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What Now For Hawker Beechcraft?

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So now what happens with Hawker Beechcraft? This week, we published the company's three plans for digging itself out of bankruptcy and surviving in one piece. But judging by what I've heard from a few people in the industry, it's going to be a tough slog to pull this off. The company is just not in a good competitive stance to run against Cessna, Embraer, Bombardier and Gulfstream, at least with the crippling debt it had before its bankruptcy.

And speaking of Cessna and Gulfstream, the watercooler talk around Wichita suggests that these two companies might be interested in Hawker Beechcraft's assets or some kind of a merger. Looking at the HB product line, it's hard to see much benefit for Cessna, other than the pure geographical convenience. It's got the market covered with its own jets so the Premier doesn't seem to be an addition worth the trouble. The Beechcraft piston line kind of perks along, but it's not doing big numbers. In 2011, Beechcraft sold 24 G36s and 30 G58 Barons. That's about $55 to $60 million worth of airplanes and a tidy number for a small company, but a rounding error for Textron-based Cessna which, even in a down year, sold eight times that many pistons, albeit many of them lower-margin 172s and Skycatchers.

Besides, Cessna's purchase and rebranding of the Columbia line hasn't exactly been a sterling sales success. In 2010 and 2011 combined, Cessna moved only nine of these airplanes. With the new TTx, perhaps Cessna can breathe some life back into the line. (During the same period, Cirrus sold 270 SR22s.)

The Gulfstream interest might be in the Premier or the Hawker line and its associated service tail. With cost controls in place, perhaps those business lines could be profitable, even if they evidently weren't in Hawker Beechcraft's business structure. In the T-6B, HB has some military work, but that's not a huge contract. The jewel in the crown may very well be the King Air line. HB has sold between 90 and 100 of these for years, about what Cessna has done with the Caravan. Whether turboprop twins would fit into the Cessna line is anyone's guess. We do know that Cessna plans to introduce a new airplane at AirVenture in July and that it will be a propeller model. My best guess is that it will be a turboprop version of the Mustang jet. We'll know in six weeks.

Beechcraft owners are understandably worried about continued support for their Bonanzas and Barons. Beech has been at it for 65 years and has a large installed base of more than 10,000 airframes. If HB doesn't survive as a discrete entity, the ideal outcome might be for a small company to get hold of the piston assets and make a go of it with small volume manufacturing and the support business. The best recent model for that is Eclipse, whose bankrupt assets were bought by a small group of investors who raised the capital and resuscitated the company. Of course, there are always Chinese interests to consider. They've proven heavy with cash and always ready to pick up an asset to populate the country's budding aerospace industry.

On the plus side, Beech owners can turn to a robust PMA and aftermarket for parts and support network, but that only goes so far. Having an active factory source for parts unquestionably props up the value of the airplanes while providing a higher comfort level. On the other hand, all of the company's major jigs and fixtures are in Mexico, we're told, and losing them would be a disaster. There's no indication that this is about to happen, but bankruptcies move in unpredictable ways. Here's hoping that Hawker Beechcraft's moves in the direction that favors owners and its longtime Wichita workforce.

Comments (9)

Unfortunately today's know it all's (graduate business students, MBA etc.) do not know how to turn a dying business around and make it profitable. HB in the right hands would be able to survive and in time grow and prosper.

I have in the past turned many companies around and made them profitable and can say without doubt that the problems (simplified)are:- 1) Shareholder expectations, 2) Employee expectations and 3) Government expectations. Each demanding more and more money and then they all get really angry when they are told there is none. It is how those expectations are managed (there is no school that can teach anyone that skill) as to how the outcome will be. The usual outcome is liquidation (90%) because the shareholders are too angry to think otherwise, the employees are to angry because they are going to lose their jobs and will rather go slow or strike and the Tax Department are also angry because they foresee the taxes not being paid (and then who will pay their pensions).

I'm fearfully waiting for the day when international governments turn to their Civil Servants and tell them there is no more money in the coffers and they no longer have a job. Only then can we go forward and grow and re-structure.

Posted by: Bruce Savage | June 21, 2012 5:56 AM    Report this comment

My how that place has changed since my college internship days out there (1999-2000). I did a lot of the stress analysis for the Premier I. Mostly on the control systems castings.

Seems every time I read about that place I'm reminded why I'm glad I turned down the job they offered me when I graduated.

Posted by: Andrew Upson | June 21, 2012 1:57 PM    Report this comment

There seems to be a long list of root causes for the demise of HBC. Focusing on Beechcraft, here is a short list - devoid of innovative R&D for a decade or two, almost no reinvestment, dramatically shrunken market, strong new competitors, regulatory strangulation, below critical mass, escalating costs, bleak outlook for fuel, persistent recession, and many more budget line items competing for discretionary time and money.

