Beechcraft emerges from Chapter 11 bankruptcy

April 2013 | DEALFRONT | BANKRUPTCY & RESTRUCTURING

Financier Worldwide Magazine

On 19 February, aircraft manufacturer Beechcraft Corporation, formerly known as Hawker Beechcraft, announced that it had emerged from Chapter 11 bankruptcy protection. The new, streamlined firm has been freed of the bulk of the crippling debt which brought the preceding company, and its subsidiaries, to its knees in May 2012. Beechcraft’s joint plan of reorganisation was approved by the US bankruptcy court in New York on 1 February and came into effect 14 days later.

Beechcraft exits the bankruptcy process with net debt of $225m, which represents a far more manageable amount compared with the $2.5bn of debt the old company shouldered. Beechcraft has also secured $600m in long-term financing in the form of a term loan and revolving credit facility from JP Morgan Chase Bank and Credit Suisse.

Within the newly reorganised company structure Bill Boisture has retained his position as Beechcraft’s chief executive officer. In a letter to customers regarding the company’s emergence from bankruptcy Mr Boisture said “Beechcraft has emerged from this process a stronger company with both financial and operational strength and stability … we will compete worldwide and we will win.”

Despite Mr Boisture remaining with Beechcraft, the company has appointed a new board of directors. Robert Johnson has been selected as non-executive chairman, with the remainder of the board comprising of Gen. Donald G. Cook, Gene Davis, Ralph Heath, David Tolley, Gideon Argov, Mark Ronald and Paul Fulchino. The former chief executive officer of Hawker Beechcraft, Robert Miller, will be a senior adviser to the new board.

The emergence of Beechcraft from bankruptcy means the continuation of the legacy of the original company which was founded in 1932 by Walter and Olive Ann Beech. Historically, the company has manufactured more than 54,000 aircraft, with over 36,000 of those still flying today.

Beechcraft is exiting bankruptcy with approximately 5400 employees worldwide, with roughly 3300 of those workers based at the company’s headquarters in Wichita, Kansas. Throughout 2012, Beechcraft laid off over 1000 employees from its Wichita base. Speaking about the uncertainties experienced by the company’s workforce during the bankruptcy process, Mr Boisture noted that “We have a very good team of people who have experienced a very tough time.” He also praised the company’s union workforce, as being “very supportive of the changes we need to make during this restructuring”.

The company expects the workforce to remain stable despite losing out on a $427.5m contract with the US Air Force for a light air support program. The contract was awarded instead to rival firm Sierra Nevada Corp. Mr Boisture noted that the AT6 contract would have generated approximately 700 new jobs at the company.

Beechcraft’s former owners, Canadian investment firm Onex Partners and the private equity unit of the Goldman Sachs Group, will retain a minor equity stake in the company. According to Mr Boisture that stake would represent “a very, very small percentage of equity”. Approximately 90 percent of the company’s new owners are financial institutions that were secured creditors during the bankruptcy process. These creditors have converted the debt owed to them into an equity stake in the new firm. Amongst the company’s largest creditors are Angelo, Gordon & Co., Capital Research & Management, Centrebridge Partners LP, and Sankaty Advisors, a division of Bain Capital.

Throughout the bankruptcy process, Beechcraft had resolved to dispose of its expensive business jet division. As a result, the Hawker jet arm of the business will not be part of the new company. While Beechcraft has already disposed of the unit’s unprofitable manufacturing operation, it is hopeful that 2013 will see the sale of Hawker’s assets and intellectual property (IP), such as designs, tools, and equipment, as well as its business jet completion facility in Little Rock, Arkansas. Despite the IP sales, the new Beechcraft will still be dedicated to providing support to existing Hawker jets. According to Mr Boisture, Beechcraft is exiting the Hawker business because pressure on new aircraft pricing still exists and the downturn in demand for jets has not yet reversed.

Richard Summerfield