financial position of certain customers and regularly
reviewing their credit quality. We also subscribe from time to time to credit
insurance and, in some instances, require a bank letter of credit to secure our
customers’ payments to us.  4.1.5Regulatoryrulesimposedbyaviationauthorities  We are required to comply with
regulations imposed by aviation authorities. These regulations may change
without notice, which could disrupt our sales and operations. Any changes
imposed by a regulatory agency, includingchanges to
safety standards imposed by aviation authorities such as the U.S. FAA, could
mean that we have to make unplanned modifications to our products and services,
causing delays or resulting in cancelled sales. We cannot predict the impact
that changing laws or regulations might have on our operations. Any changes
could present opportunities or, to the contrary, have a materially negative
effect on our results of operations or financial condition.


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4.1.6SalesorlicencesofcertainCAEproducts requireregulatory approvalsandcompliance  The sale or licence of many of our
products is subject to regulatory controls. These can prevent us from selling
to certain countries, or to certain entities or people in or from a country,
and require us to obtain from one or more governments an export licence or
other approvals to sell certain technology such as defence and security
simulators or other training equipment, including data or parts. These
regulations change often and we cannot be certain that we will be permitted to
sell or licence certain products to customers, which could cause a potential
loss of revenue for us.  If we fail to comply with government
laws and regulations related to export controls and national security
requirements, we could be fined and/or suspended or barred from government
contracts or subcontracts for a period of time, which would negatively affect
our revenue from operations and profitability, and could have a negative effect
on our reputation and ability to procure other government contracts in the
future.  4.2RisksrelatingtotheCompany 4.2.1Productevolution  The civil aviation and defence and
security markets in which we operate are characterized by changes in customer
requirements, new aircraft models and evolving industry standards. If we do not
accurately predict the needs of our existing and prospective customers or
develop product enhancements that address evolving standards and technologies,
we may lose current customers and be unable to attract new customers. This
could reduce our revenue. The evolution of the technology could also have a
negative impact on the value of our fleet of FFSs.  4.2.2Researchanddevelopmentactivities  We carry out some of our R&D
initiatives with the financial support of governments, including the Government
of Quebec through Investissement Québec (IQ) and the Government of Canada
through its Strategic Aerospace and Defence Initiative (SADI). The level of
government financial support reflects government policy, fiscal policy and
other political and economic factors. We may not, in the future, be able to
replace these existing programs with other government funding and/or
risk-sharing programs of comparable benefit to us, which could have a negative
impact on our financial performance and research and development activities.  We receive investment tax credits
from federal and provincial governments in Canada and from the federal
government in the U.S. on eligible R&D activities that we undertake. The
credits we receive are based on legislation currently enacted. The investment tax
credits available to us can be reduced by changes to the respectivegovernments’ legislation which could have a negative
impact on our financial performance and research and development activities.


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4.2.3Fixed-priceandlong-term supply
contracts  We provide
our products and services mainly through fixed-price contracts that require us
to absorb cost overruns, even though it can be difficult to estimate all of the
costs associated with these contracts or to accurately project the level of
sales we may ultimately achieve. In addition, a number of contracts to supply
equipment and services to commercial airlines and defence organizations are
long-term agreements that run up to 20 years. While some of these contracts can
be adjusted for increases in inflation and costs, the adjustments may not fully
offset the increases, which could negatively affect the results of our
operations.  4.2.4ProcurementandOEMleverage  We secure data, parts, equipment and
many other inputs from a wide variety of OEMs, sub-contractors and other
sources. We are not always able to find two or more sources for inputs that we
require and in the case of specific aircraft simulators and other training
equipment, significant inputs can only be sole sourced. We may therefore be
vulnerable to delivery schedule delays, the financial condition of the
sole-source suppliers and their willingness to deal with us. Within their
corporate groups, some sole-source suppliers include businesses that compete
with parts of our business. This could lead to onerous licencing terms, high
licence fees or even refusal to licence to us the data, parts and equipment
packages that are often required to manufacture and operate a simulator based
on an OEM’s aircraft.  Where CAE uses an internally
produced simulation model for an aircraft, or develops courseware without using
OEM-sourced and licenced data, parts and equipment, the OEM in question may
attempt retaliatory or obstructive actions against CAE to block the provision
of training services or manufacturing, sale and/or deployment for training of a
simulator for such aircraft, claiming breach of its intellectual property
rights or other legal basis. Such actions may cause CAE to incur material legal
fees and/or may delay or prevent completion of the simulator development
project or provision of training services, which may negatively impact our
financial results.  Similarly, where
CAE uses open source software, freeware or commercial off-the-shelf software
from a third party, the third party in question or other persons may attempt
retaliatory or obstructive actions against CAE to block the use of such
software or freeware, claiming breach of licence rights or other legal basis.
Such actions may cause CAE to incur material legal fees and/or may delay or
prevent completion of the simulator development project or provision of
training services, which may negatively impact our financial results.  4.2.5Warrantyorotherproduct-relatedclaims  We manufacture simulators that are
highly complex and sophisticated. These may contain defects that are difficult
to detect and correct. If our products fail to operate correctly or have
errors, there could be warranty claims or we couldlose
customers. Correcting these defects could require significant capital
investment. If a defective product is integrated into our customer’s equipment,
we could face product liability claims based on damages to the customer’s
equipment. Any claims, errors or failures could have a negative effect on our
operating results and business. We cannot be certain that our insurance
coverage will be sufficient to cover one or more substantial claims.


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4.2.6Productintegrationandprogram
managementrisk  Our business could be negatively
affected if our products do not successfully integrate or operate with other
sophisticated software, hardware, computing and communications systems that are
also continually evolving. If we experience difficulties on a project or do not
meet project milestones, we may have to devote more engineering and other
resources than originally anticipated. While we believe we have recorded
adequate provisions for risks of losses on fixed-price contracts, it is
possible that fixed-price and long-term supply contracts could subject us to
additional losses that exceed obligations under the terms of the contracts.  4.2.7Protectionof ourintellectualproperty  We rely, in part, on trade secrets,
copyrights and contractual restrictions, such as confidentiality agreements,
patents and licences to establish and protect our proprietary rights. These may
not be effective in preventing a misuse of our technology or in deterring
others from developing similar technologies. We may be limited in our ability
to acquire or enforce our intellectual property rights in some countries.
Litigation related to our intellectual property rights could be lengthy and
costly and could negatively affect our operations or financial results, whether
or not we are successful in defending a claim.  4.2.8Third-party intellectual property  Our products
contain sophisticated software and computer systems that are supplied to us by
third parties. These may not always be available to us. Our production of
simulators often depends on receiving confidential or proprietary data on the
functions, design and performance of a product or system that our simulators
are intended to simulate. We may not be able to obtain this data on reasonable
terms, or at all.  Infringement claims could be brought
against us or against our customers. We may not be successful in defending
these claims and we may not be able to develop processes that do not infringe
on the rights of third parties, or obtain licences on terms that are
commercially acceptable, if at all.  The markets in which we operate are
subject to extensive patenting by third parties. Our ability to modify existing
products or to develop new products may be constrained by third-party patents
such that we incur incremental costs to licence the use of the patent or design
around the claims made therein.


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4.2.9Keypersonnel  Our continued
success will depend in part on our ability to retain and attract key personnel
with the relevant skills, expertise and experience. Our compensation policy is
designed to mitigate this risk.We also have succession plans
in place to help identify and develop an internal pipeline of leadership talent
pertaining to both the technical and general management domains.  4.2.10Environmentalliabilities  We use, generate, store, handle and
dispose of hazardous materials at our operations, and used to at some of our
discontinued or sold operations. Past operators at some of our sites also
carried out these activities.  New laws and regulations, stricter
enforcement of existing laws and regulations, the discovery of previously
unknown contamination, new clean-up requirements or claims on environmental
indemnities we have given may result in us having to incur substantial costs.
This could have a materially negative effect on our financial condition and
results of operations.  4.2.11Liability claims arisingfromcasualty losses  Because of the nature of our
business, we may be subject to liability claims, including claims for serious
personal injury or death, arising from:  ·Accidents
or disasters involving training equipment that we have sold or aircraft for
which we have provided training equipment or services; ·Our
pilot provisioning; ·Our
live flight training operations.  We may also be subject to product
liability claims relating to equipment and services that our discontinued
operations sold in the past. We cannot be certain that our insurance coverage
will be sufficient to cover one or more substantial claims, though to date our
insurance coverage has been adequate to meet any claim.  4.2.12Integrationofacquiredbusinesses  The success of our acquisitions
depends on our ability to crystallize synergies both in terms of successfully
marketing our broadened product offering as well as efficiently consolidating
the operations of the acquired businesses into our existing operations.


