Tuesday, January 31, 2012

Hawker Sees Tough Year for Business Jets

CEO Says Used Aircraft, Troubled Buyers Will Weigh on Business-Jet Operation

The Wall Street Journal

Hawker Beechcraft Corp.'s top executive said he sees "another fairly difficult year" for his company's business-jet operation amid struggles to stem losses and reduce debt.

"I don't see a big change" in market conditions, Bill Boisture, chief executive of the Wichita, Kan., company said in an interview. An inventory overhang of used airplanes and a lack of buyer confidence continues to weigh on the business, he said.

Hawker is continuing to restructure its operations. Above, a Hawker 4000 jet in Bangalore, India, last year.

Hawker, the product of a 2007 leveraged buyout by Goldman Sachs Group Inc. and Onex Partners, plans modest increases in production this year even as Mr. Boisture expects "a difficult environment" for customers including small and mid-size U.S. business owners.

The sluggish U.S. economy, the European debt crisis and deceleration in China's economy are all hampering growth, Mr. Boisture said. His cautious outlook contrasts with more optimistic views elsewhere.

Aerospace supplier Honeywell International Inc. has predicted a modest increase in global shipments of new business jets this year, after a three-year slump. Last week, Textron Inc. said its Cessna business-aircraft business, which competes in the same segments as Hawker, recently has seen more order activity and expects revenue this year to rise 14% from a year ago.

Hawker, which builds such planes as the Hawker 4000 jet and Beechcraft King Air turboprops, has been hit harder than some rivals during the downturn. The small and medium-sized aircraft it focuses on have experienced weaker demand than the larger, longer-range business jets built by companies like Canada's Bombardier Inc.

Hawker isn't expected to report fourth-quarter results until March. In October it said third-quarter net sales fell 13% from a year earlier to $518.8 million, while its operating loss narrowed to $42.2 million from $81.4 million.

Mr. Boisture became chairman and CEO of Hawker in 2009, two years after Goldman Sachs and Onex paid $3.3 billion for the company, betting the wealthy would splurge on a new generation of private jets.

He said the company is "about 70% through" its restructuring effort, having cut roughly 3,000 jobs since late 2008, improved manufacturing efficiency and overhauled its information technology to help slash inventories of jet components.

Hawker also reached a new contract last year with its 2,500-member branch of the International Association of Machinists and Aerospace Workers union that links some worker compensation to the company's financial performance.

Mr. Boisture said Hawker continues to review potential changes to its balance sheet. It has about $1.4 billion in debt coming due in 2014. Last year, it hired advisory firm Perella Weinberg Partners LP to seek adjustments to its revolving credit line. Hawker had $189.3 million available under the revolving credit facility as of Sept. 30, according to federal filings.

Standard & Poor's Ratings Services cut Hawker's corporate credit rating in December and said it was concerned about Hawker's ability to remain in compliance with debt covenants, citing "weak cash generation."

Hawker also has been trying to rev up military-aircraft sales to help offset the slump in business jets and is embroiled in a high-stakes legal battle to try to win a contract to sell a fleet of training-and-attack planes for Afghanistan.

The aircraft contest is key to keeping Hawker's production lines humming after current orders for U.S. military training planes are complete.

Hawker filed suit in the U.S. Court of Federal Claims in December after the U.S. Air Force excluded its proposed aircraft, the AT-6, from the Afghan contest. The Air Force later awarded the contract, worth $355 million, to Nevada's Sierra Nevada Corp., which teamed with Brazilian aircraft maker Embraer SA to offer the Super Tucano.

The suit forced the Pentagon to issue a stop work order this month while the court weighs the case. Hawker officials hope to force a new round of bidding.

Hawker has begun a full-court press to try to make headway in the dispute in the court of public opinion, helped by global public-relations firm Brunswick Group LLP. "In the balance are 1,200 American jobs...the security of our country, and the safety of our airmen and women," said a recent email to media outlets from Brunswick.

The stakes for both companies are high. A win would give rival Embraer a foothold in a crucial market: selling aircraft to the U.S. military. And while the light-attack-plane contract is a relatively modest procurement by Pentagon standards, it has been politically charged. Hawker's AT-6, a derivative of a training plane currently in service with the U.S. military, has enjoyed strong support from the Kansas congressional delegation.

A fight now may be brewing on Capitol Hill as well. The Sierra Nevada/Embraer team is concerned that lawmakers may move to block the Air Force contract, particularly amid Hawker's PR campaign."We plan to take the facts to the public and to the Hill, and to correct the incorrect information that's already been put forward" about the winning aircraft, said Taco Gilbert, vice president of intelligence, surveillance and reconnaissance business development at Sierra Nevada.

Source:   http://online.wsj.com

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