Raytheon Aircraft goes to investors for $3.3 billion

 - January 19, 2007, 10:27 AM

It took some deep pockets, but Raytheon Company has found a buyer for its Raytheon Aircraft subsidiary.

Late last year, Raytheon announced “a definitive agreement” that will turn Raytheon Aircraft over to Hawker Beechcraft Corp., newly formed by Onex Partners of Toronto and GS Capital Partners (an affiliate of New York-based Goldman Sachs).

The $3.3 billion deal includes Raytheon Aircraft facilities and other assets in Wichita and Salina, Kan.; Little Rock, Ark.; and Dallas, as well as its FBO network in the U.S., UK and Mexico. It does not include Raytheon Company’s Flight Options fractional program, or Raytheon Airline Aviation Services, which manages the service and maintenance program for the out-of-production Beechcraft 1900D.

Raytheon Company had announced in July that it was “reviewing strategic alternatives for Raytheon Aircraft Company” and three major bidders quickly emerged, including The Carlyle Group and Cerberus Capital Management. By mid-December, Raytheon was engaged in the final stages of negotiation with Onex and GS Capital Partners.

Raytheon Company was reportedly asking $3 billion for its aircraft division, which produces the Hawker 4000, the Hawker 400XP and the Hawker 850XP.
In announcing the pending sale, Raytheon Company said it expects net after-tax proceeds to be approximately $2.5 billion.

Raytheon Company explored selling its business aircraft division in 2001 but to no avail. The timing is better now, say market analysts, with a strong economy propelling a growing demand for business aircraft.

The Hawker 4000 received full FAA certification
in late November, and, looking ahead, Raytheon Aircraft plans to discontinue the Hawker 850XP and will replace it with the Hawker 750 and Hawker 900XP to fit niche markets at either end of the 850XP.

Although the company’s market share had dropped over the past several years, at the NBAA Convention last fall it reported orders for 112 aircraft valued
at nearly $1 billion. The order book total is now more than 260 airplanes, for the company’s entire line, from Bonanzas through business jets.

According to Nigel Wright, managing director for Onex, his company and GS Capital Partners hold majority shares (49 percent each) in the new Hawker Beechcraft, with the new corporation’s management team holding a smaller share. Wright added that Hawker Beechcraft has been set up as a standalone company and that the current management, including Raytheon Aircraft chairman Jim Schuster, will remain in place.

Both Onex and Goldman Sachs have experience in the aviation industry, Onex as the parent company of Spirit AeroStructures, a Wichita-based aerostructures firm acquired from Boeing in 2005 for $1.2 billion.

As for Goldman Sachs, “We were the first outside investors in NetJets in 1995, and we are now invested in aircraft composites and are a small investor in one of the very light jet startups,” said managing director Sanjeev Mehra.

“We are believers in the future of the Hawker 4000,” Mehra added, noting that as part of the due diligence phase of the deal the companies assigned a test pilot to fly the newly certified twinjet and verify the performance.

The sale, subject to the usual conditions and regulatory approvals, is expected to close in the first half of this year.

Raytheon should be pleased with the deal, one industry observer told AIN. “If it got more than it anticipated, that’s just icing on the cake.”