Hawker Beechcraft Down, Not Out

Aviation International News » June 2012
Hawker Beechcraft King Air 250
Despite struggles during the recession, Hawker Beechcraft’s King Air line has continued to sell well and the company delivered 107 last year including military aircraft.
June 3, 2012, 4:15 AM

Hawker Beechcraft filed for bankruptcy protection under Chapter 11 on May 3, and if activity at the recent European Business Aviation Convention & Exhibition is any indication, the Wichita aircraft manufacturer may be down, but it is definitely not out.

The Chapter 11 filing was not unexpected, and indeed it had been in the planning since late last year. The company has been hard hit by the recession and since 2008 has seen its workforce drop from 12,000 to 6,000 to keep it aligned with a production contraction of nearly 50 percent. Worse, the debt load had become unbearable.

According to executive v-p Shawn Vick, when Goldman Sachs and Onex decided to purchase Raytheon Aircraft in 2006, each put $500 million in equity in the company and secured $2.2 billion in debt. That resulted in a $2.2 billion debt on the balance sheet of what was renamed Hawker Beechcraft. At the time they made that deal, explained Vick, the market was projecting deliveries of 1,600 aircraft a year and expected to grow 15 percent a year. “But the marketplace turned down quickly and aggressively,” he added.

With this filing, added Vick, “We are moving from too much debt to acceptable debt, and restructuring the balance sheet.”

That restructuring took a step forward on May 4 with federal bankruptcy court approval that permits the company to continue operating during the reorganization process. The approval allows HBC to continue paying employees and vendors subsequent to the May 3 bankruptcy filing by allowing it access to $400 million in debtor-in-possession financing that was part of a pre-arranged restructuring.

According to Vick, HBC has set up a schedule for payments to vendors and suppliers that will allow it to continue producing airplanes, and “it is our intent to continue to support aircraft on a business-as-usual basis.”

In a fact sheet distributed by HBC on May 3, CEO Steve Miller and chairman Bill Boisture made a number of points, among them that part of the “first motions” of the filing are requests for permission to pay employee salaries, wages and benefits. However, the communiqué left open the possibility that to obtain financing to exit bankruptcy the company might be required to terminate its pension plan. Such a move would have to be approved and ordered by the bankruptcy court.

Vick nevertheless emphasized the “protection” aspect of Chapter 11, pointing out that “It is intended to take good companies and protect them while they go through this process. It protects a good many jobs, protects those holding debt and ensures that the company will continue to create value.”

Hawker Beechcraft Collects Orders at EBACE

At the EBACE show in Geneva last month there were indeed some assurances that HBC is doing just that, as the company announced orders for 11 aircraft.

Leading the way was Danish charter and aircraft management firm JoinJet, which placed orders for one Hawker 400XPR and one Hawker 4000. JoinJet already operates a Hawker 800XP and a Hawker 800XPR. Certification of the 400XPR is slated for September and delivery to the Danish operator is expected in the first quarter of next year.

Also added to the book at EBACE were orders for a Hawker 4000 from Orion-Malta, based on the Mediterranean island republic of Malta, and another Hawker 4000 from InterAviation, a charter operator based at Bucharest Baneasa Airport in Romania.

Also announced at EBACE was an order for six King Air 350i twin turboprops from Hawker Pacific in Singapore. Deliveries will take place over the next three years, with the first later this year, three next year and the final two in 2014. The order for the 11th aircraft was from an unidentified customer for a King Air 250.

Also announced at EBACE was delivery to a Saudi customer of the first executive/medevac Hawker 900XP from HBC’s services facility in Chester, England. The airplane can be converted from one mission role to another in less than an hour. The conversion project was completed in two months and has received certification from both the EASA and the General Authority of Civil Aviation in Saudi Arabia. The center has also developed and certified air-ambulance interiors for installation in the Hawker 700 and Hawker 800.

Hawker Beechcraft took advantage of the show venue to announce further expansion of its Global Customer Support network. At Farnborough Airport in the UK, HBC has approved Gama Support Services to support the King Air 200, 250, 300 and 350, as well as the Premier. And at Luton Airport in the UK, Harrods Aviation has been approved to support the Hawker 750, 800, 800XP and 900XP.

Looking ahead to growing markets in India and China, HBC announced plans to open a new parts and distribution warehouse in Bengaluru, India. HBC’s Global Customer Support has signed an agreement that allows Airworks India Engineering to operate the warehouse. The facility is expected to be stocked and operational by mid-June.

“We’ve made significant investment around the world to ensure service and support as good everywhere as it is in the U.S.,” said Vick. “That’s what we’ve been doing for the past three years and will be doing as far as we can see.”

Planning for an Uncertain Future

Gain without some pain, however, is rare. At Hawker Beechcraft more recent discomfort flared just before the Chapter 11 filing when the company announced in a letter to employees it would be “making changes to previously announced schedules and resizing our workforce.” Those changes included the layoff of approximately 350 employees.

Then on May 11 came another letter to notify employees of the layoff of 150 more employees, a decision “driven by market conditions and the need to adjust production schedules, not by the [Chapter 11] filing itself.”

While HBC leadership is optimistic about the future, Vick also pointed out that “there are factors that will impact the company over which we have no control; we don’t control the larger macro-economic marketplace.

“No one would choose to go through Chapter 11 if it weren’t necessary,” concluded Vick. “But it is where we are, and as a result we have a clear view of where we’re going and how to get there.

“We intend to emerge as a strong company with great products and great people, and we are enthusiastic about the company’s future.”

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Richard W. Arnold
on January 29, 2013 - 2:45pm

Forgive my ignorance. Is HBC still a wholly owned US company?

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Chad Trautvetter
on January 29, 2013 - 3:26pm

Richard,

Hawker Beechcraft is mostly owned by GS Partners (i.e. Goldman Sachs) and Onex, with a minority share held by HBC executives (we understand that these executives had to “buy in” and were not given their shares).

Post-bankruptcy, the company–to be renamed Beechcraft Corp.–is expected to be owned by Centerbridge Partners, Angelo Gordon & Company, Sankaty Advisors and Capital Research & Management, as well as other secured creditors.

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