Delaware Aircraft Facility Expected to Takeoff
At the Kansas headquarters of Hawker Beechcraft, the outlook hasn’t been that sunny lately. Sales are drying up, losses are piling up and bankruptcy seems a distinct possibility.
In the soaring spaces of the company’s 40,000-square-foot twin hangars in Delaware, however, the view is decidedly different.
Despite its parent company’s financial woes, Hawker Beechcraft’s just-opened aircraft service center is quietly getting under way at New Castle County Airport, one of two such company-operated facilities being opened in the face of an uncertain corporate future.
For Hawker Beechcraft, it’s a calculated bet on a side of its business that has been booming, even as sales of new aircraft suffered through the recession. With tens of thousands of its aircraft flying across the globe and with the government continually changing technical regulations for aircraft equipment, there has been a growing demand for maintenance and other customer service work, from fixing flat tires to outfitting planes with the latest navigation systems.
At the Delaware facility — based at what used to be the operations center for MBNA Bank’s fleet of business jets — mechanics and other technicians are already busy with repair and upgrade work. “It’s starting to go crazy,” said facility manager Mike Johnston.
Since getting things started in February, the facility has hired 21 mechanics and other employees and expects to employ up to 100 workers in relatively high-paying jobs within the next five years. The average starting wage is $58,350, according to the Delaware Economic Development Office.
“We can do anything to an airplane” except painting, said Johnston, who said the company found a “fantastic” talent pool in Delaware.
Yet even as a 6,500-square-foot addition rises alongside the existing structure, questions are swirling about the future of Hawker Beechcraft, which received a $750,000 Strategic Fund grant from Delaware taxpayers to come to the state. The company will have to pay the money back — at the rate of $7,500 per job — if it doesn’t reach its 100-worker target within five years.
Hawker Beechcraft posted a net loss of $632.8 million last year, compared to a $304.9 million loss in 2010.
“There is substantial doubt about our ability to continue as a going concern,” the company told the Securities and Exchange Commission in a filing April 13.
A forbearance agreement with lenders is giving the company some leeway with its debt, but negative cash flows are aggravating a liquidity crisis, making additional financing crucial, the company said.
“There is substantial doubt that we will be able to obtain additional equity or debt financing on favorable terms, or at all, in order to have sufficient liquidity to meet our cash requirements for the next 12 months,” the company told the SEC.
At the same time, Hawker Beechcraft is seeing growth in its customer service business, which is principally made up of the sale of spare parts and maintenance services to customers who already own Hawker Beechcraft planes. While aircraft sales were off $369.6 million — or 13.2 percent — in 2011, sales in its customer service segment were up $1.6 million, or 3.2 percent. In 2010, customer service sales were up $106.3 million.
“We’ve been investing in our factory-owned service centers across the country and around the world,” said Mike Turner, the company’s manager of product marketing. Unlike products such as automobiles, aircraft can easily have a lifespan measured in decades and must frequently be updated as technology improves and regulations change. Regulations that require regular inspections also make aircraft maintenance a given aspect of ownership.
The Wilmington facility is geographically positioned to succeed, company representatives seeking Delaware grant money told a state panel last June. Asked about the parent company’s health, Hawker Beechcraft executive Randy Blad told the Council on Development Finance that there have been “some losses on the aircraft side of the business,” but the after-market business “does quite well” with profit margins of about 19 to 20 percent.
“Mr. Blad stated that in the projections for 2012, they should see an uptake in aircraft deliveries and see the business then rebound,” according to minutes of the council meeting where the Hawker Beechcraft grant was considered. Robert Sill, another company executive, told the council that Hawker has always found a way to grow in difficult financial times.
The company’s just-released financial statement for 2011, however, predicts that “depressed demand” will persist through 2012.
State officials remain confident that the facility will thrive, thanks to its broad customer base and the inherent need for aircraft services. Hawker Beechcraft is confident enough in its future at Wilmington that it hopes to ultimately add a paint facility next door to its hangars.
“They’re not selling aircraft, they’re selling service” at the Delaware center, said Alan Levin, director of Delaware’s Economic Development Office. “This is going to be the only service facility on the East Coast. We saw this as a great opportunity. Regardless of what happens to Hawker Beechcraft … people are always going to need service, people are always going to need maintenance on their planes and jets.”
The New Castle County Airport facility also includes offices of The Appearance Group, which offers aircraft cleaning services and is expected to eventually employ 10 or 11 people.
“Anything cosmetically that the customer wants, we can do,” said Garrett Worthington, station manager. “I’ll be running people around the clock if I need to.”
Work on the hangars was also a boost for Wilmington’s EDiS Construction Managers, which employed as many as 20 people on site at one point, said Todd Hangey, site superintendent. “The original hangar, we built back in the early 1990s, he said.