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Thursday, July 24, 2014

Hawker Beechcraft seeks to assure customers

By Molly McMillin
The Wichita Eagle

Hawker Beechcraft is committed to buying, selling and servicing airplanes, company officials are stressing to customers as it works on a plan to recapitalize the company.

Its top executives sent a letter to customers assuring them that the company will meet its ongoing commitments to them.

“Deposits and progress payments are secure,” the letter said. “All customer orders for available products will be fulfilled.”

The letter was signed by Hawker Beechcraft Inc. CEO Steve Miller and Hawker Beechcraft Corp. chairman Bill Boisture.

An agreement with lenders last week gives the company additional liquidity to support ongoing operations, the letter said.

It “will have no impact on our warranty program and our commitment to providing the best products and services in the industry remains unchanged,” it said.

Hawker Beechcraft continues to sell airplanes.

Last week, it announced an order for 10 King Air turboprops worth about $50 million to China’s Avion Pacific Limited. Deliveries will begin late this year.

The announcement “is a strong endorsement of our King Air aircraft, serving as further evidence of the developing light turbine market in China and of the King Air’s role as the aircraft of choice for market leaders,” Dan Keady, Hawker Beechcraft’s vice president for the Asia Pacific region, said in a statement.

Analysts say that Hawker Beechcraft’s financial woes, however, could help boost competitors Cessna Aircraft, Bombardier and Embraer.

“Our discussions with our industry sources in the past have indicated increasing reluctance by business jet buyers to order jets from an OEM (original equipment manufacturer) in serious financial straits,” wrote Heidi Wood, an analyst with Morgan Stanley, in a research note. “We expect both Cessna and (Embraer) to pick up share ceded by Hawker.”

A bankruptcy would compromise Hawker Beechcraft’s ability to win business and lead to a loss in market share, Cai von Rumohr, an analyst with Cowen and Co., said in a report. That’s because service is a key factor in a buyer’s purchase decision.

Embraer and Bombardier spokesmen declined comment. Cessna did not return a call for comment. Hawker Beechcraft also declined comment.

Last week, Hawker Beechcraft announced it had obtained additional liquidity from some lenders that gives it time and flexibility to restructure its balance sheet and fund operations.

“We believe this loan demonstrates confidence in the long term value of the company,” the letter to customers said. “Our 6,000 employees remain focused on building the best airplanes in the world and providing our owners with the most comprehensive global customer support in the industry despite challenging economic conditions and a changing aviation market. These goals have always guided our actions and will continue to drive every decision we make going forward.”

The agreement builds on steps it’s taken in the past three years to become a more agile and innovative company, the letter said.

“We will use the additional flexibility this agreement affords us to work closely and collaboratively with our lenders to put Hawker Beechcraft on a secure and competitive path so that we can build on these achievements,” it said. “Be assured that our long-term plan will always center on manufacturing the best airplanes for our customers and providing first-class service and support.”

The company is working to restructure its debt with its lenders. If that can’t be worked out, it could file for Chapter 11 bankruptcy in the next few weeks, analysts say. Some say that would allow it to get out from under a lot of debt and put it on a stronger path.

Onex and Goldman Sachs bought the former Raytheon Aircraft Co. for $3.3 billion at the top of the market from Raytheon Inc. in 2007 and renamed it Hawker Beechcraft. The market for business jets then turned with the recession.

According to a Reuters report last week quoting unnamed sources, the company is preparing for a bankruptcy but would continue to operate as a debtor-in-possession with financing provided by existing creditors.

Analysts and experts expect a quick restructuring should the company file for Chapter 11 bankruptcy. Whatever happens, it’s best for the company to get its financial troubles behind it as soon as possible.

“It’s in the interest of Hawker Beechcraft to get this resolved as quickly as they can,” said Malcolm Harris, a Friends University finance professor. “If the lenders were behind them, they can go to their customers and say, ‘Look, we’re going to be around. They (the lenders) have got a lot more money on the line than you do, and they’re giving us a vote of confidence,’ ” Harris said.

Hawker Beechcraft officials were in India recently assuring people that it would take care of customers, he said.

“Customers worry, ‘Are we doing to get spare parts? Will they honor their warranty? Will they be in business 10 years from now; will they be able to train my people?’ ” Harris said. “It can hurt business. Hawker is out trying to convince people, ‘Don’t worry, we’re going to do this.’ ”

Reach Molly McMillin at 316-269-6708 or mmcmillin@wichitaeagle.com.

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