Hawker Beechcraft Hits Rough Patch in Third Quarter

 - December 1, 2011, 4:55 AM
Hawker delivered eleven 900XPs in the first three quarters compared with 11 in the same period last year.

Hard on the heels of a lackluster third-quarter earnings announcement on November 1, Hawker Beechcraft gave notice of yet another round of layoffs on November 4.

In a letter to employees, chairman and CEO Bill Boisture said the Wichita-based OEM had resized itself in 2009 in anticipation of an economic recovery beginning next year. However, he added, “At present, the airplane markets in which we compete are showing little sign of growth and the key indicators that could trigger such growth are stubbornly low.”

Boisture cited a number of factors hampering market growth. Among them:

  • the continuing debt crisis in Europe
  • a slowdown in the Chinese economy
  • an Arab spring running into a fall of unrest in the Middle East.
  • the continuing recessionary climate in the U.S.
  • elected leaders in the U.S. adversely targeting business aviation and its products and customers “in their attempts to cope with budget shortfalls.”
  • reduced spending on defense in the U.S. and around the world.

“The combination of these factors brings us to a decision to continue to resize and align our company to a market that is projected, for the next two years, to remain small relative to past markets, and which projects modest growth rates beyond that time,” said Boisture in the letter. With that, he added, “reductions in force will affect all levels of our company.”

On November 11, some 300 affected employees were given a 60-day Worker Adjustment and Retraining Notice. According to the Machinists Union, the layoffs will affect 210 non-union and 90 union employees.

In a subsequent release confirming the 60-day notice, Boisture declined to give the exact number of employees affected. He did confirm that the company’s employment level in Kansas following the layoffs would stay within the required 4,000 workers called for by a $40 million deal with the state. That deal was described as a “significant incentive for the company to maintain its presence over the next 10 years.”

Revenues, Sales Down

The layoffs are just part of recent bad news from Hawker Beechcraft. In its third-quarter earnings statement released November 1, the company reported continuing gray clouds with any silver lining remaining elusive.

The Wichita OEM said net sales for the three months ending September 30 were $518.8 million, a decrease of $75.9 million compared with net sales of $594.7 million for the same period last year. Also, revenues in the business and general aviation segment decreased by 15.9 percent, although operating losses improved by 39.4 percent compared with last year’s third quarter.

As for deliveries, the company reported 38 in this year’s third quarter, compared with 49 deliveries in the same period in last year. Year-to-date deliveries in the business and general aviation segment are also down, with 127 airplanes delivered this year compared with 137 deliveries in the same period last year. The total backlog is valued at $1.3 billion as of September 30, compared with $1.4 billion on June 30. As of September 30, approximately 28 percent of the backlog represented orders that are not expected to be delivered over the next 12 months.

Supply Chain Disruption

Chairman and CEO Bill Boisture attributed the decline in deliveries to supply disruptions that resulted from moving thousands of piece parts and subassemblies from older, higher-cost in-house manufacturing to third-party vendors in the U.S. and to its new operations in Mexico. Boisture acknowledged that there might be more disruptions in the fourth quarter and added, “It will be impossible to make up missed deliveries.” However, he predicted, “We will be in much better shape in the first quarter 2012.”

Boisture also acknowledged there is an increase in used aircraft inventory “due to deliveries that didn’t get made in the third quarter [although] we are working to get back on a positive trend.”

Addressing specific model deliveries, Boisture said supply disruption of Hawker 4000 production has been resolved and deliveries in the U.S. have resumed, but the company is awaiting certification from agencies in other countries before beginning deliveries outside the U.S. The company expects European certification by year-end.

Military Segment

As for the King Air and piston aircraft, disruptions are expected to continue in the fourth quarter, resulting in fewer deliveries than planned. However, despite an uncertain global economy, Hawker Beechcraft is seeing the King Air gain market traction abroad for special-mission variants–air ambulance, maritime surveillance and intelligence, surveillance and reconnaissance.

Revenue derived from the trainer/attack segment, typically a reliable source of income, decreased by 17 percent in the third quarter, and operating income decreased by 37 percent compared with last year’s third quarter. Boisture added, however, that the company is “actively seeking new contracts as far away as New Zealand and Australia,” and has marketing campaigns in Europe, Jordan and Mexico, “with modest expectations.”

The Hawker executive also noted that the U.S. Air Force’s award of the LAS (light air support) contract–expected on October 31–never materialized. Hawker Beechcraft and Embraer are contenders, and the winner will be awarded a contract to deliver 15 AT-6 light attack versions of the T-6 trainer to the Air Force and 20 to the Afghanistan Army Air Corps. Boisture pointed out that even if Hawker Beechcraft is not the winner, there may be some research and development reimbursement, but payments for the aircraft will not begin before 2013.

Hawker Beechcraft’s Global Customer Support (GCS) segment reported third-quarter sales of $$126.7 million, a decrease of $8.9 million compared with the same period last year. The decrease was blamed on “a temporary disruption in the business that occurred in connection with implementation of the company’s computer system upgrade.” However, the disruption was described as “short in nature” and ordinary operations have resumed.

The company has recognized a need to expand its support and services network, noting an order from charter operator XOJet for up to 12 Hawker 800XPRs, with seven to be delivered before year-end.

HBC plans to open a new factory-owned service center in Monterrey, Mexico next spring, “an investment that further demonstrates our commitment to support our customers throughout the globe.” Another factory-owned center is expected to open in Wilmington, Del., in the middle of next year. Additional Hawker Beechcraft-authorized service centers are also expected to be added in New Zealand, India and Turkey in the near future.

While Boisture said, “Hawker Beechcraft did not see anything in the way of new-product announcements from the competition at the NBAA Convention that bothered us,” he also noted, “We don’t have any particular post-NBAA wisdom, other than that it’s going to be a tough market.

“We’re preparing for a 2012 that looks a lot like 2011, that [in turn] looked a lot like 2010,” he concluded.

Comments

Brian Meyette's picture

Why do I suspect this affects "all levels of our company", except executives and executive pay and bonuses?

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