Mergers in Aviation: The Hawker Effect

Anyone who is familiar with the aviation industry knows that the past decade has been a tough one economically. A global recession, partnered with high fuel costs and rising operational costs, has had a devastating effect on many in the business. The circumstances surrounding this decade-long slump have caused a ripple affect that can be felt all across the industry. From the largest commercial carriers to the smaller business jet producers, companies have had to “tighten the belt”, metaphorically speaking, to keep from going under. In some cases, this has meant filing for bankruptcy, and facilitating a buyout via acquisition. For others, it means mergers with another business just to stay afloat.

While the merger between Continental and United Airlines grabbed the biggest commercial headlines in 2010, there’s another story that’s grabbing everyone’s attention in the GA world. That story is the eminent acquisition of the bankrupt Wichita-based aircraft manufacturer, Hawker Beechcraft, Inc. Hawker filed for Chapter 11 bankruptcy in May, 2012, after massive layoffs and a steady profit loss had damaged the company beyond repair. The company had admitted to losing $1 billion in the previous two years, and was unable to pay their overall accrued debt of $2.3 billion with the state that they were in.

This is where Chinese aircraft manufacturer Superior Aviation Beijing stepped in. This past July, the company made a $1.70 billion offer to purchase ailing Hawker that was accepted by both parties. The deal is pending approval from a U.S. federal bankruptcy court, and sources close to both parties say the deal should be completed this month. But what does this mean for the future of Hawker? And will this become a bigger trend for other GA aircraft manufacturers in the United States?

If all goes as planned, Hawker will still continue to produce aircraft, but will be downsized in certain areas. The company has already applied to sell vacant land back to the city of Wichita, which will help to cut expenses and recuperate losses. The issue that has many in the industry concerned is that this could happen to other GA manufacturers if they begin to see similar types of profit loss. This could cause struggling manufacturers to merge with each other, rather than run the risk of going bankrupt and being purchased by overseas investors.

Luckily, for a few of America’s bigger manufacturers, the economic outlook for 2013 looks to be on the up and up. Take Cessna, for example, who’s profits have steadily risen this past year, and with an increase in production and new management strategy, hope to keep the current growth trend going for many years to come. If this model is copied, it could keep the majority of GA producers in the black for a long time.

At the end of the day, what the Hawker bankruptcy can teach us is that poor financial management can lead to massive ripple effects. It shows this not only for the company itself, but also for the greater American aircraft production industry. While Hawker should serve as an example, it doesn’t necessarily represent the norm. With a strong financial plan and good management structure, GA manufacturers will be able to adapt to the new global financial climate and weather the storm. This way mergers and bankruptcy hearings will be a somber memory, and not a current reality in the future.