parent hopes to conclude a deal in the first half of 2014 to purchase Beechcraft for approximately $1.4 billion. The move would represent a major consolidation within the U.S. general aviation market, bringing together two of the oldest rivals and most historic industry names under a single owner.
Textron plans to finance the deal through a combination of available cash and up to $1.1 billion in new debt. Beechcraft’s equity holders have approved the agreement, which is subject to the customary approvals.
Textron Chairman and CEO Scott Donnelly, who has long expressed interest in the Beechcraft programs, calls the acquisition “a tremendous opportunity to extend our general aviation business.”
The acquisition would provide Textron with a King Air twin-turboprop family that has experienced significant growth this year, along with a stable piston product line. But it also will provide a support network that when combined with Cessna’s, will be an extensive global support provider.
Perhaps most importantly, the acquisition will bring with it an installed base of close to 36,000 Hawker and Beechcraft aircraft that must be serviced.
Textron also is acquiring the type certificates for all of the former Hawker and Beechcraft business jets, including the Premier and Hawker 4000, programs that Beechcraft has been actively shopping since it shuttered the lines more than a year ago.
“From our customers’ perspective, this creates a broader selection of aircraft and a larger service footprint— all sharing the same high standards of quality and innovation,” Donnelly says. He praises the twin-turboprop King Air product line as “a fantastic global brand that fits very, very nicely” with Cessna Aircraft’s Caravan [single-turboprop] and Citation jet lines.
Beechcraft CEO Bill Boisture says “Textron’s experience in the industry and its willingness to invest in and maintain the iconic Beechcraft brand make it an ideal parent company, one that will help us continue to satisfy our customers and meet our business objectives at a faster pace.”
Textron is evaluating synergies in the Cessna and Beechcraft businesses, and seeing about $65 million in cost overlaps between the companies and up to $85 million over three years. But Donnelly was hesitant to specify where those synergies would come from, saying much of that work lies ahead. He did say a large part of the cost savings would come from reducing overheads.
Donnelly does not believe facilities or other asset sales will be a significant, if any, contributor to that, noting Beechcraft has already downsized and restructured significantly in recent years.
Asked whether he sees potential for selling or closing competing service centers at the same location, Donnelly says that would only depend on whether one was underutilized. If they were fully operating, he would expect little change in their operations.
While the acquisition includes the jet lines, Textron appears to have little desire to bring them back into production. In fact, Donnelly notes that, with the Hawker jet lines closed, it provides opportunity for the existing Beechcraft customers to move into Cessna’s Citation aircraft.
The agreement comes a little more than 10 months after Beechcraft emerged from Chapter 11 bankruptcy protection as a standalone company owned by its former debt holders. Beechcraft, which had labored under a mountain of debt after Goldman Sachs and Onex bought the company fromfor $3.3 billion in 2007, entered Chapter 11 in May 2012. The prearranged restructuring plan called for its debt holders to take ownership of the company in exchange for the elimination of $2.4 billion in debt.
While the plan was in place, the investors and executives agreed to consider other options, leading to a potential sale to Chinese firm Superior Aviation Beijing. When that deal collapse in October 2012, Beechcraft opted to continue under the original reorganization plan, and emerged in February as a standalone, smaller company, shed of 85% of its former $2.4 billion in debt.
But its new owners included investors that primarily specialized in buying distressed companies. Asked whether they would be long-term owners, Boisture said “I wouldn’t think so.”
Since emerging from bankruptcy, Beechcraft has worked to stabilize the firm, reestablish its supply chain and repair any damaged customer relations. The company shut down the costly jet lines, opting to keep the Hawker 800/900 and Beechjet/Hawker 400 type certificates for the lucrative services business, but to sell the Premier and Hawker 4000 programs.
Since that time, Beechcraft has remained profitable, even at lower margins. Revenues are expected to reach $1.8 billion this year, and deliveries have increased 47% through the first three quarters. The company also notes it has seen its highest booking rates in the past three years.
Donnelly credits the strength of the brand to this improved performance and says Textron plans to work to assure the customer base that it will support all of the brands going forward.
News of such an acquisition had drawn favorable reaction from analysts. J.P.Morgan calls the purchase a good fit for Textron, and says while “we would expect bumps along the way...there is still more upside if this all works out.” As far as achieving the cost savings, J.P. Morgan notes, “there would be a lot of wood to chop to integrate the company.”