Budget cuts, fuels costs could spur military spending on virtual training.

• Author: Erwin, Sandra I.
• Position: Training + Simulation

The Air Force estimates it could save about $1.7 billion over five years by reducing flying hours by 5 percent and shifting more of its pilot and crew training to simulators.

The Navy believes that a roughly $500 million investment in flight simulators over seven years could lower annual aviation training costs by $119 million.

These projections portend lucrative opportunities for the industry that manufactures high-tech combat simulators for the U.S. military. Simulator makers for years have predicted that Pentagon budget cuts and rising fuel prices could work to their benefit. The thinking is that the military will probably have to cut back on live field exercises and increasingly rely on computer-based war gaming and training.

The U.S. military market for combat and weapon simulators currently is valued at about $5 billion a year, according to industry surveys. With training services included, it is an $11-billion-a-year business, says Gene Colabatistto, group president of military products and training services at CAE, a leading manufacturer of flight simulators, based in Montreal, Quebec.

"It's a pretty big market," and it could grow in the next several years, he says.

Colabatistto took over CAE's military sector just six months ago, after spending most of his career in the intelligence community and defense industry He is bullish about the simulation business, especially as budget cuts are looming for the Pentagon. "Simulation-based training is an obvious hedge against a down budget," he says in an interview. "It's one that saves cost."

But the industry nevertheless should not assume that cutbacks to live training will fuel sales of simulators, Colabatistto cautions.

The government's budget cycle is such that it can take years for proposed military programs to be funded by Congress. With a flat or declining budget top line, if the Air Force or the Navy decides it wants to reduce live training and spend more on simulators, money would have to be reallocated from the training account to pay for new simulation devices and software. Contractors have to hope that the Pentagon and Congress will back the plan, says Colabatistto, because there will not be "new money" to buy simulators. Once it becomes apparent to the military that simulators could help them save money, he says, it would take two to three years to have funds appropriated.

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Contractors in the simulation and training sector today have their eyes on a...