Hawker Beechcraft abandons $1.8B sale

Hawker Beechcraft Inc. has changed its bankruptcy flight path after its proposed sale to Chinese aerospace manufacturer Superior Aviation Beijing Co. Ltd. crashed and burned.

The Wichita, Kan., aircraft manufacturer announced on Thursday, Oct. 18, that it was no longer pursuing the $1.79 billion sale.

"We made the decision to proceed with the standalone plan of reorganization after determining that, despite our best efforts, the proposed transaction with Superior could not be completed on terms acceptable to the company," Hawker CEO Robert S. Miller said in a statement. "We are disappointed that the transaction did not come to fruition."

Judge Stuart M. Bernstein of the U.S. Bankruptcy Court for the Southern District of New York in Manhattan on July 17 had authorized the debtor to enter into a 45-day exclusivity agreement with the Beijing company to negotiate the proposed deal. If Hawker and Superior had reached a definitive deal, it would have served as a stalking-horse bid for an auction in bankruptcy court.

Hawker, however, will now reroute its bankruptcy to reorganize as a standalone company, Beechcraft Corp., that would revolve around its most profitable products, the turboprop, piston, special mission and trainer/attack aircraft. Hawker would also continue its businesses regarding its high-margin parts, maintenance, and repairs and refurbishing.

Hawker said it might sell or close its other product lines including its jet business.

"The go-forward business plan we have developed with our creditors ensures that we will emerge from this process in a strong operational and financial position, with an enhanced ability to compete well into the future," Miller said in the statement.

Hawker will now file an amended reorganization plan and intends to seek approval of the related disclosure statement on Nov. 15 from Bernstein.

Hawker, however, is obligated to win approval of its disclosure statement by Oct. 31, according to a plan support agreement with its noteholders. Debtor counsel Ross M. Kwasteniet of Kirkland & Ellis LLP said he anticipates the deadline will be extended to accommodate the upcoming hearing on the plan outline.

Hawker originally had to win approval of its disclosure statement by Sept. 30. The deadline has already been extended twice. Most recently, on Oct. 15, Hawker notified the court that the deadline is now at month's end.

Hawker's Thursday statement said its key economic stakeholders have already agreed to the new plan's primary terms. Under the plan, creditors would receive equity in exchange for a cancellation of their debt. The statement did not specify whether the terms of the amended plan would differ from those of Hawker's prenegotiated plan, filed June 30.

Under the amended plan, Hawker's $400 million debtor-in-possession loan from the Cayman Islands branch of Credit Suisse Group would be paid in full in cash, and the company would obtain exit financing.

Hawker said it has more than sufficient liquidity to complete its restructuring. The debtor also said it intends to seek an extension to its DIP's maturity so that it would coincide with an anticipated emergence from bankruptcy in the first quarter of 2013. The DIP is set to mature Dec. 15.

Hawker's prenegotiated plan envisioned its emergence as a standalone entity. The plan, however, allowed Hawker to pursue a sale if it were more attractive than a restructuring.

Hawker first announced that it was negotiating a sale with Superior on July 9. Superior intended to make Hawker its "flagship investment," maintain Hawker's U.S. headquarters in Wichita and continue product development throughout its commercial product lines.

The deal would not have included Hawker's maker of military training and light attack aircraft, debtor subsidiary Hawker Beechcraft Defense Co. LLC, which would have remained a separate entity.

The transaction would have required approval from the Chinese government and the Committee on Foreign Investment in the United States.

Superior had already received full support from the Beijing municipal government, which controls 40% of the company through Beijing E-Town International Investment & Development Corp. Ltd. (Private Beijing Superior Aviation Technology Corp. Ltd. owns the remainder of Superior.)

Thursday's statement noted the $50 million Superior put on deposit while negotiating the deal is nonrefundable and will remain property of the debtor. The payments sustained Hawker Beechcraft's jet business.

Hawker filed for Chapter 11 on May 3 with the prenegotiated debt-for-equity swap, which would eliminate about $2.5 billion in debt as well as about $125 million in annual interest payments. About 68.14% of the senior lenders and 72.55% of senior noteholders approved a prepetition restructuring support agreement.

Hawker is a leading global manufacturer of business, special mission, light attack and trainer aircraft. The company has facilities in Little Rock, Ark.; Chester, England; and Chihuahua, Mexico.

Goldman, Sachs & Co.'s GS Capital Partners and Canada's Onex Corp. own most of Hawker, having each acquired 49% of the company in March 2007 in a deal valued at about $3.2 billion.

Since then, the private equity sponsors have invested about $980 million of equity in the company and own about $159.4 million in notes.

The company posted a net loss of $632.8 million on sales of about $2.44 billion in 2011, compared with a net loss of $304.9 million on $2.8 billion a year earlier, according to regulatory filings.

Along with Kwasteniet, James H.M. Sprayregen, Paul M. Basta, and Patrick J. Nash Jr. of Kirkland & Ellis are also debtor counsel. Perella Weinberg Partners LP is Hawker's financial adviser, while Alvarez & Marsal LLC is its restructuring adviser.

Locke Lord LLP represents Superior. Its financial adviser is Grant Thornton LLP.

Wachtell, Lipton, Rosen & Katz is counsel to a majority group of secured lenders.

Daniel H. Golden, David H. Botter and Alexis Freeman of Akin Gump Strauss Hauer & Feld LLP are counsel to the official committee of unsecured creditors. FTI Consulting Inc. is financial adviser for the committee.

Sidley Austin LLP is counsel to Credit Suisse, while its financial adviser is Houlihan Lokey Inc.