HBC: NetJets action a surprise

The timing and magnitude of NetJets' recent cancellation of a $2.6 billion order with Hawker Beechcraft was "new information," the Wichita planemaker's top executive said Wednesday.

NetJets' actions followed similar decisions and negotiations it had with other manufacturers, including Gulfstream, Dassault and Cessna Aircraft, Hawker Beechcraft chairman and chief executive Bill Boisture said on a conference call Wednesday.

"We were sort of the last for them to get to," said Boisture, a former NetJets president.

It was well known that NetJets needed to restructure its business, he said. What wasn't known, however, was what NetJets would do with its fleet after it canceled orders with the other planemakers, he said.

In recent meetings, however, NetJets told Hawker Beechcraft that it didn't need the aircraft and needed cash to meet its obligations, Boisture said.

Hawker Beechcraft is contractually bound to return the company's deposit, he said.

The cancellations won't materially impact Hawker Beechcraft's liquidity or profitability, he reiterated.

The company isn't saying how many orders were canceled, but it did say they were 90 percent of the orders NetJets had on the books. They represented about 10 percent of its sales volume.

The jets were to have been delivered through 2020.

NetJets had been the launch customer of the Hawker 4000.

Despite the cancellations, the company has its Hawker 4000 production line set for 2010 and 2011 rates, Boisture said, although some of the jets in the schedule don't have buyers.

By the end of the year, the company will be nearing 30 Hawker 4000s in service, Boisture said.

"This airplane is going to stand up on its own without NetJets," he said.

Hawker Beechcraft is producing planes at margins lower than it would like, Boisture said.

It's also working to reduce costs and inventory from 2008, run its lines at "careful" rates, and sell planes with lower margins to improve working capital.

Hawker Beechcraft's biggest customer is the U.S. government, whose orders of trainers, light attack and special mission aircraft make up about 30 percent of its order book.

Business and general aviation aircraft orders come from a variety of customers globally, who buy "ones and twos," Boisture said.

With the NetJets cancellations, Hawker Beechcraft is changing some of its policies, he said.

"As we look at future orders, we intend to get larger deposits and better margins" on sales to the fractional ownership company, Boisture said.

The company had met with NetJets in the spring and again in mid-November, Boisture said. Orders were formally canceled late last week.

One investment group on the call took the company to task for failing to reveal that the NetJets order was tenuous when lenders recently loaned Hawker Beechcraft $200 million.

That would have been meaningful information, one investor said.

But Boisture replied that the company had informed bondholders and investors that discussions with NetJets were likely.

Even so, "the timing and magnitude of their decision was new information to us," Boisture said.