Business jet makers are closely following Hawker Beechcraft’s financial situation, and at least a few of them are saying they would be interested in picking up some or all of the company should it become available at the right terms.
“We are evaluating how this thing is going to unfold,” Embraer CEO Frederico Curado told analysts during the release of the company’s first-quarter results on April 27. “Maybe some of the assets could be of interest to Embraer. We just have to see how that develops.”
Hawker Beechcraft has been working with lenders to restructure its massive debt load, and has indicated that the company’s future is in doubt if those negotiations are not successful. The company, operating on a 90-day reprieve from interest payments on its loans, is widely believed by analysts to be headed toward a Chapter 11 bankruptcy filing. Company executives, however, have been optimistic about the progress of those negotiations.
If assets become available either before or after bankruptcy, Curado says, “We would certainly take a serious look in how that could leverage our ramp up of our own executive jet business.”
The support network would be of particular interest, he adds. “That’s something we keep investing [in],” Curado says. As for the product line, “we have to see whether there are some synergies that could be complemented,” he says. “But this would be, let’s say, our view. It’s not a target in itself. It’s something which may or may not become an interesting opportunity.”
Scott Donnelly, chairman and CEO of Cessna parent Textron, had expressed similar sentiments during his first-quarter earnings call with analysts. “We keep an eye on that like most people, and there are certainly some assets there that we think would be very interesting,” Donnelly said.
Donnelly also had noted that regardless of a sale of assets, Cessna, Embraer and other competitors likely will pick up a little market share as a result of Hawker Beechcraft’s financial woes.
“No doubt you’re going to see losses of share in the jet business in Hawker Beechcraft, and I think that share is dispersing itself with Cessna, Embraer and Learjet,” Donnelly said. “Understandably, it’s pretty hard to have a serious discussion with a customer about buying a $10, $15 or $20 million asset if there’s uncertainty about who’s going to be there to support that aircraft.”
Buying the aircraft is just the beginning, he says. “These are very long-lived assets. The support and having the manufacturer behind it is an important part of the purchase decision. It’s probably giving them a fair bit of difficulty right now given their financial situation.”
Donnelly couldn’t say who is gaining potential lost sales, but that he suspects HBC’s share is “moving among” the other original equipment manufacturers (OEMs).
“We expect both Cessna and [ Embraer ] to pick up share ceded by Hawker,” industry analyst Morgan Stanley agrees. “Our discussions with our industry sources in the past have indicated increasing reluctance by business jet buyers to order jets from an OEM in serious financial straits.”
The service guarantees are particularly important, Morgan Stanley adds. “Many jet purchases include service guarantees that in part hinges on the OEM’s financial wherewithal to maintain a service network to honor these contracts.”
Morgan Stanley further could see a sale of parts of Hawker Beechcraft. “Attractive Hawker assets – particularly its large service network – could potentially be absorbed by larger OEMs,” the analyst says.