Premier, Hawker 4000 and H900 under review as part of Hawker Beechcraft’s Chapter 11
[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|
|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|
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
|EBITDA Difference to Option A||5.3||(12.2)||(25.2)||(38.9)|
|EBITDA Difference to Option A||(28)||(29.3)||(58.7)||(74.9)|
estimates for demand increasing
|EBITDA Difference to Option A||8.7||(3.4)||(12)||(23)|
|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.