Hawker Beechcraft negotiates with Chinese suitor

July 10, 2012

China-based Superior Aviation Beijing Co. Ltd. could acquire Hawker Beechcraft for $1.79 billion under terms to be negotiated during a 45-day exclusivity agreement. If finalized, the deal must still be approved by a variety of Chinese and American agencies. It the two parties can’t reach a definitive agreement in 45 days, Hawker Beechcraft will continue to pursue a plan of reorganization under Chapter 11 filed with the United States Bankruptcy Court for the Southern District of New York.

Court documents show Superior Aviation Beijing is 60 percent privately owned by Chinese industrialist Shenzong Cheng, with the remaining 40 percent owned by an investment agency controlled by the municipal government of Beijing. It develops and manufactures general aviation engines.

The company stated repeatedly in an announcement July 9 that the Hawker Beechcraft Defense Company is not part of the agreement and will remain a separate entity, thus greatly increasing the chances of United States approval of the deal. HBDC makes the T-6 trainer and is pursuing the certification of the AT-6 light attack aircraft.

“Superior has had a long-standing interest in the commercial aircraft business of Hawker Beechcraft, having first approached the company several years ago regarding a potential strategic partnership,” said Robert “Steve” Miller, CEO of Hawker Beechcraft. “With Superior’s previous experience operating a U.S. business [Superior Aviation Beijing is the parent company of Superior Air Parts in Coppell Texas, and Brantly International, a helicopter company co-located with Superior Air Parts] and its demonstrated ability to quickly restore a business to profitability after emerging from Chapter 11, we believe a transaction with Superior would maximize value for Hawker Beechcraft and its stakeholders. Importantly, this combination would give Hawker Beechcraft greater access to the Chinese business and general aviation marketplace, which is forecast to grow more than 10 percent a year for the next 10 to 15 years. We look forward to working toward a definitive agreement.”

Several companies have reportedly submitted bids to purchase Hawker Beechcraft, which entered bankruptcy saddled with $2.55 billion in debt. Details of the various bids have not been made public.
“The decision to move forward with Superior was based on two key factors: the bid for the company was the most attractive we received during the strategic review process, and the going-forward plan offered the most continuity for our business, allowing us to preserve jobs, product lines and our ability to maintain our commitments to our customers,” said Bill Boisture, chairman of Hawker Beechcraft Corporation. “Superior is committed to maintaining Hawker Beechcraft’s strong presence in the United States and retaining its current employee base and experienced management team, while positioning the company for future growth at home and abroad.”

Teal Group industry analyst Richard Aboulafia said he was “baffled” by the deal during an interview with AOPA Live This Week to be seen July 12.

“It’s safe to say I’ve gone 25 years in aviation without ever having heard of Superior [in China]. The idea that they should be able to raise the cash needed to pay a rather high amount of money for Hawker, and then resume production as an airframer is a little bit difficult to believe.”

Aboulafia doubts Superior Aviation would keep the company intact if the deal goes through.

“I don’t think they have the wherewithal. I would imagine their ability to raise $1.8 billion and go ahead with this deal partly depends upon their ability to sell off aspects of the company after they get what they want, which is probably the aftermarket spares and distribution portals that Hawker of course has all over the globe,” Aboulafia said. “At the end of the day Superior is a spare parts company. It stands to reason that is probably the part of Hawker they are most interested in.”

Unrelated to the Hawker deal, Aboulafia wrote in his column last year about the general trend of China deals in aviation and aerospace. “China is where marginal aircraft programs go,” he wrote, citing a long line of aerospace projects that joined with or went to China, only to flop.

If a definitive agreement can be reached, Superior will acquire Hawker Beechcraft for $1.79 billion. During negotiations Superior will make two payments of $25 million each over the next six weeks to support ongoing jet-related operations, which will help Hawker Beechcraft to sustain the jet business until the close of the transaction. The first payment will come two days after the court approves exclusive negotiations.

The federal bankruptcy court must approve both the exclusivity agreement that allows Hawker Beechcraft and Superior Aviation to negotiate, and the definitive agreement if one is reached. A hearing on the exclusivity agreement is set for July 17.

The transaction must also be approved by the U.S. Committee on Foreign Investment in the United States and pass regulatory reviews and approvals. Hawker Beechcraft consulted in advance with most of its senior secured lenders about the China deal.