Textron Aviation and Kansas Department of Commerce officials will soon meet to discuss the incentive package the state awarded to what was then Hawker Beechcraft in 2010.
The contract remains in effect, despite the sale of Beechcraft Corp. to Textron, Cessna Aircraft’s parent company, in March.
Beechcraft Corp. and Cessna have been working to integrate under a new segment called Textron Aviation.
The merger has meant hundreds of job cuts over the past month, calling into question what will happen to the financial payments made to Beechcraft, which pledged to create and maintain a certain number of jobs in Kansas.
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There have been preliminary conversations, Kansas Commerce Secretary Pat George said last week.
“We’ll be sitting down with them and looking at what the future holds for them,” George said. “We’re certainly very interested in the combined company as they go forward.”
Jim Walters, Textron Aviation senior vice president of human resources and communications, said the company plans to meet the current obligations of the funding agreement.
He said Textron officials will meet with the city, county and state about the contract. The conversations will be about Textron Aviation, Walters said.
“Everything we’ve been doing is all about first of all making sure we continue to promote the brands and pulling the two companies together and creating Textron Aviation,” Walters said. “Whatever we do is going to be in that context.”
On April 23, Textron Aviation announced it was cutting 750 jobs at Cessna and Beechcraft, including 575 in Kansas, the vast majority in Wichita.
It was a difficult but necessary step, Walters said.
There are overlap and redundancies in the workforce whenever you pull two large companies together, he said.
“Our intent is to continue to invest in the full complement of products and grow the business,” he said. “It’s all about growth. That’s certainly our commitment as we pull Cessna and Beechcraft together.”
Hawker Beechcraft became Beechcraft Corp. after it emerged from Chapter 11 bankruptcy as a much smaller company in February 2013.
In 2010, the state entered a 10-year agreement to give the company $40 million in tax-exempt bonds. Costs are to be recouped over time by applying employee withholding taxes toward the bonds. The city and county added another $5 million to the package.
The incentive package included $10 million for skills training and $30 million for expenses related to major project investments, such as research and development and changes to its assembly line.
The contract expires Dec. 31, 2020.
In return for the incentives, Hawker Beechcraft agreed to keep most of its operations and at least 4,000 jobs in Wichita through the contract term.
The city and county incentives – up to $1 million a year – are based on the same minimum employment levels.
The funds are provided annually for the first five years of the contract.
The agreement was reached after it became widely known that Hawker Beechcraft was entertaining offers from other states to move the company out of Wichita. That included a well-publicized offer from Louisiana.
At the time it made the deal with Kansas, company executives hailed it as a means to help it sustain its long-term competitiveness and provide support for a well-trained workforce.
The general aviation industry was hard hit by the downturn, and the company had been struggling.
“They were on life support three years ago,” George said. “We appreciate it’s still a going concern. At least it looks like they have a future.”
The sale to Textron was good, he said. The new owner provides Beechcraft capital and stability.
The incentives from the city, county and state were not voided by the sale, and transfer to the new owner, George said.
“We will sit down with their management team and have them walk through what their plans are for the next couple of years,” George said. “I’m sure they’ve crunched the numbers 1,000 different ways. They have some obligations out there to meet. People know what their obligations are. That was part of the merger or the consolidation. ... If there’s some liabilities out there, that was taken on with their assets.”
“When we get into the nitty-gritty, we’ll look at what the number of employees are (and) what the agreement is in place,” George said.
Beechcraft received the full amount awarded – $10 million – for training and retraining of employees, during the first three years of the contract.
In addition, it received $23.5 million so far from the state, including a $4.3 million payment in January, to be used for major project investments.
In the past two years, the company received a prorated amount employment levels dropped below minimum levels set.
Beechcraft must have at least 3,600 jobs – or 90 percent of the 4,000 jobs promised – to receive the full payment in a year.
If employment falls below that level, payments are reduced proportionately.
On Dec. 31, 2013, Beechcraft employed 3,427, the state said.
With this month’s job cuts that affected Cessna and Beechcraft, that figure has fallen further.
Under the contract, 2014 is the last year the company is eligible for incentive payments.
During the second five years of the contract period, the company must repay a percentage of the incentives if employment levels are below 3,600, the agreement says.
To track job numbers, there must be a way to account for employment numbers separately between the Beechcraft and Cessna, despite the integration of the companies, said Chris Chronis, Sedgwick County chief financial officer.
“Or we’ll have to mutually agree on some sort of contract amendment,” Chronis said.
Over the life of the 10-year contract, the company must also generate at least $50.9 million in employee withholding taxes, the gross cost of the program according to the contract, or repay the state the difference.
Whether it will fall short of that is yet to be determined.
“Those will be the things we discuss with them,” George said.
Walters said he has the agreement on his desk and will study the contract’s details before the meetings.
“We’re going to spend more time and make sure we understand what we have,” he said.
General aviation has been hard hit as an industry, George said.
“I’m not going to kick them when they’re down,” George said. “But we do have a fiduciary responsibility to the state to honor those commitments and hold them up. On the other hand, they’ve been through some rough times. I’m not prepared to say what we will or won’t do at this period of time.”
Jobs in Kansas are important.
“We’ll work with Textron and Cessna and Hawker Beechcraft,” George said. “They are certainly aware of the generosity of the state. They respect our role, and their legal team, I’m sure, has looked at this many times.”
“They’ve had their challenges,” George said. “A good partner loves you when it’s good and loves you when it’s bad. We’ve taken that into account.”
At the same time, “we are stewards for the people of the state of Kansas,” he said. “They trust us to invest their funds wisely. That’s how I’ll go into the conversation.”