Crossroads

[Alan Fox]

According to Flying they are in bankrupcy. No more jets!

"Plans call for a newly restructured company to reemerge under the Beechcraft name sometime next year. The bankruptcy will allow Beechcraft to walk away from more than $2.5 billion in debt. Boisture also confirmed that the company will no longer honor Hawker 4000 and Premier warranties, a policy that will affect about 150 customers, he said."

Still in buisness making airplanes......Time will tell...   Are they no longer owned by Raytheon??

[RJBrown]

I don't know. All I know is what flying wrote in last month mag. It was a real question. By the time it was a cover story on Flying I thought Beech pilots might know something more than I.

[jetdriven]

Still in buisness making airplanes......Time will tell...   Are they no longer owned by Raytheon??

Raytheon sold out to some Wall St. carpetbagger owners  (Goldman Sachs and Onex) who took all of two years to drive Hawker Beechcraft into the ditch.  Same old story, load the company up with unsustainable debt (2.5B) , pay yourself back with the proceeds of the loans, whip and drive the employees for concessions, then file bankruptcy.

[WilliamR]

Actually what Byron said is not quite accurate. I also read the Marketing Directors comments in Flying magazine which somewhat mirror Byrons. Never, listen to someone in marketing about financial analysis or the financial well being of a company.

True, Goldman and Onex purchased Beechcraft from Raytheon in 2006. However, RAC (Raytheon Aircraft Corp) was for sale for several years. RAC was quite a drag on Raytheon's consolidated margins (Operating, EBITDA, you name it) and was happy to shed the business. This drag was somewhat opaque as RAC was not nicely split from the rest of Raytheon's consoliadted financials, so you will have to trust me as a former insider.

As things headed south for the Hawker Beechcraft Aquisition Company, LLC, there were multiple times Goldman and Onex could have taken the company BK. 11/2009 when the company was going to blow its lev covenant was one of those times. Instead, Goldman actually went long and provided part of the $200MM incremental term loan that took out part of the revolver. Usually, equity holders try to minimize their skin in the game. Who knows if they sold their debt position. Although that move would probably be a money loser given the debt was trading at a discount. By YE 2009 Adjusted EBITDA (good starting measure of operational income and cash flow) was $26MM and the company was cash flow positive thanks to shrinking adj. working capital. So, while debt was somewhat high, Adj. EBITDA was nearly nil.

By end of 2011 Adjusted EBITDA was quite negative ($481MM by my calcs). The co. had shrunk working capital (one of their largest generators of cash) as far as it would go. The company was lighting cash on fire at this point. Obviously, even without debt or dividend payments this company could not survive financially. Note, up to this point, no divideneds were paid. That was partly restricted by the bank group which was agented by Citi.

This is all in the company's issued public financials. SEC.gov is your friend. Not sure what is meant by the equity holders getting paid by the senior lenders. However, I am sure Goldman and Onex are making good bank with advisory fees trying to sell the business this year. But as an investment, this may have been an overall money loser for them and the senior lenders. I'm guessing that's the case since the senior lenders converted to equity as well. Plus, think about it. Break up value on a small aircraft manufacturer is probably pretty weak. Who really wants to buy wing jigs for a Bo? Don't think they would work to build Boeing 787 wings. Anybody need an enormous factory in Kansas? Just look at the assets. Not a lot of room between PP&E, Goodwill, Intangibles, Inventory and the debt balance.

But hey, what do I know, I am just an Investment Banker with 13 years of corporate lending including experience with several work-outs. Sorry if this got too financially technical. But debt was not the main problem with this company. Operationally it was weak before the PEGs got ahold of it.

Byron, you also have it reversed, you use the BK filing to get the concessions.

William

[fantom]

Excellent technical, rather than emotional, analysis and background, William. Thanks much!

[Alan Fox]

I just read an article from a Whichita newspaper a few months ago and it says that they will be out of chapter 11 in 2014 , They are being courted by Cessna , Embrear , and General Dynamics , so Beechcraft is not going anywhere ... They will be dropping thier Jet lines ,  Keep in mind that thier kingair line is the most popular selling turboprop in the World....

[KSMooniac]

They're supposed to emerge from BK this month, 2013, as an independent company without the jet line.

 

Excellent observations, William!  Financial analysis makes my eyes glaze over, but your summary is substantially correct from my interested observer viewpoint as an engineer in the industry living in Wichita.  RAC did a severe injustice to Beechcraft (and likely Hawker as well) during their ownership tenure, and were fortunate to dump it to Onex and GS at the absolute highest point the industry has ever seen in the last 35+ years.  Onex successfully got the old Boeing Commercial operations in Wichita and turned them into Spirit AeroSystems, and made it thru IPO quite quickly and left with a lot of cash.  They thought they could do the same thing with Hawker Beech, but alas, they bought a pig in a poke for top dollar just ahead of a severe crash.  They had a TON of operational difficulties even before the crash, and their new management did not fix the issues.  (I'm not sure how much new management they got...it could have still been RAC flunkies that were transferred in from the washing machine division)

 

I hope they emerge in good shape and launch some new products in the prop market, and of course continue to support the legacy fleet.

