Hawker Beechcraft deserves credit for hanging on so long

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In The Turnaround Kid, the excellent book written by Steve Miller, CEO of Hawker Beechcraft, he warns companies that the people who lend you money originally are not the ones that deal with you when you get into trouble.

Hawker Beechcraft has spent many months negotiating with these people at banks. According to people whom have attended some of these meetings, the biggest comment they have faced from lenders is: "How have you kept going so long?"

In The Turnaround Kid, the excellent book written by Steve Miller, CEO of Hawker Beechcraft, he warns companies that the people who lend you money originally are not the ones that deal with you when you get into trouble.

“When you are doing well the bank sends you the smiling guys with big handshakes to lend you money,” he writes. “When you are failing you have to deal with cold analytical types who only want to know how much meat is left on the bones.”

Hawker Beechcraft has spent many months negotiating with these cold analytical types. According to people whom have attended some of these meetings, the biggest comment they have faced from lenders is: “How have you kept going so long?”

The manufacturer has been saddled with unsustainable debt by Goldman Sachs Partners and Onex – which never intended to be long-term owners.

In the last four years the company has paid out $628 million in interest payments (and this does not include transaction fees). To put this into perspective, Textron has paid $548 million in the same period. In 2011, Hawker Beechcraft had sales of $2.4 billion. Textron – which is the parent of Cessna, Bell Helicopter, E-Z-Go and other companies – had sales of $11,27 billion.

Although it is too simplistic to link them directly, these interest payments also reduced the cash the company had to invest in other things – particularly research and development (which is mainly the cost of engineers).


2011
 

2010
 

2009
 

2008
 
Interest expense(135.6)(131.8)(154.6)(205.9)
Research and development(94.3)(101.1)(107.3)(110)

Most companies that enter Chapter 11 attract criticism from politicians, competitors, pundits and lenders. No doubt Hawker Beechcraft will too (particularly from European’s with stricter bankruptcy rules who do not really understand US attitudes towards Chapter 11). But it will be unfair.

Chapter 11 is an expensive time consuming process. But it is also an opportunity for Hawker Beechcraft to find long-term shareholders who will give it money to invest in research and development; to renegotiate commitments with suppliers; and look at whether there really are synergies between the Hawker and Beechcraft products.

Not that extra argument is needed, but it is worth remembering that Onex and Goldman agreed to pay Miller 6 per cent of their shareholding and the rise in value of 6 per cent of their debt holdings if he avoided filing.

In The Turnaround Kid, Miller provides some general truths for anyone who ends up leading a company heading towards bankruptcy. One is: “If you decide to file, timing, preperation, and communication are essential. You don’t won’t to wait to long to seek protection or there will be too little left to save.”

He was clearly listening to his own advice.

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