January 1, 2007
By Ken Vandruff
Raytheon Aircraft Faces Long Flight in Transition
More flexibility and less bureaucracy is the future that awaits Hawker Beechcraft Corp., according to industry analysts and observers. Hawker Beechcraft is the company set to emerge as the partnership of Onex Corp. and Goldman Sachs prepares to pay $3.3 billion for Raytheon Aircraft Co.
There are still months of due diligence and corporate and regulatory approval to complete before any deal is finalized, says William Alderman, president of Alderman & Co., a New York-based consulting firm specializing in the aerospace and defense industries.
It is anticipated that it will take at least six months to close the deal that was announced Dec. 21. The sale includes Raytheon Aircraft facilities in Wichita, Salina, Dallas and Little Rock, Ark., as well as fixed-base operations in the United States, United Kingdom and Mexico. The company has a total of 8,500 employees, with 6,300 in Wichita.
"My personal experience has been is that when a term sheet has been signed, it's about a 70 percent probability the transaction will be completed," he says.
And as Hawker Beechcraft grows, it increases the amount of work available for Wichita's aviation subcontractors.
One of the most frequently asked questions about the deal is a concern about foreign ownership of Raytheon's T-6A Texan II military trainer production. Alderman says that question was answered when a British company was selected to build helicopters for presidential use. "It's a valid question," he says. "But if, for goodness sake, the British can build the transport for our president, do you think we'd have a problem with our neophyte pilots training in Canadian aircraft?"
The federal government has a committee of treasury, state and defense department officials that review foreign investments in U.S. businesses. The U.S. Justice Department will review the deal for antitrust issues. Those reviews could order the sale of some assets, which would slow the deal, but probably would not kill it.
If something is going to go wrong, Alderman says, it will most likely happen during the detailed due-diligence inspection of Raytheon Aircraft's books, which goes beyond the review that occurred during negotiations. The deal could collapse if Onex officials find something that makes them feel they were misled. "This thing will have hiccups. All transactions have hiccups," he says. "They are likely to cause some concern and delay, but I would expect in the end the transaction to be completed."
The financial guidelines set by Onex and Goldman Sachs will be the main influence on Hawker Beechcraft's ability to expand its product line. Its local management should be able to make marketing decisions without first convincing corporate bureaucracy, says Paul Nisbet, aerospace analyst at JSA Research Inc. "They have two composite-fuselage aircraft, and the only two in the industry, I think that is a considerable plus," Nisbet says. "But that has to be expanded to cover the entire market."
During the third quarter of 2006, Raytheon Aircraft had net sales of $758 million, up from $642 million for the same period in 2005. Keeping Hawker Beechcraft in Wichita also makes sense, he says, because there are few locations that would have the experienced workforce needed to keep the production lines moving.
"You can operate efficiently," Nisbet says. "You don't have overbearing unions like you might have in Detroit, and you don't have the environmental problems you would have in California." Raytheon Co. acquired Beech Aircraft Corp. in 1980. The Beech brand name was quickly dropped in favor of Raytheon. "It's like acquiring Winchester (rifles) and renaming it Crest," says Don Hackett, associate professor of marketing at Wichita State University. "You just don't take a brand name ... then just discard all of that investment."
When Jim Schuster, Raytheon Aircraft chairman and CEO, arrived in 2001, he revived the Beechcraft name for the company's propeller-driven airplane lines and the Premier I business jet, and Hawker to the company's line of larger business jets.
Jack Pelton, Cessna Aircraft Co. president, chairman and CEO, says he's looking forward to competing with Hawker Beechcraft. "Now that it becomes a stand-alone aircraft entity, that shows they're intent to be committed to the markets that they're in and the industry," Pelton says. "We're going to see some investments over time, and that's all positive."