Textron Inc., maker of Cessna airplanes and Bell helicopters, is buying Beechcraft Corp. in a deal that may signal the start of more consolidation within the U.S. defense industry.
Providence, R.I.-based Textron, whose business segments include Cessna and Bell Helicopter, which helps make the military's V-22 Osprey tilt-rotor aircraft, announced the $1.4 billion acquisition last week. The Wichita, Kan.-based Beechcraft, owned by Beech Holdings LLC, manufactures Hawker business jets, King Air turboprops and the military's T-6 trainer, among other aircraft.
"The acquisition of Beechcraft is a tremendous opportunity to extend our general aviation business," Textron Chief Executive Officer Scott Donnelly said in a statement. "The iconic King Air product line perfectly complements our Caravan and Citation jet line-up and our combined global service network will deliver the superior level of services expected by our Cessna, Beechcraft and Hawker customers."
The deal may be the first in a series of such transactions within the U.S. aerospace and defense industry after a federal budget deal that lessens -- but doesn't eliminate -- automatic spending cuts. As budgets decline, contractors may increasingly seek mergers and acquisitions to maintain profit margins.
The Defense Department faced about $1 trillion in spending cuts over the next decade as part of 2011 deficit-reduction legislation known as the Budget Control Act. That included almost $500 billion in reductions already planned and another $500 billion in automatic cuts.
The recent budget compromise will undo some of those reductions. Specifically, the Bipartisan Budget Act crafted by Rep. Paul Ryan, R-Wis., chairman of the House Budget Committee, and Sen. Patty Murray, D-Wash., his counterpart in the Senate, will restore about $31.5 billion in defense spending over the next two years, including $22.5 billion in 2014 and $9 billion in 2015.
Beechcraft earlier this year lost a bid for an Air Force contract to supply the Afghan military with light-attack aircraft. The company's newly designed AT-6 aircraft was deemed higher risk than the A-29 Super Tucano, made by Sierra Nevada Corp.'s Brazilian subcontractor Embraer SA.
Beechcraft, then known as Hawker Beechcraft, filed for bankruptcy last year amid falling demand for private jets. The company tried to sell all of its units except defense to a Chinese company, Superior Aviation Beijing, but the deal fell through. It received interest from at least three other firms, including Textron, Embraer and the Indian car-maker Mahindra & Mahindra Ltd.
"The team at Beechcraft has worked tirelessly to strengthen our core business and to maintain our position as a leader in a highly competitive environment," Chief Executive Officer Bill Boisture, said of the deal. "Textron’s experience in the industry and its willingness to invest in and maintain the iconic Beechcraft brand make it an ideal parent company."