Textron (TXT 2.01%) investors were left smiling Friday, when shares of the defense and aerospace conglomerate jumped more than 14% following an encouraging bit of acquisition news from the folks over at the Financial Times.
Specifically, FT asserted Textron may be close to acquiring fellow plane-maker Beechcraft for approximately $1.4 billion.
Formerly known as Hawker Beechcraft, the target company suffered greatly amid an industrywide decline in business jet sales before seeking bankruptcy protection in May, 2012. The following July, Beechcraft announced a $1.79 billion "exclusivity agreement" to be acquired by China-based Superior Aviation Beijing. However, the deal later fell through when Superior Aviation Beijing failed to secure financing.
But Beechcraft emerged from bankruptcy a healthier business in February, this time sans the "Hawker" moniker and bearing a renewed focus on its more promising propeller-based aircraft segment.
Beechcraft has charged back nicely since then, most recently reporting a 47% year-over-year increase in deliveries for the first three quarters of 2013. What's more, in Q3 Beechcraft secured what it described as "the largest general aviation propeller aircraft order in history," a 105-unit, $1.4 billion King Air 350i order to private jet charter specialist Wheels Up.
Beechcraft King Air 350i. Image source: Beechcraft.
Naturally, adding that kind of clout and diversification to Textron's ever-important Cessna subsidiary -- which overwhelmingly relies on sales of its Citation series jets -- could provide a meaningful boost. This becomes especially apparent considering Cessna's revenue declined nearly 24% year over year to $593 million in the most recent quarter, leading to a $23 million segment loss compared to a profit of $30 million in the same year-ago period.
In Textron CEO Scott Donnelly's words, the poor performance was largely achieved "as the light-to-midsize business jet market remained soft."
But wait; there's more ...
If that wasn't enough, Beechcraft in November launched a three-month demo tour of its new AT-6 light attack aircraft, another propeller-driven machine which is being marketed as a "cost-effective solution to meet light attack mission needs."
Incidentally, Textron itself surprised the industry in September by unveiling its very own budget-oriented fighter jet, the Scorpion ISR/Strike aircraft platform. And though the Scorpion hasn't found any takers just yet, it did celebrate its first successful test flight earlier this month -- less than two years since Textron began its development, by the way -- and is aimed at fulfilling the broad-based need for an affordable, exportable tactical jet platform capable of handling lower-threat missions.
In all, then, it appears combining the two companies' cost-conscious jet- and prop-powered defense offerings could allow Textron to more effectively corner that segment of the market as well.
Foolish final thoughts
For now, though, keep in mind nothing's been confirmed just yet, so I wouldn't count on the acquisition until the ink has dried on a formal agreement. But given the potential synergies and complementary product lines Textron and Beechcraft enjoy, at this point it's hard to blame investors for their early optimism.
