Hawker’s 2Q earnings and its backlog shrink

 - August 27, 2010, 6:55 AM

The possibility of Hawker Beechcraft moving some of its Wichita-based manufacturing elsewhere came up again early last month with the release of the company’s second-quarter earnings.
In a conference call, CEO Bill Boisture referred to that possibility as part of a larger internal process called “Project Challenge” to reposition the company to meet new challenges, not the least of which is a recession that is slow to release its hold on the economy.

In its second-quarter report, Hawker Beechcraft reported net sales of $639.3 million, a decrease of $177 million compared with last year’s second quarter. Total aircraft deliveries came in at 54, compared with 78 for the same period last year.  And the backlog, which was valued at $3.1 billion on March 28, shrank to $2.4 billion as of June 27. This reduction, according to Hawker Beechcraft, reflected a NetJets order cancellation that lopped about $400 million off the backlog.

But its second-quarter net sales and a shrinking backlog are not the only problems Hawker Beechcraft is facing. In recent months, the machinists union, which has some 2,600 workers at Hawker Beechcraft, has strongly objected to the idea of moving jobs out of Wichita, prompting meetings with the city and attempts to restart formal contract negotiations with the union.

After meeting July 29 with Boisture and other Hawker Beechcraft executives, Wichita mayor Carl Brewer told AIN he and other city officials “felt good” about the exchange.

“They assured us they are willing to work with us [and state officials] and keep us informed as they continue to analyze the health of the company [and] continue with development of other projects,” Brewer said.

The meeting followed letters from top Hawker Beechcraft executives to some 6,000 employees in which it was clear that further cost-cutting measures and moving some jobs out of Wichita remain a possibility.

In a July 20 letter, Boisture said, “We believe it is necessary to adjust our cost structure to remain competitive in this smaller market.” He added, “To make these adjustments, the company is developing a spectrum of possibilities for the size and functions of our business in all our locations, [including] exploring other locations both within and outside the U.S.”

The letter was in response to an earlier communication from District 70 machinists union president Steve Rooney to its members in which he noted that a move from Wichita is among Hawker’s options. Rooney claimed that such an exodus could shrink Hawker’s total hourly workforce by as much as 70 percent within the next two years.

In a second letter to Hawker employees July 23, v-p of human resources Rich Jiwanlal said, “This information is simply not true.” He further pointed out that no employer can guarantee having no job losses, especially in this economy. He also reiterated what Boisture had said in his own letter to Hawker employees three days earlier–that the company is “exploring ways to address our company’s overall footprint, particularly in our production and manufacturing areas.”

State Funding Possible
Brewer suggested that a recent understanding reached by the state and Bombardier that ensures production of the all-new midsize Learjet 85 at the Bombardier plant in Wichita might be a model. The agreement includes $27 million in bond financing from the State of Kansas to be invested in Learjet’s Wichita facility. The only specific response by Hawker to Rooney’s union letter was this brief statement: “Last September the company initiated a series of meetings to update the union leadership about serious challenges it faces during those unprecedented economic times. These conversations have included a spectrum of possibilities for the company’s future footprint and the likely impact on its work force in all its locations. The company values this partnership [with the union] and believes that there is a great opportunity available to us to work together to influence a positive outcome.”

Union Talks Resume
The union is somewhat less assured and pointed to a Gerson Lehrman Group suggestion that Hawker parent company Onex & GS Capital Partners “should turn their attention to selling the company by parting it out instead of attempting to rehabilitate its dwindling market position.”

Meanwhile, according to Bob Wood of the IAM’s southern regional office, negotiations between the union and Hawker on a new contract restarted last month. “We’re talking,” he said.

The union completed a new agreement with Learjet last year, which Wood described as “a good contract.”

The union also owns a headquarters-based Learjet that Wood said is used to take the leadership quickly from one area to another. “It makes business sense, and our union people at Learjet are proud of it.”