Broader Portfolio: Beechcraft builds the MC-12 Liberty ISR aircraft for the US Air Force. (US Air Force)
WASHINGTON — Textron’s purchase of competitor Beechcraft delivers the US conglomerate, already the parent company of Bell Helicopter, Cessna and Textron AirLand, stronger footing on both the civil and defense sides of the market, according to analysts.
The acquisition, at a cost of $1.4 billion, marks the first major purchase of a company in the defense industry since sequester cuts took effect last spring. While the announcement came in late December, company officials expect the deal, which requires antitrust fillings in the US, Germany, Mexico, Russia and other jurisdictions, to be completed by mid-2014.
Analysts say the move was more about absorbing Beechcraft’s commercial side than for defense purposes.
“My sense for Textron is the defense business is kind of secondary,” said Byron Callan, an analyst with Capital Alpha Partners. “It’s probably more about general aviation and, frankly, taking a potential competitor off the table and boosting Cessna.”
“It definitely has more to do with the civilian side than the defense side,” agreed Phil Finnegan, director of corporate analysis with the Teal Group.
But that doesn’t mean the military side should be ignored. The purchase of Beechcraft adds three significant defense platforms to Textron’s portfolio in the T-6 trainer, its light attack AT-6 variant, and the C-12, a series of variants on Beechcraft’s King Air prop-planes used for various missions, including ISR.
“One of the potential synergies is in terms of ISR,” Finnegan said. “The King Air has been very popular for manned ISR solutions, and [Textron subsidiary] AAI is very active in trying to export the Shadow [unmanned system]. So there is some synergy there.”
Finnegan suggests Textron could leverage Beechcraft’s marketing and export network to help boost sales on Textron’s homegrown Scorpion platform, a multi-purpose ISR/light attack, single-engine jet the company unveiled in September.
Callan sees potential for Textron Systems with the C-12 market, whether for upgrades or further integration.
“There is an install base of King Air for military missions, and I suppose that’s not just a platform-centric market opportunity but theoretically, there are things that Textron Defense Systems might be able to look at downstream, or think about differently, or holistically, with that platform,” Callan said.
“They have an install base of planes with upgrade opportunities. There are other companies in this market,” he continued. “How it impacts L-3 would be interesting going forward, because L-3 had done a lot of the systems integration on the King Air products, and is that something from a market lane that Textron might look at?”
Entering 2013, Beechcraft, formerly Hawker-Beechcraft, emerged from Chapter 11 bankruptcy with an eye on riding the AT-6 to new military markets. But the platform suffered an early blow when it lost to the A-29 Super Tucano, offered by Embraer and Sierra Nevada Corp., for a Pentagon contract to supply planes to Afghanistan. Beechcraft attempted to get the contract award reversed, but after a government review, the Pentagon’s decision was upheld.
The nature of the platforms means there is a market for both the AT-6 and Scorpion, according to Textron AirLand President Bill Anderson.
“The two multi-mission aircraft were designed for different primary markets: Scorpion for [ISR] and strike operations; and AT-6 for light attack and lower capacity (non-traditional) ISR,” Anderson wrote in an email. “So they really don’t compete, but a pilot trained in a T-6 could move into a Scorpion with little follow-on training for basic flying.”
The company is “committed to advancing the aircraft’s capabilities, and remains focused on securing a launch customer for the AT-6 light attack aircraft,” Anderson wrote.
While Callan does not expect Textron’s move to signal a wave of mergers and acquisitions in the defense realm, he sees the congressional budget deal as providing the kind of stability companies would look for before making such an expensive move.
“Some people are much more optimistic about the defense budget outlook than others,” Callan said. “At least now, between the [fiscal 2014 and 2015] budgets and whatever the plan is beyond that, there is something a bit more solid for everyone to sink their teeth into.
“For the extent people have been waiting for that clarity, it might close valuation gaps on what people would like to do strategically,” he said. “I don’t want to say it’s the starting gun to a 100-yard dash. These things tend to play out over time. There have been very [few mergers and acquisitions] in 2012-2013, but it is an industry where you could look at some specific segments — services, ground vehicles — that they are ripe for consolidation, and we probably need to see some more things happen there.”