December 22, 2006

Beechcraft is Back

Despite a workday that began at 4 a.m. Thursday, Raytheon Aircraft Co. chief executive Jim Schuster was feeling spry late that same morning, following the announcement that private equity firms Onex Corp. and Goldman Sachs planned to buy the Wichita planemaker for $3.3 billion. 'They're the kind of partners we hoped we'd end up working with,' Schuster said.

For Schuster and thousands of other Raytheon Aircraft employees, Thursday's announcement put an end to months of speculation over who would be the company's new owner. Schuster said he's looking forward to having two private equity firms that are focused on growing the company. 'The challenge for us is to take advantage of this opportunity,' he said.

For Raytheon Aircraft employees like David Linscicome, the announcement gave him a sense of relief. 'I'm glad it's done,' Linscicome said. 'It's good to go into the holidays with a little peace of mind.' Raytheon Aircraft employs 6,500 in Wichita and 8,500 worldwide.

Machinists union officials said they don't anticipate a repeat of the upheaval to jobs and contracts that the sale of Boeing Co.' s commercial airplane operations triggered when Onex acquired them a year ago. The Raytheon sale is expected to close in the second quarter of 2007, following shareholder and regulatory approval. The company will be renamed Hawker Beechcraft Corp. once the sale is complete.

Analysts said reigning in costs and introducing new products should be a focus for the new company. "They've got to reduce the cost of manufacturing -- dramatically reduce the cost -- with new technology, new materials, new production systems, new ways of purchasing," said William Alderman, president of the aerospace investment banking firm Alderman & Co. "And they will have to launch new aircraft competitive against some of the world's newest models by Gulfstream and Cessna."

Raytheon Co. -- Raytheon Aircraft's parent company -- announced last July that it was exploring a sale of Raytheon Aircraft because it didn't fit the defense contractor's core business. The sale includes Raytheon Aircraft operations in Salina, Dallas and Little Rock as well as fixed-base operations in the United States, United Kingdom and Mexico.
Onex and GS Capital Partners, a Goldman Sachs affiliate, will each have 50 percent ownership in Raytheon Aircraft. Nigel Wright, an Onex managing director, and Sanjeev Mehra, managing director of GS Capital Partners, said interest in Raytheon Aircraft comes from growth potential of the business jet market, recognizable brands with the Hawker and Beechcraft names, and a 'management team that has executed a very good turnaround of this business.' For that reason, Wright said Schuster will remain the new company's chief executive, 'building on what the whole team has created.'

In this year's third quarter, Raytheon Aircraft posted net sales of $758 million, up 18 percent from $642 million the same quarter a year ago. Its operating income also rose by 106 percent.

Unlike Onex's 2005 acquisition of Boeing's commercial division in Wichita -- now Spirit AeroSystems -- employees won't have to reapply for their jobs. Nor will Machinists union members -- who number 4,000 -- have to negotiate a new contract once Raytheon Aircraft changes hands. 'The fundamental difference was Spirit was an asset purchase -- facilities and equipment,' Wright said. 'This is a stock deal, so we're buying a company. Everybody's contract remains with the company.'

Ron Eldridge, Machinists grand lodge representative, said while he has several questions for company officials about topics such as outsourcing and stock awards, he's pleased overall. 'At this point, we're just taking one thing at a time,' said Eldridge, who has requested a meeting with the new owners early next year. 'I'm just glad everybody is being rehired and not going through the jobs loss.' Company officials won't speculate on whether there will be layoffs from the sale of the company. 'At this stage we're busy. We've got lots going on,' said Raytheon Aircraft spokeswoman Jackie Berger, who added the company has 150 job openings.

Schuster said he feels Onex and GS Capital are committed to growing the company and making it stronger. 'The timing is great,' Schuster said. 'We are in the midst of some of the strongest market conditions our industry has ever seen.' Onex's Wright said his firm and GS Capital will be 'patient investors' and are committed to seeing that Raytheon Aircraft builds the best aircraft and expands its product line.


But, Wright said, 'the margins for RAC are not at the same level of its competitors so we have to take a good, long hard look at that.' Schuster said the new company will continue to look at ways to be competitive and control costs by streamlining processes and 'eliminating bureaucracy.' 'Exactly how we're going to do that hasn't been mapped out yet,' Schuster said. He won't rule out cost-saving measures such as additional outsourcing of work.

'We're going to stay the course and stick to the strategy... (and) continue to be honest with people (about that).' Schuster said the new company has an opportunity to be more nimble and respond to market changes more quickly as a privately held firm.  As the company prospers financially, it will be able to reinvest in new equipment and new products, Schuster said. But as a stand-alone company, 'you manage your money like it's your own -- and it is,' he said. How long the new company remains private is a question neither Schuster nor the new owners said they can answer right now. An initial public offering -- like the one Spirit AeroSystems undertook last month -- is a possibility, they said. But it won't happen anytime soon. 'Our focus is on growing the business, and I think the public part could be something we pursue at the right point in time,' GS Capital's Mehra said.