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Out of Bankruptcy, Beechcraft ‘Confident’ With AT-6

Feb. 19, 2013 - 05:56PM   |  
By AARON MEHTA   |   Comments
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Hawker Beechcraft, now restructured under the Beechcraft name, has emerged from Chapter 11 bankruptcy and is “confident” it will land a major contract expected to be announced as soon as next week, according to CEO Bill Boisture.

The restructuring was accepted by a New York bankruptcy court Feb. 1 but was announced just days before the U.S. Air Force is expected to award the contract on the Light Air Support (LAS) program for Afghanistan. Beechcraft has offered a modified version of its T-6 craft for the competition.

“We are very optimistic about the future,” Boisture told Defense News. The restructured company’s portfolio is now roughly a third defense and two-thirds civil, with a staff of around 5,500 employees worldwide. The “much smaller, more focused” company has reduced its debt by 80 percent, according to Boisture.

The domestic defense industry, already stuck operating at fiscal 2012 levels due to Congress’ failure to pass a budget, is staring down massive cuts from sequestration. Because of that, Boisture says, “being a low-cost provider in the defense sector could be a strategic advantage in the future,” both for the U.S. and abroad.

However, Boisture insists the decision to restructure the business with a focus on civil was not a result of the budget uncertainty in Washington.

“We needed to restructure this company regardless of whether sequestration occurred or didn’t occur,” Boisture said. “So while we knew [the budget fight] was going on, it was not a factor that was a focus on the restructuring.”

“They’ve done a very good job derisking themselves” in the restructure, said Richard Aboulafia, an analyst with the Teal Group. He said the company has left itself financially sound in the short term, and could be a nice asset to be purchased by a larger industry player in the future.

“They’ve shrunk a lot and eliminated a lot of the upside, but they’ve eliminated a lot of the risk that would make the acquisition problematic,” he said.

Long term, Aboulafia said the future of Beechcraft depends “a lot” on whether the civilian air market bounces back.

“They’ve enjoyed this strong surge in military sales the last few years, and I don’t think it’s sustainable,” Aboulafia said, citing the fact that U.S. procurement of the T-6 is winding down and that exports tends to be small buys, similar to the LAS deal.

The restructured company faces an early crossroad in the coming weeks, as the Air Force prepares to announce the winner of the LAS competition to provide 20 aircraft for Afghanistan’s military.

Sources say the Air Force is likely to announce the contract on Feb. 27. The Air Force would not commit to a specific award date.

“We are taking the necessary time to ensure a deliberate, thorough process and expect a source selection decision in early calendar year 2013,” an Air Force spokesman said. “The Air Force has not specified a date for an award decision to contractors and will announce when ready.”

The LAS contract was initially awarded to the Super Tucano, a joint offer from Embraer and Sierra Nevada Corp. But the $355 million contract was nullified last March after Hawker Beechcraft lodged a formal complaint with the Government Accountability Office and filed a lawsuit in federal court. The Air Force relaunched the competition and the AT-6 and Super Tucano remain finalists for the contract.

This second competition “has proceeded with a great deal of urgency, and yet care,” Boisture said. “Our interactions with the Air Force on this round of competition have been very professional.”

Losing the LAS contract would be less a financial blow and more a “psychological” one for the company, according Aboulafia. But it would deal “a real blow to the argument that [Beechcraft] can make a go of it with military exports.”

Aboulafia also doubts the contract will ever be completed.

“It’s highly dubious because we’re buying it for a country that we’re kind of backpedaling on,” he said. “Or there’s the possibility it doesn’t get executed.”

But if the government fulfills the contract, “We’re confident we should be selected the winner,” Boisture said, who added that he is not worried losing the competition would be a blow to his company.

“We have the financial strength and stability as a result of this restructuring to compete vigorously on competitions like this and we’ll go in search of a launch customer if this [LAS] contract is not the vehicle we can use for that,” Boisture said. “We have an expectation that the future growth and profitability of the company will definitely involve the AT-6.”

He added that other countries have expressed interest in the AT-6, but declined to name those potential customers.

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