The future of the Hawker business jet lines and the Hawker namesake is uncertain after decided to end negotiations with would-be Chinese buyer Superior Air Beijing and move forward as a standalone company.
On Oct. 18, the Wichita-based company announced that the $1.79 billion sale was off to buyer Superior Air Beijing, after the two parties could not agree on terms. Instead, Hawker will emerge from bankruptcy rechristened as Beechcraft Corp.
While not a complete surprise, the decision could mean the end of some – if not all – of the company’s jet lines if it cannot find a buyer for those products. Hawker Beechcraft says it will move forward with a business plan that “focuses on its turboprop, piston, special mission and trainer/attack aircraft – the company’s most profitable products.”
The company in April had detailed potential scenarios under which it could operate as a profitable company if it shelved some or all of its jet products. In last week’s announcement, the company said its turboprop, piston, special mission and trainer/attack aircraft are not only the most profitable but have high growth potential. Hawker Beechcraft also plans to continue to build up its “high margin” parts, maintenance, repairs and refurbishment business.
The company says it will evaluate “strategic alternatives” for the jet lines, but it could mean the closure of the entire jet business if it does not receive a satisfactory bid.
In a further acknowledgement of the likely divestiture of the Hawker line, Bill Boisture, chairman of Hawker Beechcraft Corp., said, “Beechcraft Corporation will emerge as the world’s leading designer and manufacturer of turboprop, piston and trainer/ attack aircraft with the largest global customer support network in the industry. Our business strategy will focus on growing our key existing product lines high performance single- and twin-engine piston and turboprop aircraft, uniquely missionized variants for the global special mission market, and multirole light attack and trainer aircraft systems, as well as the product development opportunities within these segments.”
Hawker Beechcraft expects to file an amended joint plan of reorganization shortly detailing its plan to emerge from Chapter 11 bankruptcy protection. The company plans to schedule a hearing Nov. 15 on an amended disclosure statement detailing the plan of reorganization. Hawker Beechcraft’s key creditors have already agreed to the primary terms of the plan of reorganization, which will give them an equity stake in the reorganized company. Under the plan, Hawker Beechcraft would repay a post-petition $400 million in debtor-in-possession credit facility, and the company would enter a new finance package once it emerges from bankruptcy. Hawker Beechcraft maintains it has “more than sufficient liquidity” to complete its restructuring, and expects to exit bankruptcy protection in the first quarter of 2013.
Miller says the “go-forward” business plan the company has with its creditors ensures that Hawker Beechcraft will emerge in a strong operational and financial position.
Debt-laden Hawker Beechcraft entered Chapter 11 on May 3 and filed a tentative plan at the end of June under which the company’s debt holders would take ownership of the Wichita manufacturer in exchange for eliminating some $2.5 billion in debt. The company, however, continued to accept bids for a potential sale of some or all of its assets. While several existing manufacturers expressed potential interest in some elements of Hawker Beechcraft, little-known Superior Air Beijing emerged as the would-be buyer under the tentative $1.79 billion proposal to buy all of the company except for its defense business.
Superior paid a $50 million deposit as part of the ongoing negotiations – a deposit that Hawker Beechcraft CEO Robert Miller says is now nonrefundable. “Despite our best efforts, the proposed transaction with Superior could not be completed on terms acceptable to the company,” Miller says, adding, “We are disappointed that the transaction did not come to fruition.”
With only a small helicopter business and piston-engine parts maker Superior Air Parts in its portfolio, industry observers were surprised by and skeptical about the original announced potential sale to Superior, saying it was a curious fit. “If AVIC/CAIGA [established Chinese aircraft manufacturers] were behind this, that would be one thing,” Richard Aboulafia, vice president-analysis at the Teal Group, said when the deal with Superior was first announced. “But we’re talking about a much smaller and less well-connected entity here.” Superior Aviation also faced a tough battle convincing the U.S. government to sign off on the transfer of Hawker’s advanced technologies, including composites, to a Chinese buyer.
The proposed sale price of $1.79 billion left many industry observers questioning whether the deal could ever come to fruition. Both Jack Pelton,’s former chairman, and industry analyst and former Falcon Jet executive Brian Foley agree that the asking price was high, particularly from a Western perspective.
Foley notes perhaps that was what the Chinese deemed necessary to jump into the market and have a ready-made infrastructure to go along with it.
But given the time frame, necessary investment and regulatory hurdles, “getting a deal done with the Chinese would be difficult,” notes Pelton, who understands the complexities of such deals through his past experience in establishing Cessna Skycatcher manufacturing in China.
Foley surmises the deal’s collapse signals that in the economy’s current condition, the sale of Hawker Beechcraft as a whole entity may not be realistic. But he doesn’t see the current plan for the majority of the company’s debt-holders to take ownership as a long-term solution. “Going forward it’s plausible that the company could continue as a standalone, but [financial institutions] don’t really want to be in the aircraft business,” he says, adding they just want a return on their investment.
The company could be restructured to enable it to sell off certain parts, he notes, beyond the jet line.
The question is whether there are other buyers willing to take on the challenge of the jet line. Much of Hawker’s product line has grown old – the original Hawker line itself is celebrating its 50th anniversary – and’s push into the business jet market has made the competition fiercer.
While China could be a possibility, the Chinese don’t necessarily need Hawker to advance their capabilities; they are negotiating partnerships with other Western aircraft builders, including Cessna.
Pelton believes a potential sale of the jets to China is unlikely, and there may be few takers in markets where light and mid-size jets are still struggling to find a footing. He also notes that there is a sad nostalgia to the potential end of the Hawker line, saying, “The Hawker has a very loyal and large customer base.”
Having said that, Pelton says the biggest surprise in the most recent announcement was the lack of discussion about other potential bidders. A number of companies had bid on Hawker Beechcraft before Superior Air Beijing emerged in the forefront.
In July, Scott Donnelly, chairman of Cessna parent company, said there were parts of the company of interest to Cessna, and just last week said he was still monitoring the situation. Pelton agrees, noting the trainers and King Airs could be particularly attractive additions.
Pelton also agrees with Foley that the debt-holders will be “very active” in trying to improve their financial position in the transaction.
Whatever happens, there are more chapters to be written in the Hawker saga. “We’ve maintained all along that it would be a surprise ending, but this is just one step toward that ending,” Foley says. “The permutations of how this thing could end up are limitless.”