July 17, 2012

Hawker Beechcraft cleared for exclusive negotiations with Superior Aviation Beijing

A federal bankruptcy judge Tuesday approved Hawker Beechcraft’s motion to enter into exclusive negotiations with Superior Aviation Beijing regarding a sale of the planemaker’s assets for at least $1.79 billion.

A federal bankruptcy judge Tuesday approved Hawker Beechcraft’s motion to enter into exclusive negotiations with Superior Aviation Beijing regarding a sale of the planemaker’s assets for at least $1.79 billion.

Approval from the U.S. Bankruptcy Court for the Southern District of New York allows the financially troubled company and Superior to spend 45 days in due diligence and negotiations.

As part of the agreement, Superior will make a $25 million deposit by the end of the week to keep Hawker Beechcraft’s jet business in operation.

Superior will make a second $25 million deposit within the next 30 days.

The deal does not include Hawker Beechcraft’s defense business.

Any agreement would be subject to approval by the Committee on Foreign Investment in the United States and other regulatory agencies. It also would be subject to termination if another buyer outbids Superior in a mandatory competitive auction of the assets.

The auction will be overseen by the bankruptcy court.

If negotiations are not concluded in a timely manner, Hawker Beechcraft will move forward with court confirmation of a Joint Plan of Reorganization, which was filed with the court June 30.

The plan contemplates the company emerging as a standalone entity with a more focused portfolio of airplanes.

More specifically, the company said, it would wind down the jet-related businesses, “a process that likely would have commenced already but for Superior’s compelling proposal to the company,” Hawker Beechcraft said in a news release.

The agreement provides the funding to preserve jobs while the companies negotiate a potential transaction with Superior, Hawker Beechcraft CEO Steve Miller said in a statement issued Tuesday.

“At this time, pursuing the potential transaction with Superior is in the best interests of the company and its various stakeholders, including our creditors, our employees, our suppliers and our customers,” Miller said. “We look forward to working toward a definitive agreement with Superior and continuing to communicate with all interested parties to explain the benefits of this proposed transaction.”

Hawker Beechcraft filed for Chapter 11 bankruptcy May 3.

On Monday, Hawker Beechcraft’s largest union, the Machinists union, asked the court to deny the exclusivity motion, citing concerns for national security and workers’ pensions.

“The proposed sale of Hawker Beechcraft to a Chinese government-backed entity has broad implications for the U.S. economy and national security," IAM International president Tom Buffenbarger said in a news release. “The sale should not be rushed through without adequate scrutiny by all interested parties, including federal regulators, state officials and the Wichita community.”


The Pension Benefit Guaranty Corp. also filed a motion with the court this week.

It told the bankruptcy court that it did not object to the limited relief Hawker Beechcraft sought in its motion to enter the exclusivity agreement with Superior. However, Superior’s proposal, which contemplates the termination of Hawker Beechcraft’s three pension plans, “raises grave concerns,” the agency’s filing argued.

The PBGC typically takes over pension plans when companies terminate them because of insufficient assets to pay promised benefits.

On average, the PBGC pays out $458 million per month to 873,000 retirees, and it’s responsible for future payments to about 628,000 employees who have not yet retired.

Last year, it assumed responsibility for 57,000 additional workers and retirees in 134 failed plans.

Congress has charged the PBGC to encourage companies to maintain pension plans for the benefit of their participants, it said in the filing.

“Before any plan fails, it is imperative for PBGC to fight to preserve the plan and hold the employer responsible to fulfill its promises of pension benefits to its employees,” the agency said in its court filing.

Hawker Beechcraft’s three plans cover about 17,866 employees and retirees and are underfunded by about $751 million.

“PBGC therefore reserves all rights to protect — and to object to unsatisfactory treatment of — (Hawker Beechcraft’s) pension plans as the sale process unfolds,” it said.

“With that said, PBGC hopes to work with the debtors, the consenting lenders and Superior (or any other potential bidder) to achieve a consensual resolution with respect to the pension plans.”

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