Textron Weighs Bid for Goldman’s Hawker Amid China Deal
Textron Inc. (TXT) is considering a bid for part or all of Hawker Beechcraft Inc., the bankrupt business-jet maker in exclusive talks with China’s Superior Aviation Beijing Co.
“We have the same general view, these are assets in which we have an interest, but it would have to be at a value that we think is appropriate,” Textron Chief Executive Officer Scott Donnelly said on an earnings conference call with analysts today.
Textron might bid on the whole company or just on Hawker Beechcraft’s defense business, which isn’t part of the “pretty high number” of $1.79 billion in the Superior Aviation deal being worked out, Donnelly said.
A U.S. bankruptcy judge this week agreed to allow Hawker, owned by Goldman Sachs Group Inc. and Onex Corp., to negotiate exclusively with Superior for 45 days, after which other interested parties may try to top the deal in a court-supervised auction.
“If it’s the right value and would be accretive for our business, then absolutely we’re interested,” Donnelly said.
Hawker unveiled a plan earlier this month to sell itself to Superior Aviation to avoid having to shut down its jet operations and to better compete in the growing Chinese market.
Such a deal wouldn’t hurt Textron’s Cessna airplane unit, which is better positioned in China than Wichita, Kansas-based Hawker, said Cai von Rumohr, a Cowen & Co. analyst in Boston who has an outperform rating on the stock.
Cessna, which is also based in Wichita, signed a preliminary agreement earlier this year with Aviation Industry Corp. of China, known as AVIC, and the city of Chengdu to open a midsize business-jet factory.
Hawker would only be able to challenge Cessna if it moved production to China, Von Rumohr wrote in a July 13 note. Superior Aviation promised this week to “aggressively work” to retain jobs and expand Hawker’s factories in the U.S.
Superior Aviation and its owners, including a company controlled by the Beijing government, have “no meaningful aerospace expertise,” Von Rumohr wrote.
Textron’s talks with AVIC are continuing, Donnelly said today.
“If in fact the Chinese do buy Hawker, then it means Hawker’s still in the market,” and competition would continue as usual, he said. “I don’t think by any means we’ll be the only guy to sell in China.”
Donnelly reiterated Textron’s full-year forecast even after beating analysts’ estimates for second-quarter profit, basing his conservatism on a weak outlook for Cessna. Earnings per share from continuing operations in 2012 will be between $1.80 and $2, he said.
“There’s enough uncertainty out there in the economy and the markets around the world it’s best to still anticipate it’s going to be a tough back half,” he said. Cessna also faces increased spending on research and development as it works on newly announced jet models, he said.
Donnelly said he has a “reasonable” ability to forecast profit at the Bell Helicopters and Industrial units.
At Cessna, where orders are placed and delivered in a three- to six-month window, “I still worry about the back half of the year in terms of what the market is going to look like,” he said.
Some potential customers in the U.S. are sitting on the sidelines until they see the outcome of November’s presidential and congressional elections and determine what that means for changes to policy such as the U.S. government debt ceiling.
It’s also impossible to predict what Congress will do with military spending cuts and how that might affect Textron Systems, the defense unit, he said.
“Knowing where the cuts ultimately will come at this point would be absolute guesswork.”
Adjusted earnings rose to 58 cents a share in the three months through June, from 29 cents a year earlier, the Providence, Rhode Island-based company said in a statement.
The average of 15 analysts’ estimates compiled by Bloomberg was 44 cents. Net income almost doubled to $172 million from $90 million. Sales gained 11 percent to $3.02 billion.
Textron surged 12 percent to $26.50 at the close in New York, the biggest daily jump since Jan. 25. The shares have gained 43 percent this year.
Revenue and profit increased in the Cessna, Bell, Industrial and Finance units and declined at Textron Systems.
Cessna delivered 49 Citation jets in the quarter, up from 38 a year earlier. The planemaker’s backlog continued its slide and was down by $196 million at the end of June to $1.5 billion.
Bell delivered 47 commercial helicopters, more than twice the 22 shipped a year ago, though it handed over two fewer military aircraft. Bell has $6.7 billion in unfilled orders, down $394 million from the end of March.
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