Investors detest the thought of losing money. So one has to wonder what the future holds for struggling Hawker Beechcraft. Investment bank Goldman Sachs and Canadian buyout firm Onex Corp. paid a top-of-the-market price of $3.3 billion in 2007 to acquire the builder of business jets and general aviation and military turboprops from Raytheon. But a collapse in demand for business jets the following year created a flood of red ink that has yet to be stanched, despite progress in cutting costs and improving efficiency.
Since 2009, Wichita-based Hawker has posted cumulative operating losses of nearly $1 billion, including $42 million in the quarter ended Sept. 30. And Hawker’s core market—business jets—is not expected to rebound soon. “We are preparing for a 2012 that looks a lot like 2011 that looks a lot like 2010,” Chairman and CEO Bill Boisture said in a Nov. 1 earnings call (though Hawker is not public, it discloses earnings because its debt is publicly traded).
It is hardly surprising, then, that Boisture has been spending a lot of time in China recently. The Chinese government has made development of an aviation industry a top priority. And with $3.3 trillion in foreign exchange reserves, the party bosses in Beijing have deep pockets. Chinese fighter builder Avic Aviation Techniques has launched an initiative to develop two business jets, one with a foreign partner. Hawker is in the running, along with Israel Aerospace Industries, Bombardier and Cessna.
Hawker certainly has technology that Avic covets. The light to midsize Hawker 4000, for example, boasts a composite fuselage and advanced avionics. There has even been speculation that the Hawker’s commercial operations could be sold outright to a Chinese entity, just as Avic acquired struggling U.S. piston-engine aircraft builder Cirrus Aircraft earlier this year. Hawker’s off-limits military business—which includes the T-6 advanced trainer, AT-6 light air support aircraft and King Air models used for intelligence, surveillance and reconnaissance—would be sold separately to a U.S. buyer.
Aviation Week’s Fred George recently revealed that some U.S. aerospace companies and private equity investors have explored the possibility of buying Hawker, splitting it up and selling off the commercial operations, possibly to a Chinese buyer. Boisture denies that the company is on the block and says it is ridiculous to think Hawker would unload the consistently profitable military business. “We’re not selling it,” he maintains. “We’re pleased with the diversification it gives us [by] sustaining revenues in a bad time.”
Boisture’s initiatives have cut Hawker’s operating losses in half during the past year. But it is unlikely his bosses will tolerate ongoing losses too much longer. Hawker is carrying $2.4 billion in debt, including $800 million in notes that come due in 2015. Its path to the future may well run through China.