Debt, down market drove plane maker to bankruptcy
WICHITA, Kan. (AP) — Economic turbulence has shrunk the market for business jets, and it's causing an especially bumpy ride for Hawker Beechcraft.
The Wichita, Kan.-based aircraft maker filed for bankruptcy protection this week, seeking approval for a plan that would write an estimated $2.5 billion in debt off its books and eliminate almost $125 million in annual cash interest expenses.
Hawker Beechcraft Corp., which is owned by Onex Partners and GS Capital Partners, a Goldman Sachs private equity fund, has struggled with the sluggish business jet market more than other plane makers because it was purchased in a highly-leveraged deal at the peak of the general aviation market, just before the market tanked.
"It is one badly damaged firm, in a badly damaged market segment — just a unique set of circumstances," said Richard Aboulafia, an aviation analyst with Teal Group, a Fairfax, Va.-based aerospace and defense analysis company.
The economic downturn that began in late 2008 hit business jet makers especially hard, as corporate customers that were lining up for their own planes earlier in the decade began looking for ways to trim fat. The public outrage that Detroit auto executives took private jets to Washington seeking bailout money that November reinforced the planes' image as a symbol of corporate excess. Two months later, the White House pressured Citigroup to cancel the planned delivery of a jet.
Wichita, the self-proclaimed "Air Capital of the World," is the home of major manufacturing plants not only for Hawker Beechcraft but also for Boeing, Spirit AeroSystems, Cessna, Bombardier and more than a hundred smaller aircraft suppliers. But the business jet segment of industry has struggled as its sales sunk by 56 percent during a global economic downturn. Another blow for Wichita came earlier this year when Boeing announced it was closing its defense plant in Wichita.
"Frankly, given what Wichita has been through, this is unpleasant but relatively small," Aboulafia said.
More than 13,000 aircraft workers here have lost their jobs since the 2008 start of the Great Recession, which pummeled sales of the small and mid-size business jets made by three of Wichita's major manufacturing facilities.
"This is definitely another blow, another nail in this situation we have been going through and it is definitely not good news," said Jeremy Hill, director for The Center for Economic Development and Business Research at Wichita State University.
Since its founding with the highly-leveraged 2007 purchase of Raytheon's former aircraft unit, Raytheon Aircraft, Hawker Beechcraft has carried a heavy debt burden, reporting a total debt of $2.3 billion at the end of 2011, according to its annual statement to the Securities and Exchange Commission.