Originally Posted by Soyoung Kim and Andrea Shalal-EsaNEW YORK/WASHINGTON (Reuters) - Hawker Beechcraft Inc, the aircraft manufacturer owned by Goldman Sachs Group Inc's (NYS:GS - News) private equity arm and Onex Corp (TOR:OCX.TO - News), is preparing to file for bankruptcy protection in the next several weeks, according to people familiar with the matter.
Hawker, which was bought by the private equity firms in 2007 for $3.3 billion, is negotiating a prearranged bankruptcy with its largest lenders, which include Centerbridge Partners, Angelo Gordon and Capital Research & Management, the sources said.
Hawker and Onex declined to comment. Goldman Sachs and the lenders were not immediately available for comment.
Centerbridge, a New York-based investment firm focused on leveraged buyouts and distressed investments, is the biggest lender, the sources said.
These lenders would also likely provide debtor-in-possession (DIP) financing to allow Hawker to continue to operate in bankruptcy, the sources said.
One of the sources said the DIP financing is currently expected to be less than $500 million, but cautioned the number has not been finalized and could change.
Goldman Sachs Capital Partners, the bank's private equity fund, and Canada's largest buyout firm, Onex, bought Raytheon Aircraft Co from Raytheon Co (NYS:RTN - News) in early 2007, at the height of the buyout boom, and renamed it Hawker Beechcraft.
But the purchase has proven to be ill-timed. The financial crisis of 2008 and the subsequent economic downturn has led to a multiyear aviation industry downturn. The Wichita, Kansas-based manufacturer of business jets, general aviation turboprops and military trainers has seen sales of its small and medium-sized business jets fall.
Hawker competes against bigger and financially stronger rivals such as General Dynamics Corp's (NYS:GD - News) Gulfstream and Textron Inc's (NYS:TXT - News) Cessna.
Hawker is one of several buyouts from the 2006-2007 period to run into trouble. Several private equity firms at the time paid aggressive prices for companies, loading them up with huge piles of debt and hoping that economic growth would continue to sustain the investments. But the financial crisis put a spanner in their assumptions about growth, making these firms unviable.
In February, the company's owners brought in turnaround specialist Steve Miller as chief executive officer. Hawker has also hired Perella Weinberg Partners and law firm Kirkland & Ellis LLP as financial and legal advisers.
Miller, who is also chairman of bailed-out insurer American International Group (NYS:AIG - News), is known for his ability to work with financially troubled companies and solve hard problems, even earning the moniker of "The Turnaround Kid" after he wrote a book in 2008 about his experiences fixing companies over the years.
Miller has come out of retirement several times to work on corporate restructurings, including those of Delphi Corp and Federal-Mogul Corp (NSQ:FDML - News).
On Tuesday, Hawker clinched interim financing. It reached a deal with lenders that will provide a $120 million loan and defer the company's obligations to make certain interest payments.
This forbearance agreement, scheduled to expire at the end of June, would provide Hawker with more time to finalize the details of a prearranged bankruptcy with the main lenders, the sources said.
Hawker has a huge debt load stemming from its 2007 leveraged buyout and was hit especially hard by a 60-percent drop in business jet sales after the financial crisis, said aerospace analyst Richard Aboulafia of the Teal Group.
A source familiar with Hawker's thinking said that the company's business plan had projected a recovery in the business jet market beginning in 2010, but that had only started to materialize this year.
Earlier this year, Hawker lost a contract to build 20 light attack planes for the U.S. Air Force, losing out in the bid to U.S. defense contractor Sierra Nevada Corp and Brazilian planemaker Embraer SA (SAO:EMBR3.SA - News).
Although the loss was not the primary factor driving the company into deeper trouble, winning the contract could have staved off the crisis for a while longer, said two other sources familiar with the situation.
The loss of the contract "was just bitter icing on an already unpleasant cake," Aboulafia said.
(Additional reporting by Nick Brown, Billy Cheung and Greg Roumeliotis in New York; editing by Paritosh Bansal, Andre Grenon and Phil Berlowitz)