Warbird Information Exchange

Raytheon looks best to private equity firms
Wichita Eagle 07/30/2006
Authors: Molly McMillin and Jerry Siebenmark


If Raytheon Aircraft Co. is going to be sold, chances are it will be to a private equity firm nobody's heard of.

That's the consensus of industry experts following Raytheon Co.' s announcement Thursday that it was exploring a number of possibilities for its aircraft manufacturing division, including a sale.

Forget about other airplane makers, experts said, because companies that design and build airplanes have products that compete with Raytheon Aircraft.

That's why the odds are greater that if Raytheon Aircraft is sold, it will be to a buyer with billions to invest and a low profile.

"I think it is likely it will be a private equity buyer," said William Alderman, president and founder of Alderman & Co., a private investment bank. "While nothing is certain, I think there's a better than 50 percent probability that a private equity buyer acquires Raytheon Aircraft."

Cash and go

Raytheon -- the nation's fifth-largest defense contractor -- has explored selling Raytheon Aircraft in the past but did not find a buyer at the price it wanted. Raytheon officials have repeatedly said the aircraft division is not part of the Waltham, Mass.-based company's core business.

With a booming aviation market and a financially healthier company, the timing is better now for a sale, analysts and company officials say.

General aviation manufacturers reported record billings for the first half of 2006.

Billings and aircraft shipments at Raytheon Aircraft also rose. Raytheon Aircraft delivered 99 airplanes in the second quarter, compared to 87 for the same time a year ago. Its billings totaled $456.7 million for the quarter, up from $401.4 million in the same period a year ago.

But, said Teal Group analyst Richard Aboulafia, there is still a problem: "One is lack of a buyer -- other than maybe (French aircraft manufacturer) Dassault -- with a strategic fit."

Which is why a private equity suitor is the more likely scenario, said JSA Research aerospace analyst Paul Nisbet.

However, he said, "You're not going to get as good of a price as you would with a strategic buyer."

Raytheon could also decide to do an initial public offering with the aircraft division. Selling the company or taking it public would have the same result, Aboulafia said.

"It comes down to the same thing," he said. "Raytheon takes the cash and deploys it elsewhere."

'Not interested'

Several plane makers contacted by The Eagle said they weren't interested in an acquisition.

Karen Gordon, spokeswoman for Textron Inc., Cessna Aircraft's parent company, simply said, "Not interested."

Cessna Aircraft chairman and chief executive Jack Pelton elaborated.

When Raytheon Aircraft was up for sale several years ago, "at one point we looked at them," Pelton said. But the product lines overlap too much.

"That's not synergistic," he said.

Dassault Aviation spokesman Gerard David said the company, based in Saint-Cloud, France, also was not interested.

"No, no, no, no," David said.

"The Beechcraft are very good airplanes. The aircraft are very, very nice."

But with its lowest-priced Falcon jet costing $20 million, Dassault's niche is in the upper end of corporate aircraft, he said.

And the company has "no plans to expand or to enter another segment," David said. "The answer is clearly and definitely, 'No.' "

Bombardier Aerospace spokesman Leo Knaapen said the company, which makes Learjet corporate aircraft in Wichita, is watching the situation closely.

"We've got a very modern line, and we invested heavily in our Learjet, Challenger and Global (aircraft) families," Knaapen said. "We feel very comfortable with where we're at right now."

But he said the company was "monitoring the situation with great interest."

Car maker Honda Motor Co. is the latest entrant into the business jet market. The company announced Tuesday that it will begin taking orders for a very light jet called the HondaJet.

It also said that it had formed a business alliance with Piper Aircraft Co. to support the company with sales and service.

"But we have no further plans beyond that in terms of alliances with other companies," said Honda spokesman Jeffrey Smith.

Just like Onex

Alderman, the investment banker, said East Coast equity firms Carlyle Group and Kohlberg Kravis Roberts & Co. are among "the thousands" of private equity firms around the world that might be interested and have the financial wherewithal to buy Raytheon Aircraft.

David Lilly, KKR spokesman, said the firm does not comment on rumor or speculation.

New York-based KKR, which since its founding in 1976 has raised more than $200 billion in acquisition financing, does not have any aviation or aerospace companies in its portfolio.

But Carlyle Group does. Its aerospace holdings total eight companies, including Vought Aircraft Industries, a Dallas-based aerostructures company with more than $1 billion in annual sales and 6,000 employees.

"We do have a very active aerospace practice, but we can't say whether we'd be interested in this particular asset," said Chris Ullman, spokesman for Washington, D.C.-based Carlyle.

Carlyle has $41.9 billion under management.

Alderman said it's more likely that if Raytheon Aircraft is sold to a private equity firm, the firm won't be as high-profile as Carlyle and KKR.

"Many of them are currently unknown to the public, just like Onex was unknown to practically everyone in Kansas before they appeared and bid for Boeing," he said.

Onex, a Canadian firm, bought the former Boeing commercial plant in Wichita last year and renamed it Spirit AeroSystems.

In the past few years, Alderman said, hundreds of new private equity firms have come to the market with billions of dollars to invest.

"The bottom line here is the private equity firms are sitting on a lot of capital and they are eagerly searching out good investments," he said. "They will find this (Raytheon Aircraft) very attractive."