Goldman’s Hawker to Cut Debt $2.5 Billion in Bankruptcy

Hawker Beechcraft Inc., the private- jet maker owned by Goldman Sachs Group Inc. (GS) and Onex Corp. (OCX), plans to reduce debt by about $2.5 billion while in bankruptcy under an agreement with lenders and bondholders.

Hawker, bought for $3.3 billion in 2007, listed more than $1 billion in assets and debt in Chapter 11 documents filed yesterday in U.S. Bankruptcy Court in Manhattan. The company reported net losses totaling more than $900 million in the past two years as U.S. military contracts and plane sales declined.

“Restructuring our balance sheet and recapitalizing the company in partnership with our debtholders will dramatically improve Hawker Beechcraft’s ability to compete in a rapidly changing environment,” Steve Miller, Hawker’s chief executive officer, said in a statement.

Hawker, based in Wichita, Kansas, said a financial restructuring plan supported by more than two-thirds of its senior secured lenders and senior bondholders will eliminate about $2.5 billion in debt and about $125 million a year in cash interest expenses.

Under the proposal, “equity ownership in Hawker will be transferred to holders of the company’s secured debt, bond debt and certain other unsecured creditors,” according to the company’s statement.

Photographer: John M. Dibbs/Beechcraft Corporation/PRNewsFoto

Hawker Beechcraft's jet. Close

Hawker Beechcraft's jet.

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Photographer: John M. Dibbs/Beechcraft Corporation/PRNewsFoto

Hawker Beechcraft's jet.

Loan Commitment

The jetmaker obtained a $400 million loan commitment from a group of senior lenders to fund operations while it seeks court approval of the turnaround plan. Service will remain uninterrupted and all orders will be fulfilled, Hawker said.

Hawker said it may need to seek court approval to terminate its pension plans to exit bankruptcy. The three pension plans are 56 percent-funded, with $769 million in assets to cover about $1.4 billion in benefits, according to the Pension Benefit Guaranty Corp.

The PBGC said it would cover $533 million of the $611 million shortfall and will work with Hawker to keep the plans alive.

“We are committed to working with Hawker Beechcraft and its creditors so that the company can reorganize successfully, while also maintaining the retirement security of its nearly 20,000 workers and retirees,” J. Jioni Palmer, an agency spokesman, said in a statement on its website.

March Loan

The company announced a $120 million loan in March to use while it negotiated with creditors to avoid a default. Lenders holding about 70 percent of Hawker’s bank debt also agreed to waive certain covenants and accept a delay in interest payments until June 29, the company said in a statement that month.

Hawker and its affiliates collectively owe its 50 largest unsecured creditors at least $914.9 million, court papers show. The PBGC is listed as the first unsecured creditor, owed an undisclosed amount. Deutsche Bank National Trust Co., as the administrative agent for three separate series of unsecured notes, is owed a total of about $663.6 million.

Hawker’s annual report, filed April 13 with the Securities and Exchange Commission, “reflects the combined effect of the prolonged weakness in our market that has continued to affect our business and the heavy debt burden the company has operated under since 2007,” Miller said in a statement that day. Hawker filed the report after the March 30 deadline to continue negotiations with lenders.

Sales Decline

Hawker’s aircraft include the Hawker 4000 business jet and the Beechcraft King Air propjet. The company reported a net loss of about $632.8 million on sales of $2.4 billion last year, compared with a net loss of $304.9 million on sales of $2.8 billion in 2010.

The 13 percent drop in sales was “largely attributable to lower commercial aircraft deliveries and sales prices as a result of depressed demand across the general aviation market and supply disruptions,” the company said in the regulatory filing.

Hawker in February named turnaround specialist Miller as CEO. Miller, 70, was designated in 2010 to serve as interim chief executive at American International Group Inc. (AIG), the insurer bailed out by the U.S. government, in the event that current CEO Robert Benmosche had to step down while fighting cancer. Benmosche has said he would like to remain CEO past 2012, longer than previously planned.

At Hawker, Miller succeeded Bill Boisture, who remained chairman of unit Hawker Beechcraft Corp. Hawker hired Perella Weinberg Partners LP as a financial adviser in December.

Hawker’s $145.1 million of 9.75 percent bonds due in April 2017 fell to 1 cent on the dollar on March 28, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Air Force Contract

Hawker said in December it would challenge the exclusion of its Beechcraft AT-6 from a U.S. Air Force competition for a $1 billion aircraft contract. In February, after Hawker sued, the Air Force set aside the contract it had awarded to Sierra Nevada Corp. for a light-attack plane for the Afghan military.

The award would have boosted Hawker’s shrinking revenue from U.S. military contracts. Hawker’s prime, or direct, contracts with the Pentagon plunged 47 percent to $536 million in fiscal 2011, which ended Sept. 30, from $1.02 billion in fiscal 2009, according to data compiled by Bloomberg.

The company fired 300 workers in November, blaming reduced defense spending worldwide and little sign of growth in the airplane markets in which the company competes. In March and April, the company said it would begin to furlough certain employees on a rolling basis. Furloughs will occur for one to two months and last 30 to 45 days, according to the SEC filing.

Depression-Era Origins

Hawker traces its history partly to Walter and Olive Beech, who started Beech Aircraft Corp. during the Great Depression in 1932, according to the company’s website. With designer Ted Wells, they built the Beech Model 17, a biplane for business executives that sold for about $15,000, according to the U.S. Centennial of Flight Commission.

Goldman Sachs Capital Partners, the fifth-biggest U.S. bank’s private-equity arm, and Toronto-based Onex bought Hawker Beechcraft in 2007, giving the New York-based bank and Canada’s largest buyout firm equal stakes of 49 percent each. Affiliates of GS Capital Partners VI LP and Onex Partners II LP own about $159.4 million of Hawker notes, according to the SEC filing.

The case is In re Hawker Beechcraft Inc., 12-11873, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Dawn McCarty in Wilmington at dmccarty@bloomberg.net; Michael Bathon in New York at mbathon@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net

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