Hawker Beechcraft: When Reorganization Means Resurrection – ValueWalk Premium

Hawker Beechcraft: When Reorganization Means Resurrection

Reorganization could well mean resurrection. Although not all companies that file for bankruptcy emerge to be better, stronger, some companies use the new lease of life to restructure debts and trim down core operations in order to come out as more valuable and more operationally-successful companies. Such is the case of Hawker Beechcraft, the Wichita, Kansas-based aircraft manufacturer, which sought bankruptcy protection in May last year amidst the sluggish business jet market and debt load.

Hawker Beechcraft: When Reorganization Means Resurrection

Hawker Beechcraft, which plans to shorten its name to Beechcraft Corp. when it emerges from bankruptcy, anticipates leaving Chapter 11 in the second half of February, if the judge overseeing its bankruptcy proceeding approves its plan of reorganization. The plan, according to a company statement, was overwhelmingly backed by key creditors. In a Chapter 11 case, once a so-called plan of reorganization has been submitted to court, creditors, especially those whose claims are purported to be impaired under the plan, are required to vote on the plan. There must be majority approval of the impaired creditors for a reorganization plan to be confirmed by a bankruptcy judge. A confirmation could signal a near exit, although it is not an assurance.

The aircraft maker’s plan provides that secured secured bank debt incurred before the bankruptcy as well as unsecured bond debt and certain general unsecured claims will be cancelled with those creditors receiving equity in the reorganized company.  Senior creditors include Centerbridge Partners, Angelo Gordon & Co., Sankaty Advisors, and Capital Research & Management. Hawker Beechcraft has secured an underwriting commitment for $600 million in exit financing consisting of a term loan and revolving line of credit from JPMorgan Chase & Co. (NYSE:JPM) and Credit Suisse Group AG (NYSE:CS). The company has trimmed down and said will focus on its more profitable turboprop, piston, special mission and military aircraft, as well as its parts, maintenance, repairs and refurbishment business when it emerges from bankruptcy.  The company also indicated that it may close its business jet business if it does not receive a satisfactory bid, after sale negotiations with a Chinese company collapsed in October. A board appointed by the new owners will also take over once the company emerges from bankruptcy protection.

Hawker Beechcraft’s bankruptcy, although a complex one involving 18 entities, 5,400 employees worldwide and $2.4 billion in debt, could be one of the most successful reorganization in recent time. The time period between its filing in May to its possible exit in February only counts a mere nine months, a really short time for a complex case. As a sign of confidence, claims filed in Hawker Beechcraft’s case have begun trading in December, according to SecondMarket. More positive signs of Hawker Beechcraft’s post-bankruptcy commercial success is the growing market of its core products. The company, which was owned by Onex Partners and GS Capital Partners and which will be owned by creditors after bankruptcy, has indicated late last year that demand of its business-aircraft has grown in Turkey, which is seeing increased flights, Poland, China and Russia. A Bloomberg News report also said Mahindra & Mahindra Limited (BOM:500520) and Textron Inc. (NYSE:TXT) are interested in Hawker Beechcraft’s jet line.




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