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4.2.13Ourabilitytopenetratenewmarkets  We are leveraging our knowledge,
experience and best practices in simulation-based aviation training and
optimization to penetrate the simulation-based training market in healthcare.  As we operate in this market,
unforeseen difficulties and expenditures could arise, which may have an adverse
effect on our operations, profitability and reputation. Penetrating a new
market is inherently more difficult than managing within our already
established markets.  4.2.14Lengthofsales
cycle  The sales cycle for our products and
services can be long and unpredictable, ranging from 6 to 18 months for civil
aviation applications and from 6 to 24 months or longer for defence and
security applications. During the time when customers are evaluating our
products and services, we may incur expenses and management time. Making these
expenditures in a period that has no corresponding revenue will affect our
operating results and could increase the volatility of our share price. We may
pre-build certain products in anticipation of orders to come and to facilitate
a faster delivery schedule to gain competitive advantage; if orders for those
products do not materialize when expected, we have to carry the pre-built
product in inventory for a period of time until a sale is realized. Government procurement policies often allow unsuccessful
bidders to protest a contract award. The protest of a contract awarded to CAE
may result in the cancellation of our award, extend the period before which we
can start recognizing revenue or cause us to incur material legal fees.  4.2.15Returnsto shareholders  Payment of dividends, the repurchase
of shares under our NCIB and other cash or capital returns to our shareholders
depend on various factors, including our operating cash flows, sources of
capital, the satisfaction of solvency tests and other financial requirements,
our operations and financial results, as well as CAE’s dividend and other
policies which may be reviewed from time to time.  4.2.16Information technology systems  We depend on information technology
infrastructure and systems, hosted internally or outsourced, to process,
transmit and store electronic data and financial information, to manage
business operations and to comply with regulatory, legal, national security,
contractual and tax requirements. These information technology networks and
systems are essential to our ability to perform day-to-day operations and to the
effective operation of our business. In addition, our business requires the
appropriate and secure utilization of sensitive and confidential information
belonging to third parties such as aircraft OEMs and national defence forces.
If the systems do not operate as expected or when expected, this may have a
negative effect on our operations, reporting capabilities, profitability and
reputation. A series of governance processes are in place to mitigate this
risk.


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We may,
from time to time, replace or update our information technology networks and
systems. The implementation of, and transition to, new networks and systems can
temporarily disrupt our business activities and result in productivity
disruptions.  4.2.17Reliance on third-party providers
for information technology systems and infrastructure management  We have outsourced certain
information technology systems maintenance and support services and
infrastructure management functions, to third-party service providers. If these
service providers are disrupted or do not perform effectively, it may have a
material adverse impact on our operations and/or we may not be able to achieve
the expected cost savings and may have to incur additional costs to correct
errors made by such service providers. Depending on the function involved, such
errors may also lead to business disruption, processing inefficiencies and/or
security vulnerability.  4.2.18Cybersecurity  We may experience cybersecurity
threats to our information technology infrastructure and systems, and
unauthorized attempts to gain access to our proprietary or sensitive
information, as may our customers, suppliers, subcontractors and joint venture
partners. We may experience similar security threats at customer sites that we
operate or manage. We must rely on our own safeguards as well as the safeguards
put in place by our partners to mitigate the threats. Our partners have varying
levels of cybersecurity expertise and safeguards, and their relationships with
government contractors, such as CAE, may increase the likelihood that they are
targeted by the same cyber threats we face.  An information technology system
failure or non-availability, cyber-attack or breach of systems security could
disrupt our operations, cause the loss of, corruption of, or unauthorized
access to business information and data, compromise confidential or classified
information or expose us to regulatory investigation, litigation or contractual
penalties. Our customers or governmental authorities may question the adequacy
of our threat mitigation and detection processes and procedures and this could
have a negative impact on existing business or future opportunities.
Furthermore, given the highly evolving nature of cyber or other security
threats or disruptions and their increased frequency, the impact of any future
incident cannot be easily predicted or mitigated, and the costs related to such
threats or disruptions may not be fully insured or indemnified by other means.
We have implemented security controls, policy enforcement mechanisms,
management oversight and monitoring systems in order to prevent, detect and
address potential threats. Any prior cyber-attacks directed at us have not had
a material impact on our financial results and we believe our threat detection
and mitigation processes and procedures are adequate.


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4.3Risks relating to the market 4.3.1Foreign exchange  Our
operations are global with approximately 90% of our revenue generated from
worldwide exports and international activities generally denominated in foreign
currencies, mainly the U.S. dollar, the Euro and the British pound. Our revenue
is generated approximately one-third in each of the U.S, Europe and the rest of
the world.  A significant portion of the revenue
generated in Canada is in foreign currencies, while a large portion of our
operating costs is in Canadian dollars. When the Canadian dollar increases in
value, it negatively affects our foreign currency-denominated revenue and hence
our financial results. We continue to hold a portfolio of currency hedging
positions intended to mitigate the risk to a portion of future revenues
presented by the volatility of the Canadian dollar versus foreign currencies.
The hedges are intended to cover a portion of the revenue in order to allow the
unhedged portion to match the foreign cost component of the contract. It is not
possible to completely offset the effects of changing foreign currency values,
which leaves some residual exposure that may impact our financial results. This
residual exposure may be higher when currencies experience significant short
term volatility. When the Canadian dollar decreases in value, it negatively
affects our foreign currency-denominated costs. In order to minimize the impact
foreign exchange market fluctuations may have, we also hedge some of the
foreign currency costs incurred in our manufacturing process.  Business conducted through our
foreign operations are substantially based in local currencies. A natural hedge
exists by virtue of revenues and operating expenses being in like currencies.
However, changes in the value of foreign currencies relative to the Canadian
dollar creates unhedged currency translation exposure since results are
consolidated in Canadian dollars for financial reporting purposes. Appreciation
of foreign currencies against the Canadian dollar would have a positive
translation impact and a devaluation of foreign currencies against the Canadian
dollar would have the opposite effect.  4.3.2Availability of capital  We have
various debt facilities with maturities ranging between April 2016 and October
2036. For instance, the current maturity date of our revolving unsecured term
credit facilities is October 2018.  We cannot determine at this time
whether these facilities will be refinanced at the same cost, for the same
durations and on similar terms as were previously available.  4.3.3Pension plans  Pension
funding is based on actuarial estimates and is subject to limitations under
applicable income tax and other regulations. Actuarial estimates prepared
during the year were based on, amongst others, assumptions about discount
rates, future salary increases and mortality rates. The actuarial funding
valuation reports determine the amount of cash contributions that we are required
to make into the registered retirement plans. Our latest pensionfunding reports show the pension plans to be in a
solvency deficit position. Therefore, we are required to make cash
contributions to fund the deficit. If this reduced level of pension fund assets
persists to the date of the next funding valuations, we will be required to
increase our cash funding contributions, reducing the availability of funds for
other corporate purposes.


---



4.3.4Doing business in foreign countries  We have operations in over 35
countries including our joint venture operations and sell our products and
services to customers around the world. Sales to customers outside Canada made
up approximately 90% of revenue in fiscal 2016. We expect sales outside Canada
to continue to represent a significant portion of revenue in the foreseeable
future. As a result, we are subject to the risks of doing business
internationally, including geopolitical instability.  These are the main risks we are
facing: -Change
in laws and regulations; -Tariffs,
embargoes, controls sanctions and other restrictions; -General
changes in economic and geopolitical conditions; -Complexity
and corruption risks of using foreign representatives and consultants.  Sales to foreign customers are subject
to Canadian and foreign laws and regulations, including, without limitation,
the Corruption of Foreign Public Officials Act (Canada), the Foreign Corrupt
Practices Act (United States) and other anti-corruption laws. While we have
stringent policies in place to comply with such laws, failure by CAE, our
employees, foreign representatives and consultants or others working on our
behalf to comply with it could result in administrative, civil, or criminal
liabilities, including suspension, debarment from bidding for or performing
government contracts, which could have a material adverse effect on us. We
frequently team with international subcontractors and suppliers who are also
exposed to similar risks.  4.3.5Political instability  Political instability in certain
regions of the world may be prolonged and unpredictable. A prolongation of
political instability could lead to delays or cancellation of orders,
deliveries or projects in which we have invested significant resources,
particularly when the customers are state-owned or state-controlled entities.
The imposition of economic sanctions on persons and companies conducting
business in the Russian Federation and the depreciation of the Russian
Federation currency have not significantly impacted our operations to date but
should this situation continue for a prolonged period there may be a negative
impact on our Civil Aviation Training Solutions revenue. This and other
geo-political risks will change over time and CAE must respect any applicable
sanctions and controls applied in the countries in which we carry on business.
It is possible that in the markets we serve, unanticipated political
instability could impact our operating results and financial position.


