Hawker Beechcraft Inc., the bankrupt business-jet maker owned by Goldman Sachs Group Inc. (GS:US) and Onex Corp. (OCX), may draw higher bids after agreeing to sell itself to Superior Aviation Beijing Co. for $1.79 billion.
Superior will make payments over the next six weeks to help keep Hawker afloat until the deal closes, the companies said yesterday. The accord makes Superior the so-called stalking horse bidder in a U.S. Bankruptcy Court-supervised auction that may win more offers. Textron Inc. (TXT:US) and Embraer SA (EMBR3), among others, expressed interest previously in Hawker’s assets.
Hawker Beechcraft sought bankruptcy protection in May after struggling with lower demand for private jets following the recession and constrained U.S. defense spending. The planemaker’s debt included a term loan and notes used for the portion of its $3.3 billion takeover in 2007 that wasn’t covered by $1 billion cash from buyers Goldman Sachs and Onex.
Merging with Superior would provide more “access to the Chinese business and general aviation marketplace, which is forecast to grow more than 10 percent a year for the next 10 to 15 years,” Chief Executive Officer Steve Miller said yesterday.
Bill Boisture, chairman of Wichita, Kansas-based Hawker Beechcraft, said the decision to move forward with the Chinese bidder was “based on two key factors: The bid for the company was the most attractive we received during the strategic review process and the going-forward plan offered the most continuity for our business.”
Boisture said Superior is committed to maintaining Hawker Beechcraft’s strong presence in the U.S. as well as its employee base and management team. And Miller praised Superior’s “previous experience operating a U.S. business and its demonstrated ability to quickly restore a business to profitability after emerging from Chapter 11.”
Another company Superior purchased, a helicopter maker in Vernon, Texas, called Brantly International, now does all its manufacturing in Qingdao, China, according to its website. A February 2011 notice on the site mentions that Brantly moved its engineering and administrative offices in with sister company Superior Air Parts in Coppell, Texas.
The Chinese company acquired Superior Air Parts in 2010 after the engine-parts maker filed for bankruptcy protection, Qian Chunyuan, its spokesman, said in a telephone interview today. The U.S. manufacturer is now profitable, Qian said.
Superior plans to fund the acquisition with its own capital and loans from Chinese banks, Qian said. The Beijing-based company is confident it can conclude the deal, he said. Superior Aviation is 60 percent owned by Chairman Cheng Shenzong, he said. Cheng’s other holdings include Qingdao Haili Helicopter Co. and Qingdao Brantly Investment Group.
“This whole thing is exceedingly baffling and inexplicable,” said Richard Aboulafia, an analyst with Teal Group in Fairfax, Virginia. “The idea that a tiny parts company just out of bankruptcy and backed by completely unknown entities should be able to attract $1.8 billion to purchase and run a legacy jet manufacturer borders on the absurd.”
Hawker traces its history partly to Walter and Olive Beech, who started Beech Aircraft Corp. during the Great Depression in 1932, according to the company’s website. With designer Ted Wells, they built the Beech Model 17, a biplane for business executives that sold for about $15,000, according to the U.S. Centennial of Flight Commission.
Hawker’s aircraft include the Hawker 4000 business jet and the Beechcraft King Air propjet. The company competes with planemakers including Textron’s Cessna Aircraft Co., Embraer, Gulfstream Aerospace Corp. and Bombardier Inc. (BBD/B)
A sale to Superior Aviation would be a disappointment to Textron investors and a threat to Wichita-based Cessna, Julian Mitchell, an analyst with Credit Suisse in New York, wrote in a note yesterday. A company controlled by the Beijing municipal government owns 40 percent of Superior, which would “substantially reduce” Cessna’s chances in China, he said.
“The Chinese have made substantial inroads into global market shares in other transportation industries such as shipbuilding and railway rolling stock, and we do not see why business jets are particularly impervious,” Mitchell wrote. Even with Hawker Beechcraft struggling, Cessna’s pricing had been “soft,” he said.
Textron, whose Cessna business is based in Hawker’s hometown of Wichita, is interested in the manufacturer for its propeller-driven business planes and military training aircraft, CEO Scott Donnelly said in an interview yesterday before Superior’s announcement. The Superior Aviation deal doesn’t include Hawker’s defense business.
Donnelly said Providence, Rhode Island-based Textron sees the most value in the Beechcraft King Air planes and the T-6, known as the trainer because the military uses the planes as a training aircraft. The Hawker 4000 and 900, which are jet planes that carry about 10 passengers, are struggling against the competition, he said.
“There are problematic parts and there are good parts. For the right number, you could manage that and we could make it a win for our shareholders,” Donnelly said. “But there’s no reason for a company like ours to overpay for that asset.”
Mahindra & Mahindra Ltd. (MM), India’s biggest maker of utility vehicles, also was considering bidding for the planemaker, a person with knowledge of the matter said. Mahindra builds turboprop aircraft, as does Hawker.
Embraer Chief Executive Officer Frederico Curado said on an April 27 conference call that he would be taking “a serious look” at how Hawker Beechcraft’s assets might give a boost to the Brazilian planemaker’s business-jet division. Robert Stangarone, an Embraer spokesman, declined to comment yesterday.
Hawker retained Perella Weinberg Partners LP as a financial adviser in December, amid net losses totaling more than $900 million in two years, and hired Miller, a turnaround specialist, in February. Before its filing, the company and Perella Weinberg identified 35 potential buyers from strategic purchasers to private-equity firms and received eight bids from mid-May through mid-June, according to a court document.
Prior to the Superior Aviation offer, Hawker had filed a proposed reorganization plan that would give control of the company to secured creditors holding debt valued at $921.6 million, canceling other interests in the company. New York- based Goldman Sachs and Toronto-based Onex each owned 49 percent of Hawker Beechcraft stock, while former managers and directors held the remainder.
The company said it would borrow an unspecified amount to exit court protection and repay a $400 million loan that financed operations while in bankruptcy.
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