July 10, 2012

Hawker Beechcraft seeks green light to exclusively negotiate sale with Superior

Hawker Beechcraft filed a motion Tuesday asking the bankruptcy court for approval to spend up to 45 days exclusively negotiating a deal to sell all but its defense business to Superior Aviation Beijing of China.

Hawker Beechcraft filed a motion Tuesday asking the bankruptcy court for approval to spend up to 45 days exclusively negotiating a deal to sell all but its defense business to Superior Aviation Beijing of China.

Hawker Beechcraft announced an agreement to pursue the sale to Superior for $1.79 billion in cash on Monday.

It said Superior’s final proposal was the most attractive of the bids submitted.

In exchange for the exclusivity agreement, Superior will pay Hawker Beechcraft up to $50 million in coming weeks to fund and maintain certain jet product lines that otherwise would likely be discontinued if Hawker Beechcraft wasn’t bought and emerged from bankruptcy as a stand-alone business, the motion said.

Superior’s proposal is non-binding and is subject to ongoing due diligence, definitive documentation, regulatory approvals and other conditions.

Because of that, Hawker Beechcraft will continue to pursue a plan to emerge from Chapter 11 bankruptcy, which it filed May 3, as a stand-alone company.

Entering into the agreement with Superior is appropriate because other interested parties have had ample opportunity to submit proposals, and Superior’s is the best to date, the motion said. In addition, any agreement negotiated with Superior will be subject to a future competitive auction process.

Superior’s purchase could preserve thousands of jobs in Wichita and Little Rock, Ark., that otherwise would be lost if the company shuts down production of the jet product lines, the company said.

The state is still analyzing the news, said Pat George, Kansas Secretary of Commerce, who is in England to promote Kansas at the Farnborough International Airshow.

“We are encouraged and want the jobs to stay in Kansas,” George said. “There are 4,000 jobs here now and (we) want 4,000 jobs next week and next month and next year, or maybe 5,000 jobs next year. We don’t know much about the announcement. It’s part of a process and this isn’t the final story.”

According to the motion, Superior will make two $25 million payments to Hawker Beechcraft to keep jet lines open while they work on finalizing a transaction.

“The payments are an essential component of the Superior Proposal, as these jet-related business lines are not profitable in their current state as a result of global economic conditions and industry weakness,” the motion said. “(Hawker Beechcraft) would likely have commenced the permanent winding down of these product lines but for Superior’s interest in acquiring them.”

The company does not want to pay the costs of funding the business lines over the next several months in the event that the transaction isn’t consummated, it said

If the deal doesn’t reach fruition, the company will refund payments that are in excess of the expenses incurred during that time.

Superior intends to maintain the company’s existing operations and invest “substantial capital” in the company and its business and general aviation product line, Hawker Beechcraft said.

It plans to keep Hawker Beechcraft’s U.S. headquarters, management team and employees, and continue product development throughout its commercial lines.

Superior’s proposal is a good deal for Hawker and its creditors, said Brian Foley, aviation analyst with Brian Foley Associates.

“In addition to arguably paying a very high premium and providing working capital even before the deal is finalized, I’d speculate that Superior was given an ‘all or nothing’ condition for sale,” Foley said.

Superior still has 45 days to walk away from the deal, he said.

“Back in the day, the industry felt General Dynamics overpaid for Gulfstream, which was not the case,” Foley said. “Perhaps the long-term strategic vision of Superior is equally compelling.”

Cowen and Co. analyst Cai von Rumohr wonders whether Superior would keep all the jobs in Wichita over time.

“It doesn’t really make a lot of sense,” von Rumohr said.

Cessna, for example, entered an agreement with China’s Aviation Industry Corp. to develop a new jet and to produce Citation Sovereign and Citation Latitude business jets in Chengdu.

“The Chinese are selling American planes, and Americans are selling Chinese planes,” von Rumohr said.

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