---



4.3.6Income tax laws  A substantial
portion of our business is conducted in foreign countries and is thereby
subject to numerous countries’ tax laws and fiscal policies. A change in
applicable tax laws, treaties or regulations or their interpretation, including any new action to address Base Erosion and
Profit Shifting (BEPS) released by the Organization for Economic Co-Operation
and Development (OECD),could result in a higher effective tax rate on
our earnings which could significantly impact our financial results.   5.DIVIDENDS AND DISTRIBUTIONS 5.1Dividends We paid a dividend of $0.07 per
share in the first quarter and $0.075 per share in the second, third and fourth
quarter of fiscal 2016. These dividends were eligible under the Income Tax Act
(Canada) and its provincial equivalents.  Our Board of Directors has the
discretion to set the amount and timing of any dividend. The Board reviews the
dividend policy once a year based on the cash requirements of our operating
activities, liquidity requirements and projected financial position. We expect
to declare dividends of approximately $80.9 million in fiscal 2017 based on our
current dividend policy and the number of common shares outstanding as at March
31, 2016.  CAE’s Dividend Reinvestment Plan
provides that Canadian resident shareholders can elect to receive Common Share
dividends in lieu of cash dividends. During fiscal 2014, 2015 and 2016, CAE
issued 1,403,418, 1,817,917 and 1,589,080 common shares, respectively, as stock
dividends.  5.2Repurchase andcancellationof shares On
February 19, 2016, we announced that we received approval from the Toronto
Stock Exchange (TSX) to purchase, by way of a normal course issuer bid (NCIB),
up to 5,398,643 of our common shares, representing 2% of our 269,932,164 issued
and outstanding common shares as of February 12, 2016. The NCIB began on
February 23, 2016 and will end on February 22, 2017 or on such earlier date
when we complete our purchases or elect to terminate the NCIB. These purchases
are made on the open market plus brokerage fees through the facilities of the
TSX and/or alternative trading systems at the prevailing market price at the
time of the transaction, in accordance with TSX’s applicable policies. All
common shares purchased pursuant to the NCIB were cancelled.  As at
March 31, 2016, we repurchased and cancelled a total of 515,200 common shares,
at a weighted average price of $15.01 per common share, for a total
consideration of $7.7 million. The excess of the shares’ repurchase value over
their carrying amount of $6.6 million was charged to retained earnings as share
repurchase premiums.


---



6.DESCRIPTIONOFCAPITALSTRUCTURE  Our authorized capital consists of
an unlimited number of common shares without par value and an unlimited number
of preferred shares without par value, issuable in series.  Each common share entitles the
holder thereof to dividends if, as and when declared by our Directors, to one
vote at all meetings of holders of common shares and to participate, pro rata,
with the holders of common shares, in any distribution of our assets upon liquidation,
dissolution or winding-up, subject to the prior rights of holders of shares
ranking in priority to common shares.  As at the close of business on March
31, 2016 and May 31, 2016 respectively, 269,634,816 and 269,095,365 common
shares were issued and outstanding. There are no preferred shares issued and
outstanding.   7.MARKETFORSECURITIES  The outstanding common shares of CAE
are listed and posted for trading on The Toronto Stock Exchange and on the New
York Stock Exchange under the symbol CAE.  7.1TradingPriceandVolume  CAEInc.
  TSXSharePriceInformation-FY2016Month
 Min.
 Max.
 TotalVolumeApril-15
 14.53
 15.60
 9,023,463May-15
 14.52
 15.42
 8,586,054June-15
 14.61
 15.47
 7,202,396July-15
 13.92
 15.08
 7,761,620August-15
 13.26
 15.52
 6,874,534September-15
 13.61
 14.53
 7,795,517October-15
 13.93
 15.28
 6,279,401November-15
 14.14
 15.47
 7,153,474December-15
 14.79
 15.72
 6,700,222January-16
 14.09
 15.67
 12,864,537February-16
 13.04
 15.01
 17,694,540March-16
 14.77
 15.24
 14,786,973NYSESharePriceInformation-FY2016Month
 Min.(USD)
 Max.(USD)
 TotalVolumeApril-15
 11.66
 12.96
 599,412May-15
 11.93
 12.85
 613,578June-15
 11.76
 12.55
 1,038,543July-15
 10.71
 12.03
 694,723August-15
 10.06
 11.84
 711,208September-15
 10.14
 11.01
 538,382October-15
 10.56
 11.59
 645,998November-15
 10.60
 11.80
 1,062,907December-15
 10.76
 11.54
 787,216January-16
 9.89
 11.18
 857,378February-16
 9.34
 11.10
 3,229,634March-16
 10.99
 11.71
 1,458,925


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8.DIRECTORSANDOFFICERS  The Directors of CAE are elected at
each annual meeting of shareholders and hold office until the next annual
meeting of shareholders or until their successors are elected or appointed. The
names and municipalities of residence of the Directors and Officers of CAE as
of the date hereof, the positions and offices held by them in CAE, their
respective principal occupations for the last five years, and the year in which
they became a Director are set forth below.  More information concerning CAE’s
Directors may be found in the Management Proxy Circular dated June 15, 2016, in
connection with our Annual Meeting of Shareholders to be held on August 10, 2016.  In addition to fulfilling all
statutory requirements, the Board of Directors oversees and reviews: (i) the
strategic and operating plans and financial budgets and the performance against
these objectives; (ii) the principal risks and the adequacy of the systems and
procedures to manage these risks; (iii) the compensation and benefit policies;
(iv) management development and succession planning; (v) business development
initiatives; (vi) the communications policies and activities, including
shareholder communications; (vii) the integrity of internal controls and
management information systems; (viii) the monitoring of the corporate
governance system; and (ix) the performance of the President and Chief
Executive Officer.  The Committees of the Board of
Directors are the Audit Committee, the Governance Committee and the Human
Resources Committee.


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8.1NameandOccupation  DIRECTORS  NameandMunicipalityofResidenceandYearFirstBecameaDirector
 PrincipalOccupationBRIANE.BARENTS
  Andover,Kansas,USA(2005)
 Mr. Barents is a Director of
  several companies. A former Air National Guard Brigadier General and still an
  active pilot, Mr. Barents was the President, CEO and co‐founder of Galaxy Aerospace
  Company, LP from 1997 to 2001 and before that President and CEO of Learjet,
  Inc. from 1989 to 1996. He is a past Chairman of the General Aviation
  Manufacturers Association. He currently serves on the boards of Kaman
  Corporation, Aerion Corporation and The NORDAM Group.
  
  Mr. Barents is a member of both
  the Human Resources Committee and the Governance Committee.MARGARET S. (PEG) BILLSON
  Irving, Texas, USA
  (Elected August 12th, 2015)
 Ms. Billson is the President &
  CEO of BBA Aviation Aftermarket Services, a division of BBA Aviation plc. Ms.
  Billson is a veteran aviation business leader with over 30 years of
  experience leading technology rich companies, including serving as the
  President & General Manager of the Airplane Division of Eclipse Aviation
  and as the Vice-President & General Manager of Airframe Systems at
  Honeywell International Inc. Ms. Billson has a Master’s degree in
  Engineering-Aerospace and, in recognition of her industry accomplishments,
  has been inducted into Embry Riddle Aeronautical University Hall of Fame. Ms.
  Billson is also an instrument-rated pilot.
  
  Ms. Billson is a member of the Audit
  Committee.HON.MICHAELM.FORTIER,PC
  TownofMountRoyal,Quebec,Canada
  (2010)
 Mr.  Fortier joined RBC Capital
  Markets (RBCCM) as a Vice-Chairman in 2010. Prior to joining RBCCM, Mr.
  Fortier was a partner of Ogilvy Renault LLP (now Norton Rose Fulbright Canada
  LLP) and a Senior Advisor to Morgan Stanley in Canada.
  
  Between 2006 and 2008, Mr. Fortier
  held various positions in the Government of Canada, as Minister of Public
  Works and Government Services, Minister of International Trade and Minister
  responsible for Greater Montréal.  Prior to that, Mr. Fortier was active in
  the investment banking industry, first as a Managing Director with Credit
  Suisse First Boston (1999 - 2004) and then as a Managing Director with TD
  Securities (2004 - 2006).
  
  Mr. Fortier also practiced
  law with Ogilvy Renault LLP (1985 - 1999) in the areas of corporate finance
  and mergers and acquisitions. He was based in London, England for several
  years during this period.
  
