December 20, 2013

Cessna parent Textron acquiring Beechcraft, report says

In a move that promises a newfound stability for two of Wichita’s struggling aircraft makers, Cessna Aircraft parent Textron has reportedly acquired Beechcraft for nearly $1.4 billion, according to the Financial Times .

In a move that promises a newfound stability for two of Wichita’s struggling aircraft makers, Cessna Aircraft parent Textron has reportedly acquired Beechcraft for nearly $1.4 billion, according to the Financial Times .

Neither company is commenting on the report.

Cessna and Beechcraft suffered after demand for light jets and piston aircraft started collapsing in 2008. Beechcraft went into bankruptcy in May 2012 and put its Hawker jet business up for sale. Beechcraft emerged from bankruptcy in February.

The Financial Times, citing people familiar with the deal, said Beechcraft hired Credit Suisse in October to sound out potential buyers. Other parties rumored to have been interested include Brazil’s Embraer and Indian firm Mahindra & Mahindra.

Centerbridge Partners LP, Sankaty Advisors LLC and Angelo Gordon & Co. own about 90 percent of Beechcraft.

Reaction to the reported sale has generally been positive.

Textron’s stock was up 14.5 percent on Friday as investors bet that the company would see a strong upside from the reported deal.

The deal is good for Wichita, too, said aviation analyst Wayne Plucker of Frost & Sullivan. Although the two companies were surviving in the short term, the long term was always more of a question.

“The potential viability of Beechcraft was always kind of a crap shoot,” he said.

The company has good products, but it was just too small of a player in a depressed market. And Cessna is only somewhat better, with sales of its mainstay light jets remaining weak. A combined company could pick and choose its strongest offerings and prune back some weaker models, he said.

That will likely lead to some job cuts, he said.

“With a reduction in models there is likely to be a workforce reduction,” Plucker said, “But it doesn’t look draconian.”

Richard Aboulafia, an aircraft analyst with Teal Group, agreed this is good move for both, but not a solution to their problems.

For Beechcraft, it offers a significant upside.

“This is nothing but a good thing,” Aboulafia said. “It may not be hugely successful one – that depends on the market – but it stabilizes the company (long-term) because, frankly, it’s tough to make it as a niche player in aerospace no matter how good your products are.”

For Cessna, he said, it offers a chance to improve margins by selling a wider range of popular products more efficiently. That means consolidation and cost cutting at the combined company.

“This is an enduring down market and restructuring is the smartest solution to survive it,” he said. “That means shrinking capacity, it means stabilization.”

Frank Molina, president of the local Machinist Union, said he’s strongly encouraged by the report because it makes both operations stronger.

“If there is actually validity to this, I think it would be a great thing for Beech and Cessna and the city of Wichita,” he said.

Hawker Beechcraft was the weakest of the world’s big general aviation companies because of its weak line of jets and from the heavy debt load it carried from its $3.3 billion sale to Goldman Sachs and Onex Corp. in 2007. When the market turned down in 2008, Hawker Beechcraft struggled to survive. It filed for Chapter 11 bankruptcy in May 2012, wiped out its equity owners and came to be controlled by its creditors.

Company officials last year negotiated a sale to China-based Superior Aviation Beijing Co. for $1.79 billion, but that sale fell apart.

In December, the bankruptcy court approved a plan for the company to end jet production and emerge as a smaller, stand-alone company called Beechcraft Corp. The company would focus on its King Air, Baron and Bonanza lines and defense and after-market business. Beechcraft emerged from bankruptcy in February.

Beechcraft has performed relatively well since then. In October, it reported that it delivered more aircraft in the first three quarters than any year since 2008. On the other hand, Cessna has had a pretty discouraging 2013. It has seen losses during the last three quarters. The company’s overall deliveries by unit were down 22 percent through the third quarter and its billings were down 26 percent, according to data from the General Aviation Manufacturers Association.

Throughout 2013, Beechcraft continued to explore the sale of its assets. In October, Beechcraft CEO Bill Boisture said that he was talking to a buyer who wanted Beechcraft’s Plant 3 composite-manufacturing facility to make composite components, but likely wouldn’t restart production of Hawker jets.

Last week, Boisture confirmed that Beechcraft was on the verge of a deal.

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