China’s Hawker Aircraft Buy Hits Turbulence 中国公司收购豪客比奇遭遇动荡
In what should come as a surprise to no one, a deal announced last week for a little-known Chinese firm to buy bankrupt US aircraft maker Hawker Beechcraft has already hit its first turbulence with objections from a major trade union, the International Association of Machinists and Aerospace Workers. This objection is only the first of many that I expect to see in this case, not only from the US but also from skeptical Chinese regulators, meaning this deal is almost guaranteed to fail. Let’s look at this first big obstacle, which comes just a week after Superior Aviation Beijing, partly owned by the Beijing municipal government, said it was in exclusive talks to buy Hawker for up to $1.8 billion. (previous post)
I have no doubt that the Machinists union is most concerned about potential job cuts if the deal is successful, but the group cleverly doesn’t focus too much on that part of its concerns in its announcement. Instead, it raises the national security issue as its first big concern, saying the deal could “facilitate the transfer of valuable commercial and military-related technology to China,” thus posing a national security risk.
I’m sure that Hawker owns plenty of valuable technology, though I doubt if much of that is technology that China couldn’t find elsewhere. Instead, this raising of the national security issue looks like a tactic to gain support from China-phobic politicians who could help to kill the deal. Those politicians will be especially willing to help at this particular time, since the US presidential election is now just 4 months away and many could use their opposition to this deal to boost their appeal to more conservative Americans who wouldn’t want to see Hawker sold to a Chinese company.
Politicians citing national security concerns have already killed other deals over the last 2 years involving Huawei and ZTE (HKEx: 763; Shenzhen: 000063), saying telecoms networking equipment from these 2 exporting giants could be used for spying from Beijing. I fully expect opportunistic US politicians to call for a thorough review of this Hawker Beechcraft sale, putting massive pressure on the Obama administration to veto the deal.
But in the unlikely case that the US doesn’t kill the deal, I would expect China to also disapprove, as such a deal would have to be cleared by both the Commerce Ministry and also the powerful National Development and Reform Commission, China’s state planner. Both regulators are likely to look unfavorably on the deal, since Superior Aviation is a relatively unknown company with little or no experience running a firm like Hawker, which is not only foreign but also facing major financial difficulties.
Chinese regulators vetoed a similar deal 2 years ago that would have seen Sichuan Tengzhong, an obscure maker of industrial equipment, purchase bankrupt US muscle car maker Hummer for similar reasons. I suspect they would also veto a Hawker deal for similar reasons if it got to the regulatory approval stage. For all those reasons, this deal stands almost a zero chance for success, and I would advise Hawker and Superior not to waste their time with additional negotiations.
Bottom line: Objections by a major trade union to the sale of plane maker Hawker Beechcraft to a Chinese buyer mark the first round of turbulence for this deal, which is almost guaranteed to fail.
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