  Mr. Fortier is a member of the
  Governance Committee.PAULGAGNÉ,CPA,CA
  Senneville,Quebec,Canada(2005)
 Mr.  Gagné is a Director of
  various public and private companies. Mr. Gagné is the Chairman of Wajax
  Corporation, serves on the Audit and Organization and Compensation Committees
  of the board of Textron Inc., as well as the Audit, Human Resources and
  Environment, Health & Safety Committees of Norbord Inc. Mr. Gagné worked
  with Avenor Inc. (1976 - 1997), last serving as its Chief Executive Officer.
  In 1998, he joined Kruger Inc., where he served as Consultant in Corporate
  Strategic Planning (1998 – 2002). Mr. Gagné is a Chartered Professional
  Accountant.
  
  Mr. Gagné is Chairman of the Human
  Resources Committee and is a member of the Audit Committee.JAMESF.HANKINSON,CPA,CA
  Toronto,Ontario,Canada(1995)
 Mr. Hankinson is a corporate
  Director. He was the President and Chief Executive Officer of Ontario Power
  Generation Inc. from 2005 until his retirement in 2009. He has broad
  management experience in energy, transportation, resource and
  manufacturing-based businesses. Mr. Hankinson was previously a Director of
  ENMAX Corporation, a private company, from 2010 to May 2016. He served as
  President and Chief Executive Officer of New Brunswick Power Corporation
  (1996 - 2002). In 1973, he joined Canadian Pacific Limited and served as
  President and Chief Operating Officer (1990 - 1995). Mr. Hankinson is a
  Chartered Professional Accountant.
  
  Mr. Hankinson is the chairman of
  the board.ALAN N. MACGIBBON, CPA, CA
  Oakville, Ontario
  (2015)
 Mr. MacGibbon has been non
  executive Vice Chair of the law firm Osler, Hoskin & Harcourt LLP since
  July 2014 and a director of Toronto Dominion Bank since April 2014. He was
  Global Managing Director, Quality, Strategy and Communications of Deloitte
  Touche Tohmatsu Limited (2011 - 2013), and was also Senior Counsel to
  Deloitte LLP (Canada) (2012 - 2013), and the Managing Partner and Chief
  Executive of Deloitte LLP (Canada) prior to June 2012. Mr. MacGibbon
  holds an undergraduate degree in business administration and an honorary
  doctorate degree from the University of New Brunswick. Mr. MacGibbon is a
  Chartered Professional Accountant, a Chartered Accountant and a Fellow of the
  Chartered Professional Accountants of Ontario.
  
  Mr.
  MacGibbon isamemberoftheAuditCommittee.HON.JOHNP.MANLEY,P.C.,O.C.
  Ottawa,Ontario,Canada
  (2008)
 Mr. Manley is President and Chief
  Executive Officer of the Business Council of Canada (not-for-profit) and
  Chairman of Canadian Imperial Bank of Commerce. From 2004 to 2009, he served
  as Counsel to McCarthy Tétrault LLP, a national law firm. Prior to that, Mr.
  Manley had a 16-year career in politics, serving as Deputy Prime Minister of
  Canada and Minister in the portfolios of Industry, Foreign Affairs and
  Finance. Mr. Manley obtained a Bachelor of Arts from Carleton University and
  a Juris Doctorate from the University of Ottawa, is a certified Chartered
  Director from McMaster University and holds honorary doctorates from five
  Canadian universities.
  
  Mr. Manley chairs the Governance
  Committee and is a member of the Human Resources Committee.MARCPARENT
  Lorraine,Quebec,Canada(2008)
 Mr. Parent has been the President
  and CEO of CAE Inc. since October 2009. He joined the Company in February
  2005 as Group President, Simulation Products, was appointed Group
  President, Simulation Products and Military Training & Services in May
  2006, and then Executive Vice President and Chief Operating Officer in
  November 2008. Mr. Parent has over 30 years of experience in the aerospace
  industry. Before joining CAE, Mr. Parent held various positions with Canadair
  and within Bombardier Aerospace in Canada and the U.S. Mr. Parent is past
  Chairman of the Board of Directors of the Aerospace Industries Association of
  Canada (AIAC) and of Aéro Montréal (Québec’s aerospace cluster). Mr. Parent
  graduated as an engineer from École Polytechnique, is a graduate of the
  Harvard Business School Advanced Management Program and holds an honourary
  doctorate from École Polytechnique. Mr. Parent is an active pilot
  holding a Transport Canada Airline Transport Pilot license.GENERALPETERJ.SCHOOMAKER,USA(RET.)
  Tampa,Florida,USA(2009)
 General Schoomaker is a consultant
  on defence matters. He is a former four-star U.S. Army general who was
  recalled from retirement to active duty as the 35th Chief of Staff, Army and
  member of the U.S. Joint Chiefs of Staff (2003 - 2007). Prior to his first
  retirement, he served as Commander‐in‐Chief, U.S. Special
  Operations Command (1997 - 2000). He was the owner/President of Quiet Pros,
  Inc. (defence consulting) (2000 - 2003). General Schoomaker spent over 35
  years in a variety of command and staff assignments with both conventional
  and special operations forces. General Schoomaker is a Director of several 
  private and non-profit companies, the Special Operations Warrior Foundation
  and was a Director of CAE USA Inc. (2007 - 2009).
  
  General Schoomaker is a member of
  the Human Resources Committee and the Governance Committee.ANDREWJ.STEVENS
  Gloucestershire, UK(2013)
 Mr. Stevens is a corporate
  Director based in the U.K who has operating experience globally in the
  aerospace and defence sector.  Beginning with the Dowty Group, a leadingBritishmanufacturer of aircraft equipment
  (1976 - 1994), Bowthorpe plc (1994 - 1996), Messier-Dowty as Managing
  Director then Chief Operating Officer (1996 - 2000), Rolls-Royce, where he
  served as Managing Director Defence Aerospace (2001 - 2003), and Cobham plc
  as a Board member where he served variously as Group Managing Director,
  Aerospace Systems, Chief Operating Officer and Chief Executive Officer (2003
  - 2012).
  
  Mr. Stevens is a member of the
  Human Resources Committee and the Audit Committee.KATHARINEB.STEVENSON
  Toronto,Ontario,Canada(2007)
 Ms. Stevenson is a corporate
  Director who has served on a variety of corporate boards in Canada and the
  United States. She was formerly the global Treasurer of Nortel Networks
  Corporation.  Prior to joining Nortel Networks Corporation, she held
  progressively senior finance roles in investment and corporate banking at
  J.P. Morgan & Company, Inc. Ms. Stevenson serves as Director on the board
  of Canadian Imperial Bank of Commerce and chairs its Corporate Governance
  Committee. She is also a Director of Open Text Corporation and a member of
  its Audit Committee.
  
  Ms. Stevenson holds a Bachelor of
  Arts degree (Magna Cum Laude) from Harvard University and has the
  professional designation ICD.D granted by the Institute of Corporate
  Directors (ICD).
  
  Ms. Stevenson chairs the Audit
  Committee.


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OFFICERS  NameandMunicipalityofResidenceandOfficeheldwithCAE
 PrincipalOccupationNICKLEONTIDIS
  Ile-Bizard, Quebec,Canada
 GroupPresident,CivilAviationTrainingSolutions;previouslyExecutiveVice-President,StrategyandBusinessDevelopment(2009to2013),ExecutiveVicePresidentSales,MarketingandBusinessDevelopment-CivilTrainingandServices(2005-2009).GENNARO(GENE)A.COLABATISTTO
  Baied’Urfé,Quebec,Canada
 GroupPresident,DefenceandSecurity,withCAEsince2012;formerlySeniorVicePresident,ProgramDevelopmentfortheIntelligence,SurveillanceandReconnaissanceGroupatScienceApplicationsInternationalCorporation(2008-2012)andbeforethatPresidentofOliveGroupNorthAmerica.SONYABRANCO,CPA,CA
  Montreal,Quebec,Canada
 VicePresident,FinanceandChiefFinancialOfficer since May 2016,withCAEsince2008; formerlyVicePresident,
  FinanceandCorporateController,and
  DirectorPlanningandForecasting.Ms.BrancoisaCharteredProfessionalAccountant.MARK HOUNSELL
  Town of Mount Royal,Quebec,Canada
 GeneralCounsel,ChiefComplianceOfficerandCorporateSecretary,withCAEsinceFebruary 2016; formerly Chief
  Legal Officer and Corporate Secretary of Aimia Inc. (2008-2016).CONSTANTINO MALATESTA, CPA, CA
  Laval, Quebec, Canada
 Vice President and Corporate
  Controllersince May 2016, with CAE since 2006; formerly Director Finance, CAE
  Oxford Aviation Academy (2014-2016), and Director Finance and Assistant
  Corporate Controller (2011-2014).   Mr. Malatesta is a Chartered Professional
  Accountant and U.S. Certified Public Accountant.MARIO PIZZOLONGO, CPA, CA
  Blainville, Quebec, Canada
 Treasurer, with CAE since January 2016; formerly Vice
  President, Finance and Treasurer of Future Electronics Inc. (2010-2016).Mr. Pizzolongo is a Chartered Professional
  Accountant.


