King Air, Big Customer Base Were Main Drivers in Cessna Parent Textron’s Beechcraft Buy
In one of the biggest consolidations in the business aviation industry since Bombardier Aerospace combined Canadair, Learjet, de Havilland and Short Brothers in the late 1980s/early 1990s, Cessna Aircraft parent Textron announced on December 26 that it will acquire Beech Holdings LLC, the parent of Beechcraft Corp., for approximately $1.4 billion in cash. The deal is expected to close by the middle of this year.
Rumors of such a tie-up had been rampant in the months leading to the deal, and they accelerated rapidly when the Financial Times reported on December 20 that an undisclosed source said an agreement had been reached. However, officials at the two Wichita-based aircraft manufacturers, as well as those at Textron, were mum until the official announcement was made.
Under the terms of the transaction, Textron will acquire the entire company–including the Hawker 4000 and Premier IA type certificates, which Beechcraft had on the market and intended to sell separately. In fact, Textron initially entered talks intending to buy just these jet assets before changing course to acquire the whole company, Beechcraft CEO Bill Boisture told AIN. He said the strong market position of the King Air turboprop twin and the lucrative support business from current Beechcraft and Hawker owners were more than compelling reasons for Textron to buy all of Beechcraft.
“From our customers’ perspective, this creates a broader selection of aircraft and a larger service footprint, all sharing the same high standards of quality and innovation,” said Textron chairman and CEO Scott Donnelly. “The iconic King Air product line perfectly complements our Caravan and Citation jet line-up, and our combined global service network will deliver the superior level of services expected by our Cessna, Beechcraft and Hawker customers.”
Because Beechcraft no longer manufactures business jets, there is no overlap with Cessna’s Citation business jet product line, which spans from the entry-level Mustang to super-midsize Sovereign and Citation X speedster. However, Beechcraft products will retain their Beechcraft branding when the company becomes part of the Textron fold.
Boisture noted that the “transaction represents an important step forward in the evolution of Beechcraft’s business. The team at Beechcraft has worked tirelessly to strengthen our core business and to maintain our position as a leader in a highly competitive environment.” The merger, he added, “is a good opportunity for two good brands to operate in the same space. It also will mark the first time in a decade that Beechcraft has been in a solid financial position. We’re ready to be a strong part of Textron.”
In the meantime, Boisture said, all research and development activities at Beechcraft will continue. This includes plans for three new turboprops–a single-engine model based on the Premier fuselage, a twin and not-yet-disclosed model–as well as a new piston single between the Bonanza and Baron, that Beechcraft announced at the 2012 NBAA Convention.
Donnelly explained that the large Cessna and Beechcraft service and support networks represent one of two primary synergies of the acquisition. “How to mange, administer and run the combined service network” will be one of the big challenges of the acquisition, he said. Beechcraft/Hawker service and support will continue to provide a steady flow of cash and profits post-acquisition, he noted.
Meanwhile, Beechcraft confirmed that maintenance services for the Hawker 4000 and Premier I/IA are continuing, and will continue after the acquisition, through its factory-owned service center network, Hawker Beechcraft Services, and authorized service centers around the world. The warranties for these two jets were cancelled during the bankruptcy process last year, and they will remain cancelled–before and after the acquisition.
In addition, “Textron has no intention of restarting the Hawker 4000 and Premier IA production lines,” a Textron spokesman told AIN. “Rather, the company fully intends to produce parts and components for the existing fleets and service and support them.” The acquisition will also provide Textron with an installed base of Hawker customers that Cessna hopes to convert to Citations when they are in the market for another jet.
Another synergy involves general/administrative opportunities, such as operations and marketing. However, Donnelly said this does not include facility consolidation or asset sales at this time. “Beechcraft has already undertaken a fair bit of restructuring associated with consolidating the manufacturing footprint when it shut down the jet business,” he explained.
When asked what he considered the biggest driver of the acquisition, Donnelly said the ability to convert more international sales and retaining customers, particularly those stepping up from King Air turboprops to Cessna’s Citations. The company estimates “annualized synergy” will be worth $65 million this year (before restructuring and deal costs) and $75 to $85 million in two to three years.
Donnelly said the biggest challenge to the acquisition “is the overall market. We assume the King Air line, which had a good year this year, will continue to perform well. On the other hand, if we are able to convert more international opportunities and sustain better volumes in the T-6 military trainer and AT-6 light attack aircraft, that would be an upside. We don’t really have a [standalone] military aviation business today.”
That said, in September Textron announced a partnership with AirLand Systems to develop an “affordable” military twinjet dubbed the Scorpion. The aircraft, which made its maiden flight on December 12, is being hawked for border security, maritime security, counter-narcotics, irregular warfare and humanitarian assistance missions. Beechcraft’s established military business will help bolster the Scorpion’s position in the defense marketplace, Boisture said.
Beechcraft’s revenues last year are estimated to be about $1.3 billion. Its business and general aviation activity–King Air turboprops, piston airplanes and special-mission commercial and defense applications–represents 53 percent of revenue. Customer support brings in 31 percent, and defense–the T-6 and AT-6–accounts for 16 percent. More than 35,500 Beechcraft airplanes are in service worldwide.
Since the company’s emergence from Chapter 11 protection in February 2013, the market has responded positively to the new Beechcraft Corp. The company’s strong aircraft delivery numbers in the first three quarters of this year and the securing of its highest booking rates in the past three years are evidence of Beechcraft’s renewed growth in the market.
The transaction was unanimously supported by Beechcraft’s board of directors and is expected to close during the first half, subject to regulatory approvals and other customary closing conditions. The definitive agreement includes a no-shop provision with exceptions permitting Beech Holdings to respond to, evaluate and, under certain circumstances, accept an unsolicited proposal that is superior to the transaction with Textron, in which case a termination fee of $48 million will be payable by Beech Holdings to Textron.
At press time, two transition teams–one from Cessna headed by company CEO Scott Ernest and another at Beechcraft led by Boisture–were being formed, Boisture told AIN. A steering committee composed of Textron’s Donnelly, Boisture and Ernest has also been formed, and the three will meet frequently during the transition to ensure the integration goes smoothly.