Textron Inc. (TXT:US), the manufacturer of Cessna aircraft and Bell helicopters, rose the most in almost two years after the Financial Times reported that the company was near a $1.4 billion purchase of planemaker Beechcraft Corp.
The deal may be announced as soon as today, according to the Financial Times, which cited people familiar with the matter. Dave Sylvestre, a spokesman for Providence, Rhode Island-based Textron, declined to comment on the report, as did Nicole Alexander, a Beechcraft spokeswoman.
Adding Beechcraft would expand Cessna’s lineup of piston-engine and turboprop planes, a less-competitive field than private jets. Formerly known as Hawker Beechcraft, the company left bankruptcy protection in February and stopped making business jets to focus on propeller-driven models such as military trainers and the twin-engine King Air.
“The remaining Beechcraft business is a solid annuity franchise that should complement what Cessna has,” Robert Stallard, a London-based analyst at RBC Capital Markets, wrote today in a note to clients. “Textron has been in debt pay-down mode for a number of years and with a cleaned-up balance sheet, it has the capacity to do a deal of this size.”
Textron jumped 14 percent to $37.29 at the close in New York, the highest closing price since September 2008 and the biggest advance since January 2012. That pushed the stock to a 50 percent gain this year. More than 12.7 million shares (TXT:US) changed hands, the most since April.
Slumping demand for private jets and curbs on U.S. defense spending led Wichita, Kansas-based Hawker Beechcraft to file for bankruptcy in May 2012. Negotiations to sell it for $1.79 billion to a Chinese buyer collapsed months later.
Textron Chief Executive Officer Scott Donnelly expressed interest in Beechcraft during a July 2012 quarterly earnings call after the Chinese bid for planemaker was made public. In October, Textron declined to comment after people familiar with the matter said the company was among possible suitors exploring a bid after Beechcraft put itself on the block.
Adding Beechcraft would bolster an aviation business that accounted for 60 percent of Textron’s $12.2 billion in revenue last year. Products including the Commando four-wheeled armored vehicle and E-Z-Go golf carts make up the remainder of its sales.
Beechcraft’s twin-engine King Air turboprops would complement Cessna’s single-engine Caravan line, especially after Beechcraft landed a $788 million order in August, according to Brian Foley, who heads Brian Foley Associates, a Sparta, New Jersey consultant.
“The twin-engine turboprop would fit very nicely into their product portfolio without cannibalizing anything,” Foley said today in a telephone interview.
The King Air division is Beechcraft’s most valuable asset and biggest driver of its profits, Foley said. Deliveries of all aircraft types totaled 204 in 2012, according to the company’s website.
Beechcraft is now controlled by its former creditors. Centerbridge Partners LP, Sankaty Advisors LLC and Angelo, Gordon & Co. are among the funds that own a combined stake of about 90 percent and took control following the bankruptcy, according to the company. Before bankruptcy, Hawker Beechcraft was owned by Goldman Sachs Group Inc. and Onex Corp. (OCX)
Negotiations to sell Hawker Beechcraft to Superior Aviation Beijing Co. ended in 2012 while the planemaker was reorganizing, partly because of questions about the Chinese company’s financing, people familiar with the process said at the time.
Any deal involving Beechcraft’s defense assets being sold to non-U.S. suitors would be subject to a review from the Committee on Foreign Investment in the U.S.
Beechcraft started business in 1932, and its products include training aircraft used by military pilots dating to World War II. Besides the King Air, the current offerings include the twin-engine Baron and single-engine Bonanza, which are common sights at U.S. general aviation airports alongside Cessnas such as the two-seat Skycatcher and four-seat Skyhawk.
Beechcraft, whose competitors include Canada’s Bombardier Inc. (BBD/B) and Brazil’s Embraer SA (EMBR3), said earlier this year it was seeing a recovery in demand, and a Standard & Poor’s report in April said King Air sales will help drive up revenue and earnings “materially” in 2013 and in 2014.
Global aircraft shipments tracked by the General Aviation Manufacturers Association trade group also show signs of a rebound. Deliveries of multi-engine turboprops rose 42 percent in the first nine months of 2013 from a year earlier and single-engine turboprops were up 10 percent. Piston-engine planes rose 7.9 percent, while business jet shipments fell 2.1 percent.
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