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Beechcraft Exits Bankruptcy On Eve Of Air Force’s Light Air Support Pick

Posted by Sydney J. Freedberg Jr. on

[Updated 1:15 pm, Feb. 20] Wichita-based Beechcraft — formerly Hawker Beechcraft — has officially emerged from bankruptcy with a new name, 2,000 fewer employees, $2 billion less debt, and one last shot at a bitterly contested Air Force contract to provide ground attack planes to Afghanistan. The Air Force’s decision on the Light Air Support program may come as early as this week.

Today’s announcement puts a nail in the coffin of Sinophobic speculation that Beechcraft would sell out to Beijing. The Kansas-based aircraft manufacturer did accept a $50 million “non-refundable deposit” from a Chinese firm, Superior Aviation Beijing, that was interested in acquiring it. But concerns over Superior’s business bona fides and the security of Beechcraft’s defense programs ultimately scotched the deal.

So the reorganized Beechcraft will remain an American company — albeit with a major facility in Chihuahua, Mexico. It will continue building T-6 military trainers for the Navy, although the Air Force has finished its T-6 buy. And it will still build “King Air” civil aircraft that are sometimes converted for the armed forces. What it will shed, along with the Hawker name, is its money-hemorrhaging line of business jets, a sector savaged by the recession.

Beechcraft’s exit from Chapter 11, approved by the court on Feb. 1st, formally went into effect this past Friday, although it was only announced today. This coming Friday, the 22nd, the Air Force is expected to announce its (hopefully) final decision on the Light Air Support contract, a $355-plus million program to equip the fledgling Afghan Air Force with low-cost, low-tech, easy-to-operate propeller planes to strafe the Taliban once US jets withdraw.

[Updated: The Air Force has now pushed the decision back to Wednesday the 27th; we’ll see if it slips further].

The Air Force had originally awarded LAS to Sierra Nevada Corporation’s Super Tucano, designed by the Brazilian firm Embraer. But Hawker Beechcraft launched a highly politicized campaign decrying its rival as un-American — even though SNC insisted all planes for the Air Force would be built in the US — and filed suit alleging that its AT-6 Texan II attack plane, a modified T-6, had been unfairly disqualified. So, this time last year, the Air Force took the extraordinary and deeply embarrassing step of canceling the award and recompeting the entire program.

“We have worked very hard over the last several months to position ourselves for the LAS contract,” Beechcraft CEO Bill Boisture told Breaking Defense yesterday. (Boisture, who was also chairman of the old Hawker Beechcraft, will remain on the reorganized board, but the new chairman is Robert Johnson). “The customer [i.e. the Air Force] can look at the company now and understand it has the financial stability and strength to execute on any contract awarded. And the stability of the company and its outlook for the future allows continued investment in variations of both the trainer and the attack airplane.”

That’s a crucial point of which to convince the Air Force. While the aircraft’s technical performance is the top criterion for the award, the manufacturer’s ability to deliver reliably is criterion No. 2, actually counting for more in determining the winner than does price.

What’s the business bottom line? It’s hard to say, because the LAS deal is an open-ended contract — what the government calls IDIQ, “indefinite quantity, indefinite delivery” — that could yield far more than the baseline 20-plane, $355 million deal. But that depends on how warm US-Afghan relations remain after the American withdrawal. In particular, since Afghanistan can hardly scrape up the funding for an air force on its own, the key factor is whether Congress keeps voting for aid or just gives up on Kabul in disgust, as it did with Saigon in 1975.

From Beechcraft’s narrower perspective, that means the AT-6 attack plane is not going to carry the firm’s future on its wings, even if the Air Force does award them the LAS contract. But the US military will soon finish buying new T-6 trainers, while the Afghan drawdown guts the demand for modified King Airs to do intelligence, surveillance, and reconnaissance.

So, Teal Group analyst Richard Aboulafia told Breaking Defense, “that means they’re dependent on a civil prop comeback (which may happen) and on the T-6 trainer surviving as an export-only program (dubious).”

In other words, Beechcraft may be out of bankruptcy, but it’s hardly out of the woods.

Revised 9:10 am to clarify Bill Boisture’s current title.

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