Hawker Beechcraft predicts ’12 recovery
Is venerable aircraft manufacturer Hawker Beechcraft on life support and about to be broken up and sold off as some industry pundits have suggested or has the Wichita-based OEM positioned itself to survive the industry crash and come out better for it?
The company’s chairman and CEO Bill Boisture has expressed no interest in stepping out of the bus and leaving it to careen, unguided, into an uncertain future. Hawker Beechcraft, he said, is fortunate to be owned by two strong equity partners, Onex and GS (Goldman Sachs) Capital Partners. “They support the changes we’re making in the company and are committed to helping us recruit and build our team. They’re willing to let us make decisions in the longer term [and] we have a sense of purpose and stability that we might not otherwise have,” he told AIN.
Hawker Beechcraft has indeed fallen on difficult times that began well before the recession. The company had gone through several reorganizations, from the merger of Beech Aircraft and Raytheon Corporate Jets in 1994 to form Raytheon Aircraft, to a return to the Hawker and Beechcraft brands in 2002, to the acquisition by Onex and GS Capital Partners and subsequent change in 2007 from Raytheon Aircraft to Hawker Beechcraft.
Struggles to certify the Hawker 4000, originally announced in 1996 as the Hawker Horizon did little to improve things. Not until 2006 did the aircraft, by then renamed the Hawker 4000, receive provisional FAA certification, and even then it was another two years to full certification.
Then, with the downturn in full swing, NetJets late last year cancelled an order placed in 2005 for 50 Hawker 4000s. Since late 2008, like other OEMs, Hawker Beechcraft has dealt with order cancellations and deferrals and a shrinking backlog as orders began to dry up.
“We made some difficult decisions in mid-2009,” Boisture explained. “We had a fairly aggressive view of how bad things would get, so we wanted to size the company so we could settle into being smaller, which we did. Production now is pretty much matching demand; we’ll revisit that toward the end of 2010 and make adjustments up or down.”
The most recent hurdle for Hawker Beechcraft has been negotiations with the machinists union, which numbers some 2,600 among the company’s 7,000 employees. The layoff early in 2010 of 250 highly skilled workers and closure of the Salina, Kans. factory and a shift of half those jobs to a facility in Mexico and half to outside vendors did nothing to improve the negotiation process.
It was Hawker Beechcraft that requested in mid-August that the union re-open negotiations before the contract expiration date of August 2011. The union was not particularly enamored of the proposal, saying that, “The picture we are getting is of a Hawker Beechcraft Wichita that will shrink almost immediately by 75 percent or more within two years, without a guarantee of even the last few jobs remaining.”
In a letter to employees, Boisture said “no decisions have been made at this time regarding an alternative U.S. location.” In the same letter, he noted that Hawker Beechcraft is “developing a spectrum of possibilities for the size and functions of our business in all our locations [and] development of these possibilities has included exploring other locations both within and outside the U.S. that might be suitable for parts of our business.”
In an interview with AIN, Boisture also emphasized, “I have a deep respect for this union at Hawker and their willingness to partner with us for the long-term sustainability of this business.” And he described the current negotiation process as “a real bright spot. We want to know that we and they have exhausted all options. To the extent we can, we want the people who have worked here for so long to share the future.”
Boisture said Hawker Beechcraft had $310 million in debt at the end of 2009. “We have paid that down by $240 million. We’re not bleeding cash. We’ve been stable with respect to our working capital and liquidity.”
The latest financial results released by Hawker Beechcraft show an operating loss of $20.7 million in the second quarter, bringing first-half losses to $45.8 million. Year-over-year second quarter net sales fell $177 million to $639.3 million.
While it may be that Hawker Beechcraft, like other OEMs, is still struggling in the grasp of the downturn, not all the news is bad. According to Boisture, the backlog is valued at $2.4 billion, and “while there is softness in the commercial market, setting aside fractional orders, we have had five consecutive quarters of positive net orders. That backlog reflects $400 million in cancellations from NetJets, and Hawker Beechcraft no longer has any backlog with NetJets.
The new King Air 350i is not only receiving praise, but there are a dozen already in service. The $6.6 million airplane gives operators an additional two and one-half hours of range, 2,730 feet per minute rate of climb and operations from runways shorter than 3,000 feet. The cabin features Rockwell Collins Venue cabin management system, LED lighting, high-definition video and support for a variety of personal electronic devices, including iPods. And the Flexcabin allows a quick reconfiguration by removing the aft club components.
The business aviation side of the house has been hurt by the recession, but critics of the company sometimes forget that it has another market dimension. Boisture said 20 percent of revenues over the past 12 months have come from the sale of military trainers, “a significant source of stability and opportunity.”
Hawker Beechcraft’s U.S. Air Force contract for the T-6A single-engine trainer has closed out but deliveries of the T-6C to the U.S. Navy have now begun and will carry through to 2014. Boisture also noted that another aspect of that same trainer program will create two prototype attack versions of the T-6 in risk-sharing partnerships with CMC Esterline, Lockheed Martin and Pratt & Whitney Canada. “The first prototype airplane was in the air 208 days after board approval,” he said.
Hawker Beechcraft is also advancing a special mission application of the King Air 350 called the Liberty Program.
L-3 Communications & Systems Integration of Waco, Texas, is the integrator for the program and the airplanes are appearing in Iraq and Afghanistan in intelligence and reconnaissance roles. “We’re also planning a Liberty Program 350 with a bigger engine, better hot-and-high performance and longer loiter capability. And that will come back into the commercial side in the form of increased range and 20 knots better cruise speed.”
Boisture said there are always new airplanes in the future, “but it would be irresponsible [for the company] to pursue a new aircraft at this point, given the state of the market.” He added that Hawker Beechcraft’s R&D is focused on follow-on variants of several products, including the Hawker 4000.
As to shifting market demographics, Boisture said Hawker Beechcraft is definitely getting more interest from outside the U.S., and a substantial increase in activity among the BRIC nations (Brazil, Russia, India and China). But he added a note of caution, pointing out that, “It isn’t a matter of outside markets exploding so much as an indication of how bad the market is at home.”
With that in mind, however, Hawker Beechcraft has expanded its focus outside the U.S. market, viewing Africa, Asia, Europe, the Middle East and the Americas as separate business regions. “We’ve added a dedicated demonstration fleet in each region over the past 12 to 15 months. We want a more global approach.”
Hawker Beechcraft has also worked closely with the Export Import (ExIm) Bank of the United States to extend commercial loans to business aviation and to finance U.S. products outside the U.S. Meanwhile, Hawker Beechcraft is watching the market. “We haven’t seen many signs of an improving economy, but there has been a modest uptick in flight hours by our owners and in parts and service,” Boisture said.
Looking forward, he said, “We frankly see [the market] staying about the same. We think 2011 will be a difficult year and we don’t see the pickup before 2012.”