[jetdriven]

William, they went through several rounds of employee concessions and layoffs before filing BK.

 

Meanwhile they sunk millions into an alternate factory in Mexico, and I am sure they weren't paying union wages to those folks.  I Am also certain they can make a profit selling Bonanza gear doors for 12K a set, a PBaron windshield for 30K (hot plate 20K extra), and a cowl flap motor for a Travelair for 25K.

[WilliamR]

Scott, thanks.  Interesting local perspective.  I agree, luck was on Raytheon's side when they sold to Goldman and Onex. 

 

Byron, your right, there were several concessions and obviously the plant in Mexico was due to labor costs..  However, filing BK makes labor costs even more scalable than otherwise. Trust me, I've covered some automotive businesses that went BK.  Talk about labor costs.  See also American Airlines BK.  Again, the reason for ther labor concessions was not to just pay the debt, it was to reduce the operational bleeding.

 

Speaking of labor costs.  Higher up the Income Statement from EBITDA is gross profit (simply revenue minus cost of goods sold).  COGS is mainly labor and material costs for Beechcraft.  Gross margins (gross profit divided by revenue) have hovered around 5% to 7% (from memory).  Textron, a very similar company but more vertically integrated than Beechcraft, has a gross profit over 15%.  Does Beechcraft really pay double for aluminum sheets than Cessna?  Probably not.  So my guess is that there is some exces/inefficient labor. 

 

How much profit Beechcraft, or Mooney, or any aircaft manufacturer actually makes per item, as expensive as they are, has always been a mystery to me.  That requires an unbelievably detailed analysis or depreciation, cert costs, what have you.  However, I know as an investor, I am not that interested in general aviation part suppliers or manufacturers.  They are just not that strong financially.

 

Now if the original poster hasn't lost interest 3 pages ago; I think if you step back and look objectively at each plane, A36, C-182RG or Trindad, and the pro's and cons of each, you would find that dollar for dollar, the Trindad is the loser (my opinion as the criteria are somewhat subjective).  The big factor is parts supply which I believe John Green noted eloquently.  There are simply more A36s or C-182RGs out there than Trinidads.  There may even be more A36s/C-182RGs in the salvage yards than Trinidads flying.  Beechcraft and Cessna are still in operation making parts, airplanes, etc.  But buying an airplane is like buying a car.  There is the subjective part of it.  And that's O.K. 

 

By the way, I have similar criteria plus pressurization for my next aircraft , and would not think about a P-210.  This is mainly because I don't like the handling and the gear (I once had a gear problem 20 years ago in a C-177 I was hired to ferry).  Does a P-210 compare favorably to a Malibu dollar for dollar?  My analysis says yes.  But airstairs are so sahweeet.  For reference I have a 252.

 

Thanks for indulging me.

 

William

[DaV8or]

I sure do wish Mooney had made a 5+seat airplane.

 

They did. Pressurized too. No need for O2. The Mooney M22 Mustang. They do come up for sale from time to time. Talk about fringe!!

 

 

[RJBrown]

There was a push 10-15 years ago to re engine the M22 fleet to get rid of the gear reduction engine. I don't think it ever happened. And yes really a fringe airplane.

[Marauder]

I sure do wish Mooney had made a 5+seat airplane.

They did. Pressurized too. No need for O2. The Mooney M22 Mustang. They do come up for sale from time to time. Talk about fringe!!

But what an airplane! I saw one in person once. Looked like a Mooney on steroids.

[carusoam]

William,

When the Mooney users finally get together to put an offer on the plant, will you still be WITH us?

We're going to need a good CFO...

It's good to see a financially sound person flying a Mooney.

Best regards,

-a-

[mjc]

Now if the original poster hasn't lost interest 3 pages ago; I think if you step back and look objectively at each plane, A36, C-182RG or Trindad, and the pro's and cons of each, you would find that dollar for dollar, the Trindad is the loser (my opinion as the criteria are somewhat subjective).  The big factor is parts supply which I believe John Green noted eloquently.  There are simply more A36s or C-182RGs out there than Trinidads.  There may even be more A36s/C-182RGs in the salvage yards than Trinidads flying.  Beechcraft and Cessna are still in operation making parts, airplanes, etc.  But buying an airplane is like buying a car.  There is the subjective part of it.  And that's O.K.