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All Directors and officers as a
group (17 persons) owned beneficially or exercised control or direction over
354,518 Common Shares representing 0.13% of the class as at June 15, 2016.  8.2CeaseTradeOrders,Bankruptcies,PenaltiesorSanctions  None of the Directors of CAE is, or
within ten years prior hereto has been, subject to a cease trade or similar
order except as set out below.  On May 3, 2012, while Mr. Barents
was a Director thereof, Hawker Beechcraft Corporation filed voluntary petitions
for reorganization under Chapter 11 of the United States Bankruptcy Code; that
company exited Chapter 11 in February 2013 after which Mr. Barents left the
Hawker Beechcraft Board of Directors.  Mr. Manley was a Director of Nortel
Networks Corporation (“Nortel”) and Nortel Networks Limited (“NNL”)
when Nortel and NNL were granted creditor protection under the Companies’
Creditors Arrangement Act (“CCAA”) on January 14, 2009, and under other
similar bankruptcy legislation in the U.S. and other jurisdictions.  Mr. Gagné resigned as Director of
Gemofor Inc., a privately held manufacturer of sawmill equipment, in November
2006. Within a year of his resignation Gemofor Inc. filed for bankruptcy. In
addition, Mr. Gagné was a Director ofFraser Papers
Inc. (“Fraser”) from April 2004 through February 2011. In June 2009,
Fraser initiated a court-supervised restructuring under the CCAA, and under
other similar bankruptcy legislation in the U.S. As part of its restructuring,
Fraser sold all of its productive assets and distributed the proceeds from the
sale of those assets pursuant to a Consolidated Plan of Compromise and
Arrangement which was approved by the courts in February 2011. Fraser’s common
shares were suspended from trading on the TSX on June 23, 2009.  On March 10,
2011, the Ontario Securities Commission issued a cease trade order against
Fraser.


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9.TRANSFERAGENTSANDREGISTRARS  CAE only has common shares issued.
CAE’s transfer agent is Computershare Trust Company of Canada located at 100
University Avenue, 8th Floor, Toronto, Ontario, M5J 2Y1.   10.AUDITCOMMITTEE  10.1Mandate ThemandateofCAE’s AuditCommitteeisassetoutinScheduleBhereto.  10.2Membership The members of CAE’s Board of Directors’ Audit
Committee are: -Ms. Katharine B. Stevenson (Chair) -Mr. Paul Gagné -Mr. Alan N. MacGibbon -Mr. Andrew J. Stevens -Ms. Margaret S. (Peg) Billson  Each of these members is independent
and financially literate. Ms. Stevenson has extensive financial and
accounting experience, including from her services as Treasurer of Nortel
Networks Corporation, as Vice President, Corporate Finance with J.P. Morgan
Chase & Co., a global financial services firm based primarily in New York,
and as former chair of the Audit Committee of OSI Pharmaceuticals, Inc. She
also serves on the Audit Committee of Open Text Corporation and the Risk
Management Committee of Canadian Imperial Bank of Commerce. Mr. Gagné is a Chartered Professional Accountant.
In addition to his current activities set out in the Directors’ table above, he
also serves on the Audit Committees of the Boards of Directors of Norbord Inc.
and Textron Inc. and previously chaired the Audit Committees of CAE, Textron
Inc., Inmet Mining Corporation and Fraser Papers Inc.


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Mr. MacGibbon was formerly the Managing Partner and Chief
Executive of Deloitte LLP (Canada), a member of Deloitte’s Board of Directors,
and a member of the Executive and Board of Directors of Deloitte Touche
Tohmatsu Limited. Mr. MacGibbon is a chartered professional accountant and a
Fellow of the Ontario Institute of Chartered Professional Accountants. Mr. Stevens and Ms. Billson have extensive
managerial experience within the aerospace sector. This managerial experience,
set out in the Directors’ table above, has provided Mr. Stevens and Ms. Billson
with significant insight into financial issues encountered by companies
conducting business within the aerospace sector.   11.APPROVALOFSERVICES  The Audit Committee is responsible
for the appointment, compensation, retention and oversight of the work of CAE’s
independent auditor. The Audit Committee must pre-approve any audit and
non-audit services performed by PricewaterhouseCoopers LLP (“PwC”),
CAE’s auditor, or such services must be entered into pursuant to the policies
and procedures established by the Committee. Pursuant to such policies the
Audit Committee annually authorizes CAE and our affiliates to engage the
auditor for specified permitted tax, financial advisory and other audit-related
services up to specified fee levels. The Audit Committee has considered and
concluded that the provision of these services by PwC is compatible with
maintaining PwC’s independence. The Audit Committee’s policy also identifies
prohibited services that PwC is not to provide to CAE.  PwC has advised that they are
independent with respect to CAE within the meaning of the Code of Ethics of the
“Ordre des comptables professionnels agréés du Québec”.  The following chart shows all fees
paid to PwC by CAE and our subsidiaries in the most recent and prior fiscal
year for the various categories of services (generic description only).   FEE TYPE
 2016
 2015($MILLIONS)1.Auditservices
 3.8
 3.62.Audit-relatedservices
 0.6
 0.63.Taxservices
 0.9
 0.7Total
 5.3
 4.9
  Audit fees are comprised of fees
billed for professional services for the audit of CAE’s annual financial
statements    and services that are normally provided by PwC in connection with
statutory and regulatory filings, including the audit of the internal controls
over financial reporting as required by the Sarbanes-Oxley legislation.  Audit-related fees are comprised of
fees relating to work performed in connection with CAE’s acquisitions,
translation and other miscellaneous accounting-related services.


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Tax fees are related to tax
compliance support.   12.ADDITIONALINFORMATION  Additional information, including
Directors' and Officers' remuneration and indebtedness, principal holders of
CAE's securities, options to purchase securities and interests of insiders in
material transactions, where applicable, is contained in the Management Proxy
Circular dated June 15, 2016, in connection with CAE's Annual Meeting of
Shareholders to be held on August 10, 2016. Additional financial information,
including comparative consolidated audited financial statements and MD&A,
are provided in CAE’s Annual Report to the shareholders for the financial year
ended March 31, 2016. A copy of such documents may be obtained from the Vice
President, Public Affairs and Global Communications or the Secretary of CAE
upon request, or are available online atwww.sedar.com,as well
as CAE’s website atwww.cae.com.  In addition, CAE will provide to any
person or company, upon request to the Vice President, Public Affairs and Global
Communications or the Secretary of CAE, the documents specified below: (a)WhenthesecuritiesofCAEareinthecourseofadistributionunderapreliminaryshortformprospectusorashortformprospectus: (i)onecopyofCAE’sannualinformationformtogetherwithonecopyofanydocument,orthepertinentpagesofanydocument,incorporatedbyreferenceinsuchannualinformationform; (ii)onecopyofCAE’scomparativefinancialstatementsforourmostrecentlycompletedfinancialyeartogetherwiththeaccompanyingreportoftheauditorsandonecopyofCAE’smostrecentinterimfinancialstatementsforany periodaftertheendofourmostrecently
completedfinancialyear; (iii)onecopyoftheinformationcircularinrespectofourmostrecentannualmeetingofshareholdersthatinvolvedtheelectionofDirectors;and (iv)onecopyofanyotherdocumentswhichareincorporatedbyreferenceintothepreliminaryshortformprospectusortheshortformprospectusandarenotrequiredtobeprovidedunder(i)to(iii)above;or (b)Atanyothertime,onecopyofanyotherdocumentreferredtoinclauses(i),(ii)and(iii)ofparagraph(a)above,providedthatCAEmayrequirethepaymentof areasonablechargeiftherequestismadebyapersonorcompany whoisnotasecurity holderofCAE.


