Hawker Beechcraft: a peak-of-market $3.3B LBO that ended in 2012 Chapter 11

Raytheon, refocusing on defense, put its Wichita aircraft unit up for sale in late 2006 - the maker of King Air turboprops, Bonanza pistons, Hawker jets and the T-6 trainer. Goldman Sachs' GS Capital Partners and Canada's Onex Partners won: Raytheon announced the deal on December 21, 2006 and completed the sale of Raytheon Aircraft Company on March 26, 2007 for approximately $3.3 billion in cash, per its own press release. As the Associated Press later put it, the company was 'purchased in a highly leveraged deal at the peak of the general aviation market, just before it tanked.'

The market did tank, and the debt did the rest. In May 2012 Hawker Beechcraft filed for Chapter 11 in Manhattan, keeping the factories running on a $400 million debtor-in-possession loan while its private equity owners negotiated with lenders. In October 2012 a rescue surfaced: Superior Aviation Beijing, the vehicle of Chinese businessman Shenzong Cheng and his wife Qin Wang, offered $1.79 billion for the company, and Hawker collected two $25 million deposits to keep the jet lines open during exclusive talks.

On October 18, 2012 the Chinese deal collapsed - 'it is easy to overrate China as an investor in this business,' said Teal Group analyst Richard Aboulafia; the buyers 'saw what they wanted to see no matter how unrealistic.' Hawker Beechcraft announced it would instead emerge as a standalone company, keeping the King Air, piston and turboprop lines while jettisoning jet production - with secured and unsecured creditors taking equity in the reorganized company.

Operated through Chapter 11 on a $400M DIP; a $1.79 billion Chinese rescue collapsed; the Hawker jet line - the company's namesake - was shut down.

The buyout was priced and financed at the very top of the business-aviation cycle, with the debt sized against peak demand that did not last.

Leverage left no margin when jet orders collapsed - a cyclical downturn became a solvency event for the LBO's capital structure.

The company spent much of its bankruptcy shopping itself to a buyer whose finances analysts called unrealistic, ending with the rescue's collapse and a six-month distraction.

The capital structure could only be fixed by shedding the namesake Hawker jet line - the premium product family that justified the original price.

Peak-of-cycle acquisitions leveraged to the maximum leave nothing for a normal downturn. And the premium assets that justified the price - here, the jets - are the first thing creditors cut.

Beechcraft Corporation emerged from Chapter 11 on February 18, 2013, a leaner company with more than $600 million in capital, having ended pure-jet production while retaining roughly 6,000 employees - almost a third of them kept busy supporting the existing Hawker jet fleet. Superior Aviation's $50 million in deposits stayed with the company. The King Air, Bonanza, Baron and T-6 lines carried on under a name that no longer included Hawker.