I suspect that an absence of reality in recognizing the depth and expansiveness of the challenges, over an extended time, has pervaded many of the stakeholders of the company - executives, workers, suppliers, investors, legacy Beech owners, etc.

With roughly 20,000 piston Beechcraft still flying, this is by far the larger critical mass on which to focus. It represents a reliable steady stream of potential revenue, albeit not the $650K a pop represented by new sales. And retention of the “critical mass” of talent and capital assets is a prime concern for the legacy fleet, and for a potential resurgence if the future looks brighter in a few years. The type club should get active on this!

Posted by: JIM HERD | June 21, 2012 7:41 PM    Report this comment

Piper has both piston and turbine-powered retractible landing gear propeller-driven singles. They also have a piston twin, the Seneca, now in its fifth generation. So perhaps Piper could buy up whatever patents and trade secrets Beechcraft may have for the Bonanza and Baron, and incorporate said intellectual property assets into their above-mentioned aircraft.

Given what very well might be the collapse of Hawker-Beechcraft, it is ironic that their previous success with the still-ongoing King Air family had the effect of forcing Cessna and Piper to exit the twin-engine turboprop business. Or, at least contributing to said decisions by Cessna and Piper.

I remember back in the late 1970's, Cessna introduced a turboprop twin, the 441, which to this day is still respected by owner-operators. During that timeframe Piper entered the twin-turboprop market with their Cheyenne family.

Would Cessna be willing to buy up H-B's King Air line? Probably not, for reasons of office politics. They would have to admit there is merit to straight-wing business aircraft with wing-mounted turboprop engines as opposed to rear-mounted turbofan engines (i.e. the Citation family). And people have a tendency not to want to admit they were wrong in, let's say, their PhD theses or earlier business/ technological/ market judgement decisions of years ago.

Perhaps Piper could take up the King Air, as the only turbine aircraft they now have is the single engine Meridian.

Posted by: Alex Kovnat | June 22, 2012 8:33 AM    Report this comment

From a business perspective, manufacturers have cost centers and profit centers. Want to make money? Reduce/eliminate your cost centers, and emphasize your profit centers.

For H-B, that means getting out of the capital-intensive new-aircraft-development business, altogether. The bizjet market already is overpopulated, both with offerings and offerers. But the spare parts business? Pure gold. Especially when you have a legacy fleet of almost 20,000 articles out there.

The new stuff may garner all of the attention. But servicing existing customers recurring needs is a proven way to make money. And for better or worse, it's ALL about making money...

Posted by: Tom Yarsley | June 22, 2012 11:22 AM    Report this comment

Piston owners need have no fears. There will likely be little interruption and certainly no outright end of parts supplies. Someone, somewhere will want this business for decades to come.

I am surprised the Corvalis hasn't done better. It seems a better aircraft than Cirrus in every way except roominess. Paul may check this, but isn't safer? It's certainly more fuel efficient.

Posted by: Eric Warren | June 24, 2012 8:58 AM    Report this comment

shedded?

Posted by: R Boswell | June 24, 2012 5:56 PM    Report this comment

It's a shame to see HBC get to this point. I can't comment too much on the financial aspects of their predicament, but I can comment on one of their product lines. I have been flying the Hawker 800/900 series mid-size jets for 16 years. I have progressed through the straight 800, the 800XP, and the 900 series Hawkers. Our company has operated three 900's for the past 3 years. Although we've had our share of teething problems of which our mechanics could give you an earful, we seem to be through that period now. A lot were vendor issues. From a pilot standpoint, the airplane is hard to beat. There's a reason you see so many Hawker's on the ramps of the nation's airports. The airplane is truly versatile. You can load 6/7 people, fill it with gas, 10,000#, and fly for about 6 hours. The range is about 2600 nautical miles, and the airplane cruises at .77/.78 mach. With the upgraded Honeywell engines, the airplane climbs like a bat and operates at 39K - 41K no problem. The ProLine avionics have the electronic charts which eliminates the Jepp books. The aircraft systems are old design mechanical but tried and true and totally reliable. Oh, and the airplane is a delight to fly. I guess you can tell I'm a fan. Real sorry to see HBC get to this point with their business. I have no connection with the HBC company but have been employed as a corporate pilot on the east coast for the past 16 years continuously flying Hawkers.

Posted by: Dennis Crenshaw | July 4, 2012 3:08 PM    Report this comment

Many good comments on the source of H-B's problems. One not mentioned is that at the time of their Chapter 11 filing they had $2.3 Billion in debt, after having been purchased in 2007 for over $3 billion. One can operate a company in a highly effective manner and still end up in bankruptcy court if saddled with heavy borrowing.

Posted by: Don Gallion | July 5, 2012 2:57 PM    Report this comment

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