June, 20 2011 By Rohit Jaggi
Hawker Beechcraft is a manufacturer in a rare and enviable position. In one big-bucks military contract recently, the two rival bidders both planned to use one of its aircraft, the King Air turboprop twin, as the platform for their defence offerings.
But it’s not all win-win for the Wichita, Kansas-based company. Once the chill wind of the credit squeeze had swept across the prairies, the company was forced into a savage downsizing of the workforce. “We had 9,200-10,000 [employees],” says Bill Boisture, president and chief executive. “We’re at about 6,000 now, with about 800 more to go.”
But that, along with a controversial shifting of some jobs to Mexico, means “we’re roughly in balance with the market”, says Mr Boisture. “I really believe we’ve got about as small as we need to get for the market as we understand it today.”
The market has been notably volatile over the company’s history. Walter and Olive Beech set up the Beech Aircraft Company in 1932, and their first design was the Model 17 Staggerwing, a fast biplane that was aimed at the nascent business aviation buyer. In 1980, the company was bought by Raytheon, an electronics and technology company. Almost a decade and a half later, in 1994, Raytheon merged Beech Aircraft with Raytheon Corporate Jets, which it had created out of the Hawker jet business it bought from British Aerospace.
In 2007, Raytheon Aircraft Company became Hawker Beechcraft Corporation following a $3.3bn buy-out from Raytheon by GS Capital Partners and Onex Partners.
The years since then have seen some of the most radical peaks and troughs in the industry’s history – and what looks like it could be a permanent split in the sector along cost lines.
“It certainly appears that the market has bifurcated,” says Mr Boisture. “And having spent 10 years in the Gulfstream part of the market, in a former life, I guess we didn’t see it coming.
“So we and Cessna and Learjet and others in the lower segment of the market went into a deeper dive than the Dassaults, Bombardiers and the Gulfstreams did. It appears that they levelled off higher, and have begun climbing out.”
He ascribes this in part to financing. “The light end of the jet and the turboprop markets rely to a greater extent on third-party financing for part of the acquisition process, and the banks’ willingness to lend against the aircraft as collateral has decreased quite a bit – so a deal that we would see requiring 10-20 per cent equity four years ago is now a 30-40 per cent equity deal.
“Many of the purchasers of the larger aeroplanes, I know from my experience with Gulfstream, were either financed by the existing credit facilities within a major multinational corporation or just one more capital asset, or, in the case of wealthy individuals, paid directly out of their assets.
“That’s less so at the lower end of the market. And so it does appear there’s been a structural change.”
Hawker’s response is to concentrate for now on the markets that are more amenable to its products.
The company is substantially increasing its presence in Europe, the Middle East and Africa, as well as Asia-Pacific, says Mr Boisture, “in terms of direct sales force, demonstrator fleet, field service representatives, parts distribution capability, and dealers”.
He adds: “Africa and Russia, India, China and South America are the places where we’ll see confidence in the entrepreneurial community – [which is] more likely than in some of our traditional markets in the core of Europe or in America.”
Within the traditional markets, the company has seen NetJets, the fractional operator, opt for the Embraer Phenom 300. Last October, it announced an order worth $1bn-plus for the Brazilian light jets.
“NetJets was looking for manufacturers to have relationships with other than those that had grown with them since the start,” says Mr Boisture. “But they’re still a very strong customer of ours. We’re pursuing some new business with them, and we’re gong to pursue it in a very purposeful way.”
Hawker has just recently announced ties with Lotus, the UK sports car producer. By the end of this month, buyers of Hawker jets in Europe, Middle East and Africa will receive a Lotus road car as part of the deal. But as important is the technology tie-up. Hawker’s early lead in using composites for large airframe structures has been eroded, but the carmaker’s expertise in composites in its field could yield synergies.
“We’ll talk with them a lot about the stronger stress and weight-bearing capabilities that they might see useful, and we’ll talk to them about the other uses of composites that should be transferable into the aeroplane,” says Mr Boisture.
The single-engine turboprop that the company is working on could have a composite airframe, he says. “Or you could see more composite material in the lower end of our product line in, say, 3-5 years.”
That range extends from the Bonanza, a single-piston-engined six-seater unchanged in detail but not in substance for decades, to the Hawker 4000 executive jet.
There is some irony in the fact that, despite Hawker’s expertise in high-tech materials, the King Air line that is bolstering its order book is being chosen for its tough, traditional dependability.
But, in types of aircraft as much as in geographical distribution, the experience of recent years shows that having a presence in some of the key fast-growing markets is likely to give Hawker Beechcraft more opportunities to succeed than it does ways of failing.
Source: FINANCIAL TIMES