Premier, Hawker 4000 and H900 under review as part of Hawker Beechcraft’s Chapter 11

Alasdair Whyte

[nonmember]Hawker Beechcraft is considering stopping production of all Premier aircraft, the Hawker 900 and Hawker 4000 as part of its Chapter 11 reorganisation, according to a presentation handed-in to the bankruptcy court.

The company has proposed three possible reorganisation plans as part of the declaration of Steve Miller, Hawker Beechcraft’s CEO, to the court. Regardless of which option it chooses, the company hopes to exit Chapter 11 by December 2012.::join::[/nonmember][ismember]Hawker Beechcraft is considering stopping production of all Premier aircraft, the Hawker 900 and Hawker 4000 as part of its Chapter 11 reorganisation, according to a presentation handed-in to the bankruptcy court.

The company has proposed three possible reorganisation plans as part of the declaration of Steve Miller, Hawker Beechcraft’s CEO, to the court. Regardless of which option it chooses, the company hopes to exit Chapter 11 by December 2012.

Global Customer Services, Beechcraft and the Hawker Beechcraft Defence Corporation are seen as core to the business and would stay under all three plans. The company is still deciding whether to continue building Hawker 900 and Hawker 4000 aircraft. All three plans propose stopping all production of Premier aircraft and stopping development of the Hawker 200.

Units Option A Option B Option C
Global customer services Keep Keep Keep
King Air Keep Keep Keep
Pistons Keep Keep Keep
Hawker Beechcraft Defence Corporation Keep Keep Keep
Hawker 900 Close Keep building Keep building
Hawker 4000 Close Close Keep building
Hawker 200 Stop development Stop development Stop development
Premier Close Close Close

Option A: Stripping to the core

Under Option A the company would just keep global customer services, King Air, Piston Aircraft and Hawker Beechcraft Defences. By doing this Hawker Beechcraft estimates it would make a profit of $164.4 million in 2013 even if sales stayed flat.  In 2011 customer services rose by $17.6 million to $562.2 million, Hawker Beechcraft estimates that total sales for the group under Option A would be $1.9 billion in 2013.

In one slide, Hawker Beechcraft says that Option A is a “focus on winners” and that it would eliminate the culture clash between the Hawker and Beechcraft brands, and places the company in a better position for industry consolidation. However it says the risks of this strategy involve a threat to employee morale, along with the obvious financial costs of closing the H900 and H4000 lines.

Option B: Keeping the Hawker 900

Under Option B the company would stop building the Hawker 4000 lines but keep the Hawker 900 in production. It would keep building fuselages in Chester, in the UK and the company’s Little Rock facility would stay open.

The company says that there is in an option value in keeping Hawker Beechcraft in the jet market and that it could benefit from price improvements in the mid-jet market. Hawker Beechcraft thinks there could be good sales opportunities until 2015 when the Hawker 900 will face competition from Embraer’s Legacy 450 and Legacy 500, Bombardier’s Learjet 85 and Cessna’s Lattitude aircraft. It says it would need to invest between $40 million and $60 million in order to compete.

However, it says there are risks that Airbus will stop supplying fuselages and that to maintain the Hawker 900. All Hawker 4000s have been sold with a complete warranty so in order to fulfil this. In the presentation the company says it would: “stop supporting H4000/Premier installed base, cease engineering support and transfer warranty/support to a residual buyer.”

Option C: Keeping the Hawker 4000

Under the third option it would continue Hawker 900s and Hawker 4000s. However, in order to do this is says it would need to cut material costs by 20%. It says that suppliers are unlikely to agree to this.

Hawker Beechcraft estimates for sales staying at 2012 levels

Option A 2013 2014 2015 2016
Revenue 1,934 1,966 2,044 2,014
EBITDA 165.4 185.2 198.9 189.7
Option B
Revenue 2,322 2,360 2,45 2,431
EBITDA 170.7 173.0 173.6 149.7
EBITDA Difference to Option A 5.3 (12.2) (25.2) (38.9)
Option C
Revenue 2,718 2,777 2,880 2,871
EBITDA 137 155.9 140.1 114.7
EBITDA Difference to Option A (28) (29.3) (58.7) (74.9)

 

 

 

 

Hawker Beechcraft
estimates for demand increasing

Option A 2013 2014 2015 2016
Revenue 2,041 2,151 2,297 2,351
EBITDA 200 239 275 286
Option B
Revenue 2.451 2,622 2,821 2,917
EBITDA 208 235 263 262
EBITDA Difference to Option A 8.7 (3.4) (12) (23)
Option C
Revenue 2,850 3,139 3,394 3,546
EBITDA 176 244 268 279
EBITDA Difference to Option A (24) 5 (7.5) (7.8)


Which option will they pick?

It is worth noting that the three-option presentation filed with the court is marked as a preliminary draft and could change. The page before it in the filing is blank and there may be comments here that have been deleted.

Choosing between the three options is not easy and will decide the future of the company. If the company chooses Option A it would shut factories in Chester and Little Rock, so would not be easily able to re-enter the jet market. Keeping the Hawker 900 going allows it to keep a foothold in the larger aircraft market.

The final decision will also be influenced by interest from possible buyers. If Chapter 11 goes to plan we should know by the end of this year.

[/ismember]

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