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Summary

  • Textron finalizes the acquisition of Beechcraft, a company once in bankruptcy.
  • Textron creates new aviation division from Beechcraft and Cessna.
  • This is a risky strategy as both Beechcraft and Cessna had bad results in the last few years.
  • However, the new aviation division offers growth opportunities with maintenance and China.

On March 14 Textron (NYSE:TXT) announced that the acquisition of Beechcraft Corporation was closed and Cessna and Beechcraft would form the new Textron Aviation division. Although the acquisition of Beechcraft is still risky, the maintenance infrastructure and China offer growth opportunities.

TEXTRON

Textron is a conglomerate mainly focused on aerospace.

This article focuses on the new Textron Aviation division which combines Beechcraft and Cessna. In Crawling From The Pit Or Falling Back Textron and its individual divisions are handled in more detail.

Textron now has the following divisions:

Bell is the helicopter division. A broad range of helicopters are maintained and manufactured for civilian and military use. The V-22 Osprey - which was designed in cooperation with Boeing (NYSE:BA) - is a tilt-rotor design with a huge export potential.

Textron Systems produces defense products and services. Some are also aviation related such as Lycoming engines or unmanned aerial systems.

Industrial makes industrial products such as golf carts or automotive fuel systems.

Financial supports customer purchases of Textron products. Since the economic crisis started, other financial services and business lines were exited.

Textron Aviation is the fixed wing aerospace division of Textron. Cessna produces aircraft types that range from single-engine aircraft to the (small) Citation business jet. Beechcraft produces fixed-wing aircraft ranging from the Bonanza to King Air series. For military use only is the (A)T-6 Texan II which has been sold to a number of air forces.

(click to enlarge. Source: Confero)

As the charts show with the exception of Cessna, the other divisions of Textron are healthy. Bell in fact is the most profitable helicopter manufacturer in the world as detailed in the previous article on Textron.

NEW TEXTRON AVIATION DIVISION

Cessna

The Cessna division is the problem child of Textron. Dropping demand because of the economic crisis caused a dramatic drop in demand, mainly the small Cessna Citation business jet.

Cessna

2013

2012

2011

2010

2009

2008

Revenue

$2,784

$3,111

$2,990

$2,563

$3,320

$5,662

EBIT

-$48

$82

$60

-$29

$198

$905

EBIT%

-1.72%

2.64%

2.01%

-1.13%

5.96%

15.98%

Beechcraft

The predecessor HawkerBeechcraft (named Beechcraft after this) went bankrupt and in February 2013 Beechcraft Corporation emerged from Chapter 11.

The last 10-K of 2011 gives the following financial data and shows the dramatic results that led to bankruptcy. The Beechcraft divisions show the following results:

Business and General Aviation

2011

2010

2009

2008

Revenue

$1,360

$1,735

$2,311

$2,821

EBIT

-$602

-$367

-$802

$25

EBIT%

-44.28%

-21.15%

-34.70%

0.88%

Business and general aviation clearly was the problem with Beechcraft.

Trainer/Attack

2011

2010

2009

2008

Revenue

$649

$681

$531

$338

EBIT

$25

$96

$46

$28

EBIT%

3.90%

14.05%

8.56%

8.34%

When 2011 is not taken into account, the results are average. 2010 is actually quite good.

Customer support

2011

2010

2009

2008

Revenue

562.2

544.6

438.3

522.8

EBIT

95.3

97.5

44.1

82.5

EBIT%

16.95%

17.90%

10.06%

15.78%

Customer support is the most profitable business for Beechcraft. This provides parts (produced by Business and General Aviation) and maintenance services for Beech and Hawker aircraft in the world.

Actions in 2013

No financial data has been published by Beechcraft in 2013, but some small nuggets of information can be deduced.

Beechcraft

Reduction

2013

2012

2011

2010

2009

Revenue

-25%

$1,816

$2,435

$2,805

$3,199

Net income

-$633

-$305

-$452

EBIT

-$482

-$174

-$712

EBIT%

-19.79%

-6.20%

-22.26%

Deliveries

-30%

215

291

318

418

Employees

-27%

5400

7400

Textron reported that the combined revenue of Cessna and Beechcraft in 2013 is $4,600M, which leaves a revenue for Beech of $1,816M in 2013, a 25% decrease since 2011, which isn't surprising considering the bankruptcy.

Beechcraft reported news on deliveries, orders and activities. In 2013 Beechcraft delivered some 215 aircraft, which is a decline of 30% compared with 2011.

In 2011 Beechcraft had 7,400 employees, which were reduced to 5,400 in 2013, a reduction of 27%.

Beechcraft has clearly been cleaning up and been cutting activities and costs. The focus (of new sales) seems to be on the King Air and T-6 trainer. In August 2013 Beechcraft claimed the "largest general aviation propeller driven aircraft order in history" by selling 105 King Air aircraft and maintenance services for Wheels Up.

OPPORTUNITIES

(Source: Confero)

As expected Textron combines Cessna and Beech in a single division. This is risky as Textron is combining the two worst performers of its own activities. Buying Beechcraft is risky because of the past results.

However, without a chance of success the acquisition would not have been done. Major chances for Textron Aviation to grow revenue and profitability are:

1. Maintenance

Textron has enhanced its worldwide maintenance infrastructure to service customers more adequate. By adding Beechcraft aircraft this infrastructure can be better utilized with much lower costs.

Beechcraft has sold part of its (Hawker) maintenance infrastructure to Marshall Aerospace in August 2013 and other Beech maintenance facilities will probably be merged with Cessna's facilities or closed.

Parts and services are more profitable than new aircraft. For Beechcraft this is confirmed by the results of the customer support division, which even in 2011 had an EBIT% of 17%.

2. China

Textron started a Joint Venture with CAIGA to assemble Caravan aircraft that will sell in China. The Chinese aviation industry and 5-year plan of aviation development are described in more detail in United Technologies And China: Time To Buy. United Technologies (NYSE:UTX) the other American aerospace manufacturer with a growth strategy in China.

General Aviation is one of the spear points of the Chinese government (and because of this it also applies to the Chinese aviation industry). Beechcraft already sent the King Air to the China International General Aviation Convention (CIGAC) in October 2013 to make its presence known.

There is a huge potential for a broad range of Beechcraft and Cessna aircraft - the Caravan, King Air and Citation among the most prominent. General and business aviation are still in their infancy in China and is the market with the largest growth potential in the world.

Source: New Textron Aviation Division Offers Growth Opportunities, But Still Risky