Nonrefundable Deposit

Debt-laden Hawker Beechcraft entered Chapter 11 on May 3 and filed a tentative plan at the end of June under which the company’s debt holders would take ownership of the Wichita manufacturer in exchange for eliminating some $2.5 billion in debt. The company, however, continued to accept bids for a potential sale of some or all of its assets. While several existing manufacturers expressed potential interest in some elements of Hawker Beechcraft, little-known Superior Air Beijing emerged as the would-be buyer under the tentative $1.79 billion proposal to buy all of the company except for its defense business.

Superior paid a $50 million deposit as part of the ongoing negotiations – a deposit that Hawker Beechcraft CEO Robert Miller says is now nonrefundable. “Despite our best efforts, the proposed transaction with Superior could not be completed on terms acceptable to the company,” Miller says, adding, “We are disappointed that the transaction did not come to fruition.”

With only a small helicopter business and piston-engine parts maker Superior Air Parts in its portfolio, industry observers were surprised by and skeptical about the original announced potential sale to Superior, saying it was a curious fit. “If AVIC/CAIGA [established Chinese aircraft manufacturers] were behind this, that would be one thing,” Richard Aboulafia, vice president-analysis at the Teal Group, said when the deal with Superior was first announced. “But we’re talking about a much smaller and less well-connected entity here.” Superior Aviation also faced a tough battle convincing the U.S. government to sign off on the transfer of Hawker’s advanced technologies, including composites, to a Chinese buyer.

The proposed sale price of $1.79 billion left many industry observers questioning whether the deal could ever come to fruition. Both Jack Pelton, Cessna’s former chairman, and industry analyst and former Dassault Falcon Jet executive Brian Foley agree that the asking price was high, particularly from a Western perspective.

Foley notes perhaps that was what the Chinese deemed necessary to jump into the market and have a ready-made infrastructure to go along with it.

But given the time frame, necessary investment and regulatory hurdles, “getting a deal done with the Chinese would be difficult,” notes Pelton, who understands the complexities of such deals through his past experience in establishing Cessna Skycatcher manufacturing in China.

Foley surmises the deal’s collapse signals that in the economy’s current condition, the sale of Hawker Beechcraft as a whole entity may not be realistic. But he doesn’t see the current plan for the majority of the company’s debt-holders to take ownership as a long-term solution. “Going forward it’s plausible that the company could continue as a standalone, but [financial institutions] don’t really want to be in the aircraft business,” he says, adding they just want a return on their investment.

The company could be restructured to enable it to sell off certain parts, he notes, beyond the jet line.

The question is whether there are other buyers willing to take on the challenge of the jet line. Much of Hawker’s product line has grown old – the original Hawker line itself is celebrating its 50th anniversary – and Embraer’s push into the business jet market has made the competition fiercer.