Third Quarter Rough for Hawker Beechcraft

 - November 16, 2010, 9:30 AM

During its third-quarter earnings conference call last Friday, Hawker Beechcraft had not much good news and more than a little bad news, including the announcement that it will suspend production of its Hawker 400XP for two years.
The Wichita OEM reported net sales for the third quarter ending September 30 of $594.7 million, a drop of $163 million compared with that period in 2009. The decrease was “largely attributable to lower aircraft deliveries in the company’s business and general aviation segment as a result of depressed demand across the general aviation market.”

Also in the quarter, Hawker delivered 36 jets and turboprops, compared with 55 in the same period last year. The total backlog of all aircraft was valued at $1.9 billion on September 30, versus $2.4 billion on June 27. This included 34.6 percent of orders that are expected to be delivered at least 12 months from now, as well as “significant” orders from the U.S. government.

Despite the fact that orders exceeded cancellations for the sixth straight quarter, aircraft inventory increased slightly, driven mainly by lower-than-expected deliveries.

Perhaps the most surprising was Hawker Beechcraft  Chairman Bill Boisture’s announcement that company plans to “temporarily suspend production of the Hawker 400XP in 2011 to realign supply with demand. Current expectation is that we will resume production of the Hawker 400XP in early 2013.”

Boisture made reference to recent forecasts of a market recovery not to begin before 2012. “We refer to this as Project Challenge,” he said, adding that Hawker will continue to invest resources and realign its footprint. "Project Challenge" is the company's internal name for its plan to reduce costs and reposition itself for the future.

Among that realignment he added, is consideration of an offer from Louisiana to move all or part of Hawker’s Wichita assets to Baton Rouge and an incentive offer from the State of Kansas, the latter contingent on reaching a new contract agreement with the machinist union.

Negotiations with the machinist union fell apart on October 16 when union members rejected a contract from Hawker that had been recommended by the union executive council. The offer needed only a simple majority to be accepted, but 55 percent of the membership voted to reject it. With the current contract in effect until August 2011, a strike vote was not authorized and according to the union, negotiations are not likely to reopen before next year.

Looking forward, Boisture mentioned last month’s introduction during the NBAA Convention of the Hawker 200, a major upgrade of the Premier II “that flies faster and higher,” and has “a lower cost to purchase and cost to operate.” He noted the King Air 250 follow-on to the B200GT, “a workhorse” capable of performing in the most challenging environments in the world,” and plans for the “upgrade and enhancement” of the Hawker 4000 to improve its reliability and performance.

Also during the earnings call, Boisture said revenue from customer support was “up strongly by 25 percent” in the third quarter, which he termed “a period of no meaningful recovery.”