Why Hawker Beechcraft's China Sale Was Dead on Arrival

From the moment a small Chinese firm announced a plan to buy the bankrupt Wichita airframer for $1.79 billion in July, red flags started going up.

kingair

kingair

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I'd planned on telling you today all the reasons why I felt Hawker Beechcraft’s planned sale to Superior Aviation Beijing was very likely on the verge of unraveling. I’ll still do that, but the story took on a new dimension when a press release from Hawker Beechcraft arrived in my e-mail inbox at 8:05 this morning proclaiming the deal was dead.

I’d argue that the deal was actually dead on arrival, way back in July, when Superior Aviation Beijing stepped forward with an offer to buy the struggling Wichita company for $1.79 billion. The reasons are pretty simple: Nobody had ever heard of Superior Aviation Beijing, and nobody seriously thought this company was actually going to write a check of that gargantuan size, even if it could. A closer look at Superior's financials reveals that it probably could not.

Early speculation centered on a scenario in which Superior Aviation Beijing’s leadership would sit down with Hawker Beechcraft’s executive team and work out the actual dollar value of the deal, which would likely fall well short of the original $1.79 billion figure.

In early September, according to published accounts, Hawker Beech chairman Bill Boisture was waiting for a call “any day” from Superior Avaition Beijing to seal the deal. When that call never came – or at least after there was no word about any call, even after weeks had past – that’s when the red flags really started flying.

I made an inquiry with a Hawker Beechcraft p.r. rep on Sept. 25, asking the following in an e-mail: “I would like to get an update on where the Hawker Beech sale to China currently stands. I understood that a purchase agreement should have been signed by now. Has an agreement been signed? If not, why not? Is this deal in danger of not happening?”

Here's the terse, one-line response I received: “Our negotiations with Superior continue.”

For me, that only raised further doubts. After all, when a reporter contacts a p.r. person and asks about a piece of potentially really bad news, the p.r. person usually will do his or her darndest to set the record straight if all is actually hunky-dory. In fact, the reporter's phone will probably be ringing within five minutes of that e-mail going out. If all is not well, you get the one-line brush off.

But the truest sign that the deal was nearly dead came this week, when a trade delegation from Wichita arrived in China and was given the cold shoulder by their Chinese hosts. According to reports, a scheduled meeting with Superior Aviation Beijing was canceled abruptly because of the “sensitivity of the ongoing negotiations.”

The question I immediately asked myself was, why was there “sensitivity” over the negotiations, and why on Earth were they “ongoing”? After all, the exclusivity period for the deal ended back on Sept. 1. A deal should have been hammered out by now, and if it the negotiations had hit a snag, both sides should have been able to talk about it publicly – unless, of course, they weren’t even talking to each other.

But even before all of this drama unfolded, the writing was on the wall. All you had to do was ask yourself, who is Superior Aviation Beijing anyway? The company was formed when it bought Texas firm Superior Air Parts out of bankruptcy in 2010. It is 60 percent owned by Cheng Shenzong, a Chinese businessman whose other holdings include the former Brantly Helicopters operation.

The helicopter holding company was founded in August 2007 in the Eastern China coastal city of Qingdao. The company's total investment was $23.35 million, with a registered capital base of $10.2 million, according to the Wall Street Journal. It was designed to have an annual production capacity of 80 Brantly B-2B helicopters, the company's website shows.

So that's it. A company with ambitions to build Brantly helicopters was suddenly going to pay $1.79 billion for one of America's most storied aviation brands (which, as you've no doubt heard by now, plans to emerge from bankruptcy under just the Beechcraft name). If this had been China's Avic consortium or another serious player in the country's burgeoning aviation industry, nobody would have questioned the deal. But the would-be maker of Brantly helicopters? It would seem highly unlikely.

And, of course, we now know it always was.