So 2013 turned out to be a good one for Textron.
By buying Beechcraft for $1.4 billion, Textron will end up with a
unique portfolio of aircraft ranging from single-engine Caravans
and Skycatchers, through King Airs, right up to Citation jets. Just
as significantly it adds an installed fleet of 36,000 aircraft that
need support. Textron will actually be responsible for supporting
the majority of business aircraft flying today.
The acquisition is not expected to close until mid-2014, so it is
unclear how Beechcraft will fit into Textron (although it does look
set to combine the Cessna and Hawker Beechcraft service divisions).
Whilst the acquisition makes Beechcraft's future safer,
unfortunately it is also means more uncertainty for Beech employees
who have already been through several tough years.
Much of the commentary on the deal has focused on the ability to
up-sell King Air customers to jets. Textron, however, is not really
including this in its financial rationale for the acquisition.
Textron says that it hopes to benefit from synergies of $65 million
in 2014 (and $75 million in both 2015 and 2016) and that nearly all
of this will come from cutting costs.
It is amazing much Beechcraft changed in 2012 and 2013. Beechcraft
is estimating sales of $1.8 billion for the whole of 2013 and a
profit of $150 million. Its margin is actually better than
Cessna's mainly because services are a larger part of
Beechcraft.
The acquisition of Beechcraft – and the certification of the
M2 and the Citation Sovereign+ - should give everyone at Cessna a
boost. It has also been a tough few years Cessna. One depressing
fact is that the combined sales of the two companies in 2014 will
probably still be less than just Cessna's sales in 2007.
Cessna's $1.86 billion of sales for the first nine months of
2013, was down by $350 million compared to 2012. It also made an
$81 million loss in this time. It often makes up sales in the last
quarter but it will deliver less aircraft in 2013 than it hoped
because of late certification.
Clyde Cessna and Walter Beech launched a joint company - Travel
Air Manufacturing Company – in Wichita in 1925. It lasted
until the great depression four years later when the company was
bought and Beech left to launch Beechcraft. This time the two
companies are merging after a recession and are well placed for a
US economic upturn. However, whilst the turboprop market is a
different one to the jet market, Textron's earnings will remain
volatile.
Although these have been tough years for Cessna, it is worth
stressing that it has been an excellent buy for Textron. It
acquired the company from General Dynamics for $670 million in 1992
(about $1.15 billion today) when Cessna had sales of $820
million.
In the last 10 years alone it has given Textron a profit of $3.7
billion (without adjusting for inflation). Beechcraft could prove
to be just as good an investment. So it probably was worth spoiling
the holidays of everyone involved.
This article is kindly reproduced with the permission of Alasdair
Whyte from www.corporatejetinvestor.com
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