Textron and Beechcraft Corp. announced late yesterday that Textron has agreed to acquire Beech Holdings, LLC, the parent of Beechcraft Corp., for approximately $1.4 billion in cash. This confirms rumors swirling over the past few months.
During a Textron press conference this morning, Textron chairman and CEOScott Donnelly said, “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. 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 broad business jet product line.
In a press release, Beechcraft CEO Bill Boisture said, “This 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.”
Under the terms of the transaction, Textron will also acquire the Hawker 4000 and Premier IA type certificates. Maintenance services for the aircraft will continue through Beechcraft’s factory-owned service center network, Hawker Beechcraft Services, and authorized service centers around the world with Hawker 4000 and Premier ratings. Service and support will continue to provide a steady flow of cash and profits after the acquisition.
“Textron has no intention of restarting the Hawker 4000 and Premier 1A 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 a another jet.
During this morning’s conference call, 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.
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 they 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 Citation jets. The company estimates “annualized synergy” will be worth $65 million in 2014 (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 and AT-6, that would be an up side. We don’t really have a [standalone] military aviation business today.”
Beechcraft’s estimated revenues for 2013 are about $1.3 billion. Its business and general aviation unit–King Air turboprops, piston airplanes and special mission commercial and defense applications–represent 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 its 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 of 2014, 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.
Textron plans to finance the purchase of the equity, as well as cash required for the repayment of Beechcraft’s working capital debt, through a combination of available cash and up to $1.1 billion in new debt, including a five-year pre-payable bank loan. Textron expects to maintain its current debt ratings (BBB-/Baa3).