CAE, the world's largest civil aviation training company, reported higher costs and a near 30% fall in quarterly operating income from its second-largest defense and security business, but said its full-year outlook for fiscal 2020 remains on track.

The shares fell as much as 14% but pared losses to end down 4.6% at C$34.17, giving it a market value of C$9.1 billion ($6.8 billion).

The Montreal-based company, which offers health care and military aircraft training, also sees demand from carriers as air traffic rises and the supply of commercial pilots remains limited.

Boeing's 737 MAX has been grounded since March following two fatal accidents. Southwest Airlines Co and Air Canada have removed the plane from their schedules until January 2020, but there is no firm date for MAX to resume flights.

"Clearly there is going to be a lot of training to be done when the aircraft are cleared so I would see pent up demand there when the airlines start to fly," Parent said.

CAE recorded 47 sales of 737 MAX simulators, with 11 delivered and another 11 to be delivered by December.

MAX simulator sales are driven by plane orders, Parent said, adding that demand was not unusual.

CAE said costs rose with the company's selling, general and administrative expenses up 10% and finance expenses doubling.

CAE reported a weaker-than-expected negative free cash flow of C$102.1 million, compared with an estimated negative cash flow of C$11 million, according to four analysts polled by Refinitiv.

But Chief Financial Officer Sonya Branco said free cash flow was impacted by simulator deliveries, which are under production for delivery later in the year. CAE delivered five simulators during the quarter compared with 12 during the same period last year.

“We expect those to be delivered over the next three quarters, so really, it’s just a question of timing," she said.

CAE's revenue rose 14% to C$825.6 million, but fell short of analysts' expectations of C$845.96 million.

Net income attributable to shareholders fell 11.4% to C$61.5 million ($46.26 million), or 23 Canadian cents per share, in the first quarter of fiscal year 2020 ended June 30.

Analysts on an average had expected 28 Canadian cents per share.

The company raised its quarterly dividend by 10% to 11 Canadian cents per share.

(Reporting by Shanti S Nair in Bengaluru and Allison Lampert in Montreal; Editing by Shailesh Kuber and Marguerita Choy)

By Allison Lampert and Shanti S Nair