The deal to sell Raytheon Aircraft to the investment duo GS Capital Partners and Onex Partners for $3.3 billion in cash was finalized March 26 after slightly more than three months of negotiations and legal hurdles. It marked the end of the OEM’s more than 25 years as a relatively small part of a $20 billion public corporation and the beginning of Hawker Beechcraft, a name strong on the company’s history and brands. Included in the sale are facilities in Wichita and Salina, Kan.; Little Rock, Ark.; Dallas; Chester, England; and all the company’s FBOs.
GS Capital, a Goldman Sachs affiliate, and Onex paid a hefty price for a company that’s been rebounding in recent years. Many industry insiders were surprised Raytheon was able to fetch such a high figure. But the company has numerous successful jets and a strong turboprop line that keeps soldiering on, so the owners of Hawker Beechcraft are clearly looking toward the long term, according to company chairman and CEO Jim Schuster. “One of the best things I saw come out of this process is that people now feel a certainty about this business,” he said. “I believe this is how we’ll be structured for quite a while.”
Though private-equity firms have a reputation for coming in, slashing wages, increasing productivity and selling for a profit at the first bite, Schuster says that’s not in the cards this time. “We ended up with great partners,” he said. “They understand this industry, the markets we compete in and what it takes to be successful. There’s no quick get-in, get-out scheme that makes sense in this business.”
Because Onex and GS Capital have short histories in the aerospace industry, there’s no way to verify if Schuster’s confidence is well founded. However, Onex, in particular, has been busy in the industry as of late. The firm partnered with a group that purchased Boeing’s aerostructures business in 2005 for $1 billion and rebranded it Spirit Aerosystems Holdings. A year later the new owners took the company public and raised even more cash in the initial offering. And far from being sold off, the company has new business, including the fuselage for the Boeing 787.
Sanjeev Mehra, GS Capital Partners’ managing director and the company’s lead in the acquisition, also has experience with the aerospace industry. According to company materials, Mehra was involved on behalf of Goldman Sachs in dealings with NetJets, Hexcel and Adam Aircraft.
Though the company executives might believe in long-term stability, the riveter on the factory floor often has a different take about the future of the company after a buy-out. But walk through any of Hawker Beechcraft’s factories in Wichita and the attitude is the same: employees are proud of the brand. Hawker Beechcraft swag is everywhere and every sign on the company’s campus says Hawker Beechcraft.
“When I stood over the 700 or 800 employees and told them we were now Hawker Beechcraft, I never saw so many smiles and happy people,” Schuster said. “It was absolutely the most fun I’ve ever had in my career. The morale in this business is better than it’s ever been since I’ve been here.” He added, “This wasn’t one of those corporate takeovers where you have to take down your beloved signs. That happened 25 years ago with Raytheon. These are the good days.”
Whatever the problems the OEM–which was not a core unit of Raytheon Corp.–faced under the parent company, many of the OEM’s employees were happy to see the change in ownership. Though Schuster acknowledged that the airframer faced some troubles under the parent company, he was quick to point out that many of the issues stemmed from Wichita, and not Raytheon Corp.
“The uncertainty that existed around this business for a number of years was not helpful,” said Schuster. “The problems that developed with this company in the 1990s came from here [Wichita]. Raytheon invested a lot of money. It never denied us anything.” He went on to say that while Raytheon Aircraft was sometimes an afterthought for the parent company, he expects that to change since the new company will have a dedicated board and keen investors.
But what about private equity firms and trimming the fat to raise the profits? According to Schuster, there haven’t been any cuts yet and he said he doesn’t see that happening anytime soon. But, he said, “We’ve got to be more cost effective. We have investors who expect us to increase the value of this business.”
For a company under new ownership, starting deliveries of four new aircraft this year, new products might seem like something to be considered in the distant future. But in a business like aviation, the future is always under consideration. “We have a detailed roadmap for new products,” said Schuster. “In the near term it will be focused exclusively on derivatives of existing products.” He added that with the Hawker 4000, 750 and 900XP, the company has the most extensive [turbine-powered] product line ever.
Observers, however, have pointed to the gap between the company’s piston and turboprop line and an entry-level jet. Schuster isn’t worried about that, saying that the King Air line fills that niche and the company does not need to introduce a VLJ or other entry-level jet. “When you do a head-to-head [comparison] with a VLJ and our turboprops, a C90 King Air for example, we win hands down every time,” he said. And with King Airs turned nose to tail to fit in the factory, he might be on to something. “[VLJs] are already the most crowded market segment before the first airplane leaves the runway,” he added.
Hawker 4000 Lessons
But when the company does decide to introduce a new aircraft, the experience it had with certifying the Hawker 4000 (which should receive its production certificate this summer after a years-long delay) will only serve to help, said Schuster. Far from being gun shy after such a lengthy and costly process, Schuster said, “I think everyone feels more confident. We’ve paid our dues.”
He added that the company learned a number of lessons from the 4000 program. He said that when the aircraft was launched, in 1996, Raytheon made some decisions that led to the 4000’s ultimate troubles. Not only did it decide to construct its first home-grown jet from composite materials; it also chose to embark on three programs simultaneously (the Premier I and Hawker 4000, both now certified, and the now moribund Hawker 450). “They took on way more than was humanly possible,” he said. Clearly the industry won’t be seeing a barrage of new aircraft from Hawker Beechcraft in the near future.
Overall, Schuster said, there should not be any major directional shifts as a result of the new ownership. The company will focus on service and quality manufacturing. He said the FBO line is not critical to the future of the business, and thus will likely not expand. However, service centers are key, he said. “[Goldman Sachs and Onex] understand what it means to have strong support and service for an airplane,” he said. But he was clear when saying that change is inevitable. The company took 40 percent of its orders from international markets last year, compared with Cessna’s 50 percent. “For us to think we don’t need to change would be crazy,” he said.
Schuster takes every opportunity to emphasize that Goldman Sachs and Onex are great partners. “They’ve made a big bet on us,” he said. He has also personally bet heavily on the endeavor, investing $4 million of his own money in the business.