Scott Ernest will lead Textron’s merged Cessna and Beechcraft division
03/14/2014 9:36 AM
08/08/2014 10:22 AM
Textron has closed its acquisition of Beechcraft Corp., and will merge Cessna Aircraft and Beechcraft to form a new segment called Textron Aviation, the company announced Friday.
Cessna, Beechcraft and Hawker will remain distinct brands, however, Textron said.
Scott Ernest, Cessna CEO, will lead the combined company.
“The attractiveness of the merger was driven by the fact that the two companies have very complementary product lines in a market we’ve both been in for a very long time,” Scott Donnelly, Textron CEO, said in an interview with The Eagle.
The merger gives Textron a broad range of products and an extensive international service network, he said.
Beechcraft and Cessna will consolidate and operate as one business, he said.
There will be job cuts as the two companies consolidate support operations in areas such as human resources, finance, accounting, purchasing and other back office functions, Donnelly said. He declined to estimate how many jobs would be lost in the consolidation.
“We have to go through that process,” Donnelly said.
“We want to do these things as quickly as we can,” he said, adding that he can appreciate the uncertainty it brings to the workforce.
Textron announced the deal to buy Beechcraft in late December for $1.4 billion, and formed a transition team of members from Beechcraft, Cessna and Textron to work on details of the transition.
Textron financed the purchase of the equity as well as the repayment of Beechcraft’s working capital debt through a combination of available cash, the issuance of $600 million in senior notes and a new $500 million five-year term loan.
Beechcraft went up for sale after the company emerged from Chapter 11 bankruptcy protection in February 2013. During the bankruptcy, the company halted business jet production to concentrate on its King Air, Baron and Bonanza products and its military and after-market support businesses.
The sale included the assets of the Hawker 4000 and Premier 1A type certificates along with Beechcraft’s Plant 3. Those assets had been on the market separately.
There are no plans to restart manufacturing of Hawker jets, said David Sylvestre, Textron spokesman. However, the company will continue to upgrade and service the existing fleet of Hawker business jets.
Beechcraft employs 3,500 in Wichita and Cessna employs 5,400 locally.
Beechcraft’s line of products will continue, and the company will continue to invest in new products, company officials said.
Near term, the biggest challenge is to work through the process of integrating the two businesses, Donnelly said, but he doesn’t foresee that to be a difficult process.
“We’re serving the same industry,” Donnelly said. “Both companies build airplanes. Both companies service airplanes. It’s just a matter of the mechanics of going through that process.”
Wichita has a long history in aviation and with Beechcraft and Cessna.
“Lots of generations of families have been in this industry either working at Cessna or working for Beechcraft,” Donnelly said.
“We’re going to continue to base this whole operation in Wichita,” he said. “This cements the fact that Wichita is going to be a huge player in the general aviation market going forward.”
Ernest, the CEO of the merged company, said in a statement that the integration of the two companies is expected to be a seamless process.
“Textron Aviation not only encompasses a world-class global customer service network and a strong portfolio of business and general aviation aircraft, but also a workforce with unparalleled industry expertise,” Ernest said.
Frank Molina, president of the Machinists union District 70 said the sale of Beechcraft to Textron and the merger of it and Cessna is a positive development.
“I’m very happy,” Molina said. “Finally, Beech has stable ground underneath them. Textron has been a great company for Cessna. I’m glad to see them finally get on that foundation.”
How the merger will affect the union is too early to say, he said.
“I don’t expect it to be a perfect world,” Molina said. But “we’ve always been able to work with Textron and Cessna Aircraft.”
Pulling Beechcraft “into the family is a great addition that just makes us all stronger.”
Last year, Cessna and Beechcraft produced about $4.6 billion in revenue.
Textron Aviation plans to share and leverage its best practices across all the operations to further its position as an aviation authority, Textron said.
“Today’s announcement is a historic milestone for the aviation industry, and I congratulate the management teams of Beechcraft and Cessna for quickly bringing the merger to fruition,” Donnelly said in a statement. “Uniting these brands creates a robust industry competitor, operating as one team with a common goal to serve customers everywhere our aircraft fly.”
Through Textron Aviation, the company now offers a broader selection of aircraft for customers and an expanded service footprint, he said.
The deal closed earlier than first expected, which should put Textron on track to take out $65 million in annual “synergies,” Cowen and Co. aviation analyst Cai von Rumohr wrote in an analyst note to investors.
There are 290 “synergy” projects in the works, von Rumohr said. He expects the company to announce some cost cuts in the next 60 days with more expected toward the end of the year.
Textron doesn’t expect to provide details of the transaction until its conference call with analysts about its first quarter results, von Rumohr said. That call will likely be later than it normally would to allow Beechcraft financial results to be included.
“We’re told that it will provide separate numbers for Beech and Cessna over the remainder of the year,” he wrote.
Overlap in management
Beechcraft’s sale to Textron will help it compete, said former Beechcraft CEO Jim Schuster.
The sale to Textron is a “great ending to a difficult process for the folks at Beechcraft,” Schuster said Friday. “I call it a marriage made in heaven. When you look at how the product lines stack up on top of each other, it’s going to create an incredibly strong company, one I think has a great chance to compete in a very difficult environment. I’m really pleased that’s the way it turned out, to be honest.”
Schuster expects the consolidation to most immediately impact the senior management ranks of the company where there are duplications.
“Beyond that, I don’t see huge cuts,” he said. “I’d be surprised if there was a huge cut in the near term.”
“You’re going to be combining two pretty lean organizations and looking for cost synergies,” he said.
Still, to make the acquisition work, Textron must find cost savings.
“When you get into the real nuts and bolts on how they’re going to cut costs, it’s going to come in a lot of ways,” Schuster said. “It isn’t just people.”
For one, the united company will have stronger buying power, which should translate into cost savings.
With the merger, it’s important to gain the operational efficiencies as one company, especially when it comes to product support, said Teal Group aviation consultant Richard Aboulafia.
Gaining the efficiencies will help the business cope with the downturn.
The upside of the merger is Textron Aviation will dominate the turboprop and light jet market and a lot of the piston market, Aboulafia said.
Job cuts ahead
Job cuts will be a downside for Wichita, he said.
But, “hopefully we’re getting close to some kind of market recovery, and there have been so many cuts behind us,” Aboulafia said.
If there is any kind of decent market recovery, the cuts may not be as bad as one might expect or may be avoided, he said.
“If the market picks up, they’ll profit,” Aboulafia said.
On the other hand, if the down market continues, the company will be in a good position to get through that as well.
The merger gives the company a broad network of international service centers, Donnelly noted.
Eventually, the company will make sure that the aircraft and powerplant mechanics at the service centers will be capable of servicing both product lines, he said.
That will take time, although some service centers already service both Citations and King Airs.
“We want to make sure our ... factory-owned service centers are going to be able to support the whole fleet,” he said.
Cessna’s two Wichita campuses and Beechcraft’s campus has excess capacity, but those campuses will continue to operate, Donnelly said.
He does not expect any impact to final assembly, even in the long term, he said.
There is no reason to disrupt that flow, he said. Manufacturing of the King Air and the military trainer business will remain at Beech Field.
The same is true for Cessna’s operations.
Over time, however, there are places in manufacturing that might be able to be consolidated, such as in the forming, metal and composite work done in some of the back shops at the sites.
“This won’t happen immediately,” Donnelly said.
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