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GLOSSARY   For thepurposesofthisAnnualInformationForm,thefollowingtermshavethemeanings
setoutbelow:  “AIF”meanstheAnnualInformationForm  “AnnualReport”meanstheAnnualReporttoShareholdersfortheyearendedMarch31,2015  “C4ISR”meansCommand,Control,Communications,Computers,Intelligence,SurveillanceandReconnaissance  “CBCA”meanstheCanadaBusinessCorporationsAct  “CCAA”meanstheCompanies’CreditorsArrangement
Act  “CE/CDB”means CAE’sCommonEnvironment/CommonDataBase  “COMAC”meansCommercialAircraftCorporationofChina,Ltd  “Company”
or “CAE” means CAE Inc.  “Consolidated
Financial Statements” means the Consolidated Financial Statements for the
year ended March 31, 2016 and the notes thereto  “FFS” means
full-flight simulators  “FTO”meansaflighttrainingorganization  “FY2014”means
fiscal2014  “FY2015”means
fiscal2015  “FY2016”means
fiscal2016  “ICAO”meanstheInternationalCivilAviationOrganization  “MD&A”meansCAE’sManagement’sDiscussionandAnalysisofFinancialConditionandResultsofOperations  “MPL”meanstheCAEMulti-crewPilotLicense


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“OEM”meanstheoriginalequipmentmanufacturer  “PwC”means PricewaterhouseCoopersLLP  “RAAF”meanstheRoyalAustralianAirForce  “RPK”meansrevenuepassengerkilometers  “SADI”meansCanada’sStrategic AerospaceandDefenceInitiative  “UAS”meansunmannedaerialsystems


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SCHEDULEA–SUBSIDIARIES AND OTHER INVESTMENTS  Set forth below are the names of all the direct and indirect subsidiaries and other investments of CAE as at March 31, 2016. Please note that all entities are wholly owned, except as mentioned.    NameofSubsidiary or other investment

   JurisdictionofIncorporationCanada7320701CanadaInc.

   Canada8218765CanadaInc.

   Canada9595058 Canada Inc.

   CanadaCAEHealthcareCanadaInc..

   CanadaCAEInternationalHoldings Limited

   CanadaCAEMachinery Ltd.

   BritishColumbiaCAE Military Aviation Training Inc.

   CanadaCAE Mining Equipment Canada Inc.

   CanadaCAE Operational Training Services Inc.

   CanadaCAERailwayLtd.

   CanadaCAEServices (Canada)Inc.

   CanadaCAESimulatorServicesInc.

   QuébecCAEWoodProductsG.P.
   1

   QuébecFlightSimulator-CapitalL.P.2

   QuebecFlightSimulatorCapitalManagementInc.

   QuebecPresagisCanadaInc.

   CanadaUnitedStatesAdvancedMedicalTechnologies,LLC.

   WashingtonCAE(US)Inc.

   DelawareCAE(US)LLC

   DelawareCAECivilAviationTrainingSolutionsInc.

   FloridaCAEDelawareBuycoInc.

   DelawareCAEFlightSolutionsUSAInc.

   DelawareCAEHealthcare,Inc.

   DelawareCAEIntegratedEnterpriseSolutionsUSAInc.

   DelawareCAENorthEastT.rainingInc.

   DelawareCAEOxfordAviationAcademyPheonixInc.

   ArizonaCAESimuFliteInc.

   DelawareCAEUSAInc.

   DelawareEmbraerCAETrainingServices,LLC.(49%)

   DelawareEngenuity Holdings(USA)Inc.

   DelawareKVDBFlightTrainingServices,Inc.(49%)

   ArizonaOxfordAirlineTrainingCenterInc.

   ArizonaParcU.S.Inc.

   DelawarePresagisUSAInc.

   CaliforniaRotorsimUSALLC.(50%)

   DelawareEuropeARGERheinmetallDefenceElectronicsGmbh/CAEElektronikGmbH (50%) 3

   GermanyAviationPersonnelSupportServices Limited

   IrelandAviation Training Northeast Asia B.V. (50%)

   NetherlandsCAEAircrewTrainingServicesplc(78%)

   UnitedKingdomCAEAviationTrainingB.V...

   NetherlandsCAEBeyssGrundstücksgesellschaftGmbH

   GermanyCAECenterAmsterdamB.V.

   NetherlandsCAECenterBrusselsN.V.

   Belgium


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CAECentreCopenhagenA/S

   DenmarkCAECentreOsloAS

   NorwayCAECentreStockholmAB

   SwedenCAE Elektronik GmbH

   GermanyCAEEngineeringKorlátoltFelelősségűTársaság

   HungaryCAEEurocoS.à.r.l.

   LuxembourgCAEGlobalAcademy Évora,SA.

   PortugalCAEHealthcareGmbH

   GermanyCAEHealthcareKFT

   HungaryCAEHoldingsBV

   NetherlandsCAEHoldingsLimited

   UnitedKingdomCAEInternationalCapitalManagementHungaryLLC.

   HungaryCAEInvestmentsS.àr.l.

   LuxembourgCAELuxembourgAcquisitionS.àr.l.

   LuxembourgCAELuxembourgFinancingS.àr.l.

   LuxembourgCAEManagementLuxembourgS.àr.l.

   LuxembourgCAE Oxford Aviation Academy Amsterdam B.V.

   NetherlandsCAE Parc Aviation Jersey Limited

   JerseyCAEServicesGmbH

   GermanyCAEServices Italia,S.r.l.

   ItalyCAEServiciosGlobalesdeInstruccióndeVuelo(España)S.L

   SpainCAESTSLimited

   UnitedKingdomCAETraining&ServicesBrusselsNV

   BelgiumCAETraining&ServicesUKLtd.

   UnitedKingdomCAETrainingAircraftB.V.

   NetherlandsCAETrainingNorwayAS

   NorwayCAE(UK)plc

   UnitedKingdomCAEVerwaltungsgesellschaftmbH

   GermanyCVSLeasingLimited(13.39%)

   UnitedKingdomEmbraerCAETrainingServices(UK)Limited (49%)

   UnitedKingdomEurofighterSimulationSystemsGmbH(12%)

   GermanyFlight Training Alliance GmbH (50%)

   GermanyGCATFlight AcademyMaltaLimited

   MaltaHelicopterTrainingMediaInternationalGmbH(50%)

   GermanyHFTSHelicopterFlightTrainingServicesGmbH(25%)

   GermanyOxfordAviationAcademy (Oxford)Limited

   UnitedKingdomOxfordAviationAcademy EuropeAB

   SwedenOxfordAviationAcademy EuropeanHoldingsAB

   SwedenOxfordAviationAcademy FinanceLimited

   IrelandOxfordAviationAcademy IrelandHoldingsLimited

   IrelandOxfordAviationAcademyLatviaSIA

   LatviaOxfordAviationAcademyNorwayHoldingsAS

   NorwayParcAviation(UK)Limited

   UnitedKingdomParcAviationEngineeringServices Limited

   IrelandParcAviationInternationalLimited

   IrelandParcAviationLimited

   IrelandParcAviationServicesLimited

   IsleofManParcInterimLimited

   IrelandParcSelectionLimited

   IsleofManPresagisEurope(S.A.)

   FranceRotorsims.r.l.(50%)

   ItalyServiciosdeInstruccióndeVuelo,S.L.(80%)

   SpainSimubelN.V.(aCAEAviationTrainingCompany)

   BelgiumSIVOpsTraining,S.L. (80%)

   SpainOtherAsianAviationCentreofExcellence(Singapore)PteLtd.(50%)

   SingaporeAsianAviationCentreofExcellenceSdn.Bhd.(50%)

   Malaysia


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CAEAircraftMaintenancePtyLtd. (50%)

   AustraliaCAE Australia Pty Lt.d.

   AustraliaCAE Aviation Services Pte Ltd.

   SingaporeCAEAviationTrainingChileLimitada
   4

   ChileCAEAviationTrainingInternationalLtd.

   MauritiusCAEAviationTrainingPeruS.A.

   PeruCAEBruneiMulti-PurposeTrainingCenterSDNBHD(60%

   BruneiCAECentreHongKongLimited

   ChinaCAEChinaSupportServicesCompanyLimited

   ChinaCAEFlight&SimulatorServicesSdn.Bhd.

   MalaysiaCAEFlightandSimulatorServicesKoreaLtd. (50%)

   KoreaCAEFlightTraining(India)PrivateLimited(50%)

   IndiaCAEFlightTrainingCenterMexico,S.A. deC.V.

   MexicoCAEIndiaPrivateLimited

   IndiaCAEIntegratedEnterpriseSolutionsAustraliaPtyLtd

   AustraliaCAEJapanFlightTrainingInc.

   JapanCAE Maritime Middle East LLC (49%)

   UAECAEMelbourneFlightTrainingPtyLtd. (50%)

   AustraliaCAE Middle East L.L.C. (49%)

   UAECAEMiddleEastHoldings Limited(50%)

   UAECAENewZealandPtyLimited

   NewZealandCAE Nigeria Flight Training Services Limited

   NigeriaCAE Oxford Aviation Academy (Singapore) Pte Ltd.

