AOPA Pilot Blog: Reporting Points

As anticipated, Hawker Beechcraft has released its Form 10-K to the Securities and Exchange Commission reporting an operating loss of $481.8 million and a net loss of $632.8 million on sales of $2.44 billion for 2011. (Net losses were $451.6 million in 2009 and $304.9 million in 2010.) The company is $2.33 billion in debt. At the bottom of this paragraph is a link to the actual report, and you can read about the loss figures on page 47. On page 50 is the previously expected comment that there is doubt the company can continue. That said, Hawker Beechcraft will continue, possibly through sales of assets alone, but the more likely scenario is a Chapter 11 bankruptcy that allows it to reorganize. The company has completed agreements with several lenders using aircraft as collateral to pave the way. The publication Corporate Jet Investor reports a restructuring plan could be announced April 30, or if all lenders agree, it could be delayed to May 15.  Here is the actual filing.

Here from the report is what Hawker Beechcraft is required to say by company-hired accountants in the just-released report: “As of December 31, 2011, Management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern. This conclusion was reached based on a variety of factors, including those described below. We determined not to pay our interest obligations under the Notes on April 2, 2012 and anticipate an inability to pay interest on the Notes on future interest payment dates. Furthermore, we will be required to repay or refinance our Senior Secured Credit Facilities and the Senior Tranche Advance prior to the repayment of the Notes and we will be required to repay or refinance the Senior Notes prior to the repayment of the Senior Subordinated Notes. The Company has suffered recurring operating losses resulting in a significant net shareholder’s deficit that raises substantial doubt about its ability to continue as a going concern. The Company is operating under a forbearance agreement with its lenders which defers interest payment obligations and provides relief from loan covenants through June 29, 2012. Due to the fact that we have recurring negative cash flows from operations and recurring losses from operations, we will need to seek additional financing. 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 twelve months.”

Here’s some analysis of what is going on from Morgan Stanley manager Heidi Wood, as reported by AOPA Editor at Large Tom Horne.

Let’s forgo the debate about what a bad PR move it was for the top executives of the Big Three automakers to each fly a business jet to Washington to plead for money from Congress. And for Ford and GM then to immediately cave in to the resulting media storm and vow to sell their business airplanes and close their flight departments. Chrysler charters business airplanes.

The latest–and most disturbing–news is that the government’s proposal for boot-strapping the manufacturers out of their financial quagmire requires them to sell their airplanes and to not use general aviation aircraft in conducting their business.

Even near bankruptcy, these are still three of the largest companies in the world–with plants, vendors, and customers all over the globe. They have every need for business airplanes. And while charter may be a solution for some situations, for regular users, it doesn’t take long to justify ownership.

Let’s remember that business aviation isn’t just about moving executives around. Business airplanes fly every day with critical replacement parts that keep assembly lines from shutting down. We have personal experience that Ford uses its airplanes that way. Companies move engineers and software specialists to factories to solve critical problems that might otherwise put thousands out of work. Business aviation allows teams of employees to efficiently work while en route to a convenient general aviation airport.

And speaking of efficiency, there are definite advantages to being able to access some 5,000 airports around the country versus only the 500 or so with airline service and only about 70 with frequent airline service–an ever dwindling number as airlines cut service to smaller airports in attempt to improve their own bottom lines. Nearly 100 cities have lost airline service in the last year alone.

Study after study shows that companies that own business aircraft handily outperform competitors in the same field that don’t use business airplanes. Wal-Mart, the largest retailer in the country and a model of efficient operations, has nearly 4,000 stories and more than 1.3 million employees. How can it manage such far flung operations from Bentonville, Arkansas? By the use of 20 some business jets. Founder Sam Walton was a pilot. The company hired its first corporate pilot in 1969 and has never looked back. As with most companies, Wal-Mart uses its airplanes to efficiently move employees of all levels, not just executives. By one count, 86 percent of the people aboard business airplanes are not at the executive level.

What the American taxpayers want is an efficient use of their tax dollars. What the government is doing with its prohibition on the use of business aviation is hamstringing the auto manufacturers from using a tool that may be valuable in some situations. No one is suggesting that general aviation is the right tool in all cases. Companies operating business aircraft purchase some $12 billion worth of airline tickets annually. Most of the time companies make wise, prudent choices in the use of business aviation–that trip from Detroit to DC being an exception. Let’s not throw the baby out with the bath water.

Is it just me or are business aircraft just the latest scapegoat for poor business decisions and the desire by some politicians to score some PR points? What do you think?