After four months of intense negotiation, a deal for the sale of Hawker Beechcraft to Superior Aviation Beijing collapsed October 18 with an announcement by HBC that the parties could not come to terms and it would proceed with the stand-alone plan of reorganization.
The bid by the Chinese firm was prompted in part by Hawker Beechcraft's May 3 filing for Chapter 11 bankruptcy protection. It was two months later, on July 8, that HBC announced that Superior Aviation had submitted a bid to purchase the Wichita-based OEM for $1.79 billion.
The bankruptcy court approved HBC’s request to enter into negotiations, which proceeded amid much speculation. The first sign that all was not well came on Sunday, October 11, when representatives of HBC informed a Wichita business delegation in China that a scheduled meeting of the group with Superior Aviation chairman Cheng Shenzong had been cancelled.
Six days later Hawker Beechcraft CEO Steve Miller said in a media release that the proposed transaction “could not be completed on terms acceptable to the company” and that HBC had decided to proceed with the stand-alone reorganization plan.
He added, “We are disappointed that the transaction did not come to fruition, but we protected ourselves by obtaining a $50 million deposit from Superior that is now fully non-refundable and property of [HBC].”
Industry analysts reacted to the collapse of the negotiations with mild surprise for the most part. Some had earlier expressed the opinion that the $1.79 billion offer was excessive, and that the negotiations might even have been a stalking-horse move to lure other bidders into coming forward. If so, it apparently failed.
“The Superior bid was a vaguely embarrassing and strange fishing expedition from the start,” said Teal Group v-p of analysis Richard Aboulafia. “Now that it has reached its inevitable conclusion, Hawker Beechcraft is back where it started, which means serious shrinkage in terms of production line, market share and overall industry presence.”
Industry analyst Brian Foley of Brian Foley Associates said his firm sees the failure to reach an agreement as a signal that “the company is simply not salable as a whole.”
However, a business plan HBC announced as the sale negotiations collapsed, said, “The company intends to rename itself Beechcraft Corporation and will implement a business plan that focuses on its turboprop, piston and trainer/attack aircraft with the largest global customer support network in the industry – the company’s most profitable products.”
Hawker Beechcraft Corporation chairman Bill Boisture said that in consultation with its key creditor constituents, the company is evaluating its strategic alternatives for the Hawker jets, “which could include a sale of some or all of those product lines, or a closure of the entire jet business if no satisfactory bids are received.”
In a reorganization plan filed in June with bankruptcy court, HBC listed a number of options and assumptions available during the process, among them that the company might exit “all jet production” but would maintain the continuity of Beechcraft business, including Hawker Beechcraft Defense Co. It added that the company would stop supporting the Hawker 4000 and Premier installed base, cease engineering support and transfer warranty support to a “residual” buyer.
Mike McCracken, a former HBC employee and now president of Hawkeye Aircraft Acquisitions, has kept a close eye on the situation at HBC and the market for the company’s aircraft.
In terms of service and support, people who own a King Air or traditional Hawker 125-700/800/900 will likely be satisfied with whatever direction the company takes because there are already many independent sources of parts and service, he said. “The Hawker 4000 is a completely different game,” he added. “There are only about 75 airplanes in service and nobody knows yet whether the SupportPlus program with its five-year guarantee on parts and labor will be honored.
“Face it,” he added, “without service and support, a business jet isn’t much more than an expensive lawn ornament.”
As for pricing, he said used Hawker 4000s are selling in the $12 million range, depending on whether they have the Load 20 and other upgrade features, and about 12 to 15 of them don’t have it.
In 2008 a new Hawker 4000 was priced in the neighborhood of $23 million. As the recession biy down and the market tanked, that price fell. Just before news of the possible acquisition of HBC by Superior Aviation, McCracken said the price went back up and HBC began rescinding Letters of Intent for new aircraft it had priced in the $15 million range.
“I don’t see any upside in resale values until the company’s future is established, and definitely not until the new aircraft prices reach a point where they are able to raise [used airplane] prices.
“Since no one is sure yet what price will be placed on unsold new airplanes at this point, nobody can know the price of used aircraft,” he concluded.
George Tsopeis, v-p of operations for industry analyst Zenith Jet, took particular note of HBC’s military market, which had always been excluded from the potential Superior Aviation sale. “I think HBC can still get top dollar for its T-6 line [and] it’s more valuable in the hands of Lockheed Martin or BAE Systems. With that cash, it would be easier to pay back the $400 million DIP [debtor-in-possession] credit facility and negotiate a new one it could use for research and development on the long-awaited single-engine King Air.”
Tsopeis also referred to the matter of downsizing the workforce as the restructuring goes forward. “We will need to see how much paring down of HBC’s workforce the restructuring plan will entail, but I believe that Miller has an opportunity here to be ‘the good guy with the white hat.'”