Economic turbulence has shrunk the US market for business jets, and it’s causing an especially bumpy ride for Hawker Beechcraft.
The Wichita, Kansas aircraft maker filed for bankruptcy protection this week, seeking approval for a plan that would write an estimated $US2.5 billion ($2.44 billion) in debt off its books and eliminate almost $125 million in annual cash interest expenses.
Hawker Beechcraft Corp, which is owned by Onex Partners and GS Capital Partners, a Goldman Sachs private equity fund, has struggled with the sluggish business jet market more than other plane makers because it was purchased in a highly-leveraged deal at the peak of the general aviation market, just before the market tanked.
Advertisement: Story continues below
‘‘It is one badly damaged firm, in a badly damaged market segment – just a unique set of circumstances,’’ said Richard Aboulafia, an aviation analyst with Teal Group, a Virginia-based aerospace and defence analysis company.
The economic downturn that began in late 2008 hit business jet makers especially hard, as corporate customers that were lining up for their own planes earlier in the decade began looking for ways to trim fat. The public outrage that Detroit auto executives took private jets to Washington seeking bailout money that November reinforced the planes’ image as a symbol of corporate excess.
Two months later, the White House pressured Citigroup to cancel the planned delivery of a jet.
Wichita, the self-proclaimed ‘‘Air Capital of the World,’’ is also the home of manufacturing plants for Boeing, Spirit AeroSystems, Cessna, Bombardier and more than a hundred smaller aircraft suppliers. But the business jet segment of the industry has struggled as its sales dropped by 56 per cent during a global economic downturn.
And earlier this year Boeing announced it was closing its defense plant in Wichita.
‘‘Frankly, given what Wichita has been through, this is unpleasant but relatively small,’’ Aboulafia said.
More than 13,000 aircraft workers here have lost their jobs since 2008.
‘‘This is definitely another blow, another nail in this situation we have been going through and it is definitely not good news,’’ said Jeremy Hill, director for the Centre for Economic Development and Business Research at Wichita State University.
Since its founding with the highly-leveraged 2007 purchase of Raytheon’s former aircraft unit, Raytheon Aircraft, Hawker Beechcraft has carried a heavy debt burden, reporting a total debt of $2.3 billion at the end of 2011, according to its annual statement to the Securities and Exchange Commission.
Hawker Beechcraft is likely to emerge from bankruptcy keeping a majority of its business, although one or two of its product lines could be shut down, Aboulafia said.
‘‘This is a company with good products and a good name,’’ he said. ‘‘They just happen to be carrying a lot of debt and they are going to have to make some tough choices about what they are going to do next.’’
In 2009, Hawker delivered 98 business jets. Deliveries plummeted to 51 last year. It has stopped making its Hawker 400XP until demand improves, according to a filing last month.
Hawker Beechcraft sold $2.3 billion worth of business and general aviation planes in 2009. Last year those sales were almost $1 billion lower.
The company also makes trainers and other small planes for the military, but civilian planes are still 56 per cent of its revenue, compared with 27 per cent for military planes.
Hawker Beechcraft employs about 7400 people, with roughly 4700 working at its Wichita facility.
Source: Sydney Morning Herald