 

Yep, I'm still here. The parts supply issue did give me pause initially, so I have spoken to the folks I know who own Trinidads. Both claim there is no issue there, since Socata is still making parts for them. The TB User Group forum response was similar. There was one response here a couple of pages ago that mentioned a friend who waited for five months to get a part. I requested to make contact to find out the details, since I found this worrisome, but haven't heard back yet. So maybe the Trinidad has parts issues, but probably not. I know the A36 definitely has an issue with parts in that they are insanely expensive. (My A&P recently showed me an invoice for an $1800 stall warning switch. Yes, that was just the part cost.) How much more will they cost from the reorg

 

So I started thinking of the bigger issue. I have a feeling that every GA airplane is going to have parts issues. A few years ago, I needed new gears for my landing gear actuator. These two small 40-1 gears cost me something like $800, and not long after I heard that they were unavailable even at that price. Yes, it is nice to have salvage yards full of airplanes, but how often do you need to replace something that isn't a wear item (like those gears)? I suppose salvage is good place to go to get ailerons and gear doors, and so getting those for a Trinidad may mean getting them from Socata. Is that worse than paying Beechcraft prices for the wear parts I will need for an A36? I guess what it does is make the Cessna 182RG more attractive.

[jetdriven]

A SIx-300 wont do 145 knots on 14-15 GPH.  More like 135 knots on 15 and 140-143 knots on 17-18 GPH.  Its a big plane with a big motor.   Tons of room inside though.

[KSMooniac]

And don't count on cheaper insurance for a Cherokee Six... those 2 extra seats will cost more in liability than the fixed gear will save you!

 

I'd rather have a 1979 A36 than a 1979 Piper Anything.

[KSMooniac]

I'd ship the 3rd kid via UPS before buying a Piper!  

[aviatoreb]

They did. Pressurized too. No need for O2. The Mooney M22 Mustang. 

 

These are really cool.  I saw one once - I mistook it for a Bonanza at first.   From the nose it has a strong Bonanza look but unmistakable Mooney tail.

 

A pressurized M20 would be devine.  No, a pressurized turbine M20.  Seriously though - I don't mind wearing a mask - it brings out my inner fighter pilot fantasy.

[aviatoreb]

I'd ship the 3rd kid via UPS before buying a Piper!  

 

 

Haha - me too!  I will tell my 3rd kid.

 

Yes - I have 3 kids and a four seater.  Oh well.....  My 16 year old will be out of the house too soon to think about more seats.  My 14 year old is getting big!  My 11 year old is still only 70lbs. Before I know it - my rocket might be the means to go visit my kids all over the place.  That's a fine mission.

[Parker_Woodruff]

You guys have it all wrong...It's even maroon and white for KSMooniac

 

http://www.controller.com/listingsdetail/aircraft-for-sale/DEHAVILLAND-DHC-2/1961-DEHAVILLAND-DHC-2/1209291.htm

[Mcstealth]

Okay. Let's come up with a name for Parker's wet plane fantasy.  Hmmmmm. Waterpark---er

[Parker_Woodruff]

Okay. Let's come up with a name for Parker's wet plane fantasy.  Hmmmmm. Waterpark---er

 

Let's talk about a handful...take off in a crosswind with a tailwheel Grumman Widgeon, land it on a couple lakes, then land it back on the pavement.

 

so much fun and such a nice flying aircraft...and then realizing how much better of a pilot you should be...

[testwest]

MJC,

 

I know you said twins may be out of the question, but I'll try again anyway. There are more than a few Mooney drivers who went to the Aerostar twin. I am one of them. The turbonormalized pressurized 601P with the "big" turbo option is not just a step up, it is a game changer. It is possible to fly this airplane at 6000' or 25000' efficiently in comfort, and philosophically the design is right in line with Al Mooney's designs.

 

It is a 26gph airplane when flown 65% LOP, but at 25K you get 228 knots true. Lower is slower of course, but you have the choice of a huge range of altitudes to allow for favorable or adverse winds.

 

You will probably spend about $200k to purchase one and do the catch-up maintenance needed to make it reliable. Aerostar Aircraft is still in business in Coeur D'Alene, Idaho and fully supports the type design with parts, improvements and tech support.

 

And it flies like an absolute dream.

[Parker_Woodruff]

There are more than a few Mooney drivers who went to the Aerostar twin. I am one of them. The turbonormalized pressurized 601P with the "big" turbo option is not just a step up, it is a game changer.

And it flies like an absolute dream.

 

That would be quite a machine to own...

[KSMooniac]

That Beaver is beautimous!  I'd love to have one of those and an Aerostar in a big hangar with my beloved J.  Plus a Stearman for nice days.