Superior Aviation buying Hawker Beechcraft is logical for China Inc

The idea that Hawker Beechcraft could be bought by a Chinese company may have surprised some people, but merger and acquisitions advisers see it as a logical step for the country.

“It was clear that the likely buyer was going to be Chinese,” says Michael Richter, managing director and co-head of Lazard’s aerospace and defence group, a major adviser of aerospace mergers and acquisitions. “The country has been building major aerospace capabilities and Hawker Beechcraft is the largest and most significant component.”

Whilst Superior Aviation is not as well-known as China Aviation Industry Corporation (AVIC), the state-owned company that acquired Cirrus Aircraft in 2011, has been buying aviation companies since 2007.

Superior Aviation is 60 per cent owned by Beijing Superior Aviation Technology Corporation – mainly owned by Cheng Shenzong, the company’s chairman – and 40 per cent owned by Beijing E-Town International Investment & Development Corporation a state-owned investment company.

At a press conference for Superior Air Parts EAA AirVenture Convention at Oshkosh, Wisconsin in 2011, Cheng Shenzong said that the company was looking to add assets to go with its parts business and Brantly.

“China has built strong presences in other transportation industries,” says Julian Mitchell, director, equity research, Credit Suisse Securities.  “In rail, the Chinese manufacturers are global leaders and it is the number one shipbuilder globally. Why should aerospace be different?”

Superior plans to acquire Hawker Beechcraft for $1.79 billion and make payments over the next six weeks to support production of business jets. Superior says it plans to fund the deal with loans from Chinese banks.

“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. With Superior’s previous experience operating a US business 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,” said Steve Miller, CEO of Hawker Beechcraft.

“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 per cent a year for the next 10-15 years. We look forward to working toward a definitive agreement.”

In a press release Hawker Beechcraft said: “Superior’s proposal reflects its intention to make Hawker Beechcraft its flagship investment; maintain Hawker Beechcraft’s US headquarters, management team and employees; and continue product development throughout its commercial product lines.

“I doubt that they have the wherewithal to complete this deal,” says Richard Aboulafia, an analyst with Teal Group. “If they actually can raise the money, they might be suitable.  But I seriously doubt that this is anything more than speculative.”

Chinese investments in general aviation