   SingaporeCAEShanghaiCompany,Limited

   ShanghaiCAESimulationTechnologies PrivateLimited.

   IndiaCAESimulationTrainingPrivateLimited(25%)

   IndiaCAESingapore(S.E.A.)PteLtd.

   SingaporeCAESouthAmericaFlightTrainingdoBrasilLtda

   BrazilCAE-LIDERTrainingDoBrasilLtda.(50%)

   BrazilChinaSouthernWestAustraliaFlyingCollegePtyLtd(47%)

   AustraliaEmirates-CAEFlightTraining(L.L.C.)(49%)

   DubaiFlightTrainingDevice(Mauritius)Limited.

   MauritiusHATSOFFHelicopterTrainingPrivateLimited(50%)

   IndiaInternationalFlightSchool(Mauritius)Ltd.

   MauritiusJAL CAE Flight Training Co., Ltd. (50%)

   JapanNationalFlyingTrainingInstitutePrivateLimited(51%)

   IndiaOxfordAviationAcademy (Australia)PtyLtd. (50%)

   AustraliaOxfordAviationAcademy HoldingsPtyLtd. (50%)

   AustraliaParcAviationJapanLimited.

   JapanPhilippineAcademyforAviationTraining,Inc.(20%)

   PhilippinesSabenaFlightAcademy–Africa(34%)

   CamerounSimulatorServiciosMexico,S.A. deC.V.

   MexicoZhuhaiFreeTradeZoneXiangYiAviationTechnology Company Limited. (49%)

   ChinaZhuhaiXiangYiAviationTechnology Company Limited(49%)

   China


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INACTIVE NameofSubsidiaryor other investment

   JurisdictionofIncorporationCAE Aviation Training Colombia S.A.S.

   ColombiaCAE Beteiligungsgesellschaft mbH

   GermanyCAEScreenplatesSA

   FranceGCATFlight AcademyGermanyGmbH

   GermanyInvertronSimulatorsplc

   UnitedKingdomISDATSimulationSDNBHD(20%)

   Malaysia
 Parc-CVLimited

   IrelandParcAviationTrainingLimited

   IrelandXtendInc.

   Utah
   Notes 1; 2; 3; 4 refer to a partnership.


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SCHEDULE B – AUDIT COMMITTEE MANDATE CAEINC. MEMBERSHIPANDRESPONSIBILITIESOF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS    1.ROLEANDMEMBERSHIP TheAuditCommittee(the“Committee”)shallbeacommitteeoftheBoardofDirectors. TheCommitteeshallconsistofthreetofivedirectors(oneofwhomshallbetheChairmanoftheCommittee).AllmembersoftheCommitteeshallbeindependentdirectors,asdeterminedbytheBoardtakingintoconsiderationapplicablelaws,regulationsandotherrequirementsandregulatoryguidelinesapplicabletosuchdetermination.EachmembershallannuallycertifytoCAEInc.(“CAE”orthe“Company”)astohisorherindependence,informcompliantwiththestandardsofindependenceset outbyregulatoryauthorities,stockexchangesandotherapplicablelaws,regulationsandrequirements.Eachmembershallbeabletoreadandunderstandfinancialstatements(balancesheet,incomestatement,cashflowstatement)thatpresentabreadthandlevelofcomplexityofaccountingissuesthataregenerallycomparabletothebreadthandcomplexityoftheissuesthatcanreasonablybeexpectedtoberaisedbyCAE’sfinancialstatements,orshallbecomeabletodosowithinareasonableperiodoftimeafterjoiningtheauditcommittee.Onemembershallqualifyasa“financialexpert”(asdefinedbyapplicableregulation)andthereforehavepastemploymentinfinance,accountingoranyothercomparableexperienceorbackgroundprovidingfinancialexpertise.TheCommitteecomposition,includingthequalificationsofitsmembers,shallcomplywiththerequirementsofregulatoryauthorities,stockexchangesandotherapplicablelaws,regulationsandrequirements,assuchrequirementsmaybeamendedfromtimetotime. TheChairmanoftheCommitteeanditsmembersshallbeelectedannuallybytheBoardofDirectorsfollowingrecommendationoftheGovernanceCommitteeandtheChairmanoftheBoard.IfthedesignatedChairmanoftheCommitteeisunabletoattendaCommitteemeeting,theotherCommitteememberspresentshallelectareplacementChairmanforthatmeeting. AmajorityofmembersoftheCommitteeshallconstituteaquorum. 2.RESPONSIBILITIES WorkcloselyandcooperativelywithsuchofficersandemployeesofCAE,itsauditors,and/orotherappropriateadvisorsandwithaccesstosuchinformationastheCommitteeconsiderstobenecessaryoradvisableinordertoperformitsdutiesandresponsibilities,asassignedbytheBoardofDirectors,inthefollowingareas: 3.REVIEWOFAUDITEDFINANCIALSTATEMENTS 3.1ReviewtheannualauditedconsolidatedfinancialstatementsandmakespecificrecommendationstotheBoardofDirectors.Aspartofthis processtheCommitteeshould: ·Review the appropriateness of and any changes to the underlying accounting principles and


practices.


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·Review the appropriateness of estimates, judgments of choice and level of conservatism of accounting alternatives. ·Reviewannuallywithmanagement,externalandinternalauditorstheidentification,assessmentandresultingmitigationstrategyforfinancialrisks,andtheinputoftheintegratedriskassessmentintotheannualauditplanningcycle withsubsequentquarterlyupdatesbyChiefFinancialOfficerofanymaterialchangeswithrespecttofinancialriskassessment.. ·OverseethereviewbyinternalauditoftheexistenceandeffectivenessofCAE’sgroup-wideriskmanagementprogram. ·Reviewtheannualauditedfinancialstatementsandactuarialvaluationreports,ifany,fortheSupplementaryPension,DesignatedExecutivePensionPlan,EmployeePensionPlan,U.S.401(K)RetirementSavingsPlansandothermaterialpensionplansoftheCompanyanditssubsidiaries. 4.ENGAGEMENTOFEXTERNALAUDITORS 4.1RecommendtotheBoardofDirectorstheappointmentoftheexternalindependentauditor,whichshallbeaccountabletotheBoardandtheauditcommitteeasrepresentativesoftheshareholders. 4.2Reviewandapprovalofengagementletter.AspartofthisreviewthecommitteereviewsandrecommendstotheBoardofDirectorsfortheirapprovaltheauditors’feesfortheannualaudit.TheCommitteeisresponsiblefor theoversightoftheworkoftheCompany’sauditorforthepurposeofpreparingorissuinganauditreportorrelatedwork,andtheauditorshallreportdirectlytotheCommittee.TheCommitteeshallpre-approvetheengagementof theexternalauditorsfor theaudit,anyaudit-relatedservices,advicewithrespecttotaxationmattersandotherpermittedservicesandfeesforsuchservices,includingapprovalprocessesforanysuchservicethatcomplywiththerequirementsofregulatoryauthorities,stockexchangesandotherapplicablelaws,regulationsandrequirements,asamendedfrom timetotime. 4.3ReceiptofawrittenstatementnotlessthanannuallyfromtheexternalauditordescribingindetailallrelationshipsbetweentheauditorandCAEthatmayimpacttheobjectivityandindependenceoftheauditor.ReviewannuallywiththeBoardofDirectorstheindependenceoftheexternalauditorsandeitherconfirmtotheBoardofDirectorsthattheexternalauditorsareindependentinaccordancewithapplicablelistingrequirements,laws,regulationsandotherregulatoryguidelines,orrecommendthattheBoardofDirectorstakeappropriateactiontosatisfyitselfoftheexternalauditors’independence.ReviewandapproveCAE’shiringpoliciesregardingpartners,employeesandformerpartnersandemployeesofthepresentandformerexternalauditorofCAE. 5.REVIEWANDDISCUSSIONWITHEXTERNALAUDITORS 5.1Reviewwiththeexternalauditorsandmanagementtheannualexternalauditplansandagendawhichwouldincludeobjectives,scope,risksassessments,timing,materiality levelandfeeestimate. 5.2Requestandreviewanannualreportpreparedbytheexternalauditorsofanysignificant


recommendationstoimproveinternalcontroloverfinancialreportingandcorrespondingmanagementresponses.


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5.3Requestandreviewanannualreportpreparedbytheexternalauditorsregardingtheauditor’sinternalquality-controlprocedures,materialissuesraisedbythemostrecentinternalquality-controlreviewoftheauditors,orbyanyinquiryorinvestigationbygovernmentalorprofessionalauthorities,withinthepreceding5years,respectingoneormoreauditscarriedout bytheauditors,andanystepstakentodealwithanysuchissues. 5.4Holdtimelydiscussionswiththeexternalauditorsregarding(i)criticalaccountingpoliciesandpractices,(ii)alternativetreatmentsoffinancialinformationwithingenerallyacceptedaccountingprinciplesrelatedtomaterialitemsdiscussedwithmanagement,ramificationsthereofandtreatmentpreferredbytheexternalauditor,and(iii)othermaterialwrittencommunicationbetweentheexternalauditorandmanagement,includingthemanagementletter andscheduleofunadjusteddifferences. 5.5Meettoreviewanddiscusswiththeexternalauditorstheannualauditedfinancialstatementsandquarterlyfinancialstatements,includingdisclosuresinmanagementdiscussionandanalysis. 5.6Meetseparately,quarterly,withtheexternalauditors(includingtheleadpartner). 5.7Makespecificanddirectinquiryof theexternalauditors’work relatingto: ·Performanceofmanagementinvolvedinthepreparationoffinancialstatements. ·Anyrestrictionsonthescopeofauditwork. ·Thelevelofcooperationreceivedintheperformanceoftheaudit. ·Theeffectivenessoftheworkofinternalaudit. ·Anyunresolvedmaterialdifferencesofopinionordisputesbetweenmanagementandtheexternalauditors,andbedirectlyresponsibleforoverseeingtheresolutionofdisagreementsbetweenmanagementandtheexternalauditorsregardingfinancialreporting. ·Anytransactionsoractivities whichmaybeillegalorunethical. ·Independenceoftheexternalauditorincludingthenatureandfeesofnon-auditservicesperformedbyexternalauditfirmanditsaffiliates. ·Anyothermattersodesired. 5.8Provideevaluationandregularfeedbacktotheexternalauditors. 6.REVIEWANDDISCUSSIONWITHINTERNALAUDITORS 6.1Reviewtheannualinternalauditplanincludingassessmentofauditrisk,plannedactivities,levelandnatureofreporting,auditorganizationandannualbudget. 6.2PeriodicallyreviewtheadequacyandeffectivenessoftheCompany’sdisclosurecontrolsandproceduresandtheCompany’sinternalcontroloverfinancialreporting,includinganysignificantdeficienciesandsignificantchangesininternalcontrols.


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6.3Set andcommunicatetothedirectorofinternalaudithighexpectationsandholdhim/herandthedepartmentaccountableformeetingthem.Provideguidanceonreportedpotentialmanagementlapsesandevaluatethestatusandimplementationofrecommendations. 6.4Meetseparately,regularly,withthedirectorofinternalaudit. 6.5Makespecificanddirectinquiryof theinternalauditors’work relatingto: ·Anysignificantrecommendationstoimprovefinancial,operationalandcomplianceinternalcontrolsandcorrespondingmanagementresponses. ·Thelevelofindependenceofinternalaudit. ·Anymaterialdisagreementwithmanagementorscopeorrestrictionsencounteredinthecourseofthefunction’swork. ·Anyothermattersodesired. 6.6DiscussgoalsandevaluatetheperformanceoftheDirectorofInternalAudit.Overseeatleastonceeveryfiveyearsanexternalreviewof theinternalauditfunction. 7.REVIEWANDDISCUSSIONWITHMANAGEMENT 7.1Reviewandassesstheadequacyandqualityoforganization,staffingandsuccessionplanningforaccountingandfinancialresponsibilities(includinginternalaudit). 7.2Reviewanalysespreparedbymanagementsettingforthsignificantfinancialreportingissuesandjudgementsmadeinconnectionwiththepreparationofthefinancialstatements,includinganalysesoftheeffectofalternativeand/ornewGAAPmethodsonthefinancialstatements. 7.3Discusswithmanagementtheannualauditedfinancialstatementsandquarterlyfinancialstatementsandtheindependentauditor,includingCAE’sdisclosuresunderManagement’sDiscussionandAnalysisofFinancialConditionandResultsofOperations(“MD&A”). 7.4Reviewwithmanagementtheannualperformanceofexternalandinternalauditandrespondtoresultsthereof. 7.5Reviewat leastannually withmanagement: ·Taxcompliance; ·ITandCyber-Security risksandcontrols;and ·Capitalstructureappropriatenessandefficiency.  8.REVIEWANDDISCUSSIONWITHTHEHUMANRESOURCESCOMMITTEE 8.1Onrequest,providesupporttotheHumanResourcesCommitteeoftheBoard(“HRCommittee”)regardingmanagementincentivesandrelatedtopics(includingcompensationandappropriateuseofcorporateassets). 8.2SupporttheHRCommitteeinitsassessmentoftheincentivestructureandwhetheritcontributestoincreasedfraudorotherrisks.


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9.REVIEWOFPUBLICDISCLOSUREDOCUMENTS 9.1ReviewallmaterialpublicdocumentsrelatingtoCAE’sfinancialperformance,financialpositionoranalysesthereon,includingfinancialstatements,MD&A,annualandinterimearningspressreleasesandtheAnnualInformationForm(“AIF”),priortotheirrelease.ReviewandmonitorpracticesandproceduresadoptedbytheCompanytoassurecompliancewithapplicablelistingrequirements,laws,regulationsandotherrules,andwhereappropriate,makerecommendationsorreportsthereontotheBoardofDirectors.DiscussCAE’sfinancialinformationandearningsguidance,ifany,providedtoanalystsandratingagencies. 9.2Reviewmajorissuesregardingaccountingprinciplesandfinancialreportpresentations,includinganysignificantchangesintheaccountingprinciplestobeobservedinthepreparationoftheaccountsoftheCompanyanditssubsidiaries,orintheirapplication;majorissuesastotheCompany’sinternalcontrols;andanyspecialauditstepsadoptedinlightofmaterialcontroldeficiencies. 9.3Prepare/reviewsuchreportsoftheCommitteeasmayberequiredbyanyapplicablesecuritiesregulatoryauthoritytobeincludedintheCompany’s managementproxycircular oranyotherdisclosuredocumentoftheCompany. 9.4TheCommitteeshallreviewandapprovetheproceduressetoutintheCompany’sCorporateCommunications&DisclosurePolicyandwillannuallyverifythatadequateproceduresexistwithintheCompanyforthereviewofitsdisclosureoffinancialinformationderivedfromitsfinancialstatements. 10.ETHICALANDLEGALCOMPLIANCE 10.1Oversee,review,andannuallyupdatetheCompany’scodeofbusinessconductandthecompany’ssystemtomonitorcompliancewithandenforcethis code. 10.2Review,withtheCompany’sgeneralcounsel,legalcomplianceandlegalmattersthatcouldhaveasignificantimpactontheCompany’sfinancialstatements. 11.OTHERRESPONSIBILITIES 11.1TheBoardmayreferfromtimetotimesuchmattersrelatingtothefinancialaffairsandriskmanagementoftheCompanyastheBoardmay deemappropriate. 12.MEETINGS 12.1TheCommitteeshallmeetatsuchtimesasdeemednecessarybytheBoardortheCommitteeandshallreportregularlytotheBoard. 13.ENGAGEMENTOFPROFESSIONALSERVICES 13.1TheCommitteeisauthorizedtoengageindependentcounsel,andotheradvisers,asitdeterminesnecessarytocarryoutits duties.TheCompany shallprovideforappropriatefunding,asdeterminedbytheCommittee,forsuchservices.


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14.HANDLINGOFCOMPLAINTS 14.1TheCommitteeshallmaintainproceduresforthereceipt,retentionandtreatmentofcomplaintsreceivedbytheCompanyregardingaccounting,internalaccountingcontrolsorauditingmatters,andtheconfidential,anonymoussubmissionbyemployeesoftheCompany ofconcernsregardingquestionableaccountingorauditingmatters. 15.ANNUALREVIEW 15.1TheCommitteeshallreviewandassesstheadequacyofitsmandateannually,reporttotheBoardofDirectorsthereonandrecommendtotheBoardofDirectors(forapproval)anyproposedchangestoitsprocesses,proceduresandagendas,aswellasthis charter. 15.2TheCommitteeshallalsoperformanannualevaluationofthecomposition(includingconsideringperiodicallyrotatingitsmembers),independenceandperformanceoftheCommitteeandshallreporttotheChairmanoftheGovernanceCommitteeoftheCAEBoardofDirectorsthereon. 16.ORIENTATIONANDCONTINUINGEDUCATION 16.1Identifyandparticipatewhereappropriateornecessaryincontinuingauditcommitteeeducationreadingand/activities.