A little-known Chinese aerospace company is seeking to purchase the bankrupt United States private aircraft maker Hawker Beechcraft Inc for US$1.79 billion in a deal stirring a lot of talk among industry players.

Analysts both in the US and China are asking how a relatively small Chinese company like Superior Aviation Beijing Co managed to amass that kind of money and how it could cope with running a much bigger US manufacturer.

They also questioned how would Superior stanch losses at the US aircraft manufacturer?

Hawker Beechcraft announced early last week on its website that the company is in exclusive talks with the Beijing-based Superior Aviation Beijing Co for a "strategic alliance." The Beijing company recently got the go-ahead from the National Development and Reform Committee for the deal.

The US jet maker filed for bankruptcy in May, with a US$2.5 billion debt in a weak aircraft market.

A US federal bankruptcy judge this week ruled that talks between Hawker Beechcraft and Superior could continue. The US company said last week that it had accepted the offer from Superior because the Beijing company had agreed to maintain existing operations and save thousands of jobs at its factories in the states of Kansas and Arkansas.

Superior has also offered to fund Hawker Beechcraft's jet operations during the talks over the next six weeks. It takes US$8 million each week to run the jet business.

Maximize value

"We believe a transaction with Superior would maximize value for Hawker Beechcraft and its stakeholders," said Robert Miller, CEO of Hawker Beechcraft. "This combination will also give Hawker Beechcraft greater access to the Chinese business and general aviation market."

Superior's deal with Hawker would be a "good solution," as long as the Chinese buyer invests adequate resources into the aircraft maker and abides by US accounting rules to give other shareholders clarity about the funding, said Tom Donohue, chief executive officer of the US Chamber of Commerce, a Washington-based industry group.

Analysts aren't so sure.

"The Chinese company's intentions remind me of Sichuan Tengzhong's bid for Hummer cars in 2010, which was a high-profile flop," said Cao Jianhai, a researcher with the Chinese Academy of Social Sciences.

Cao said it puzzled him how Superior, with a registered capital of only 200 million yuan (US$31.38 million), could come up with the money to buy Hawker Beechcraft.

Li Lei, an aviation analyst at China Securities Co, noted that Superior will need more than the purchase price if it wants to restore profitability at the US company.

Superior Aviation is 60 percent owned by Chinese industrialist Cheng Shenzong and his wife under their privately owned Beijing Superior Aviation Technology Co, and 40 percent is held by the government-backed Beijing E-Tong International Investment & Development Co.

Cheng, also called "king of helicopters," began manufacturing helicopters, plane engines and aircraft parts in his first factory in coastal Qingdao, east China's Shandong Province, in 2007.

The low-profile industrialist went on to acquire bankrupt US piston engine maker Superior Air Parts in 2009 for US$10 million and changed his company's name to Superior.

"I have experience in how to acquire a bankrupt foreign firm," Cheng told the Chinese media.

Cheng said the deal with Hawker Beechcraft would be funded with bank loans and the company's own money, but he declined to give any details of the financing.

Analysts speculated that part of the money might come from E-Tong, a company backed by the Beijing City government and with a registered capital of 4.3 billion yuan.

Money is not the main problem, said Superior spokesman Qian Chunyuan.

"The approval process is a bigger issue for us," Qian said.

The deal will need the green light from the Chinese government, the US bankruptcy court and the US Committee on Foreign Investment.

The International Association of Machinists and Aerospace Workers has told the US bankruptcy judge that Hawker Beechcraft shouldn't be sold to a buyer owned by the Chinese government because the deal would endanger jobs and national security.

While Hawker Beechcraft suggested the Superior proposal "'could preserve thousands of American jobs,' there is nothing in the record to support such a belief," the labor union said on Monday in a court filing.

Hawker Beechcraft's involvement with the defense industry work has raised some red flags in the US. The company said its defense unit, which is involved in military training, surveillance and light-attack aircraft, would remain a separate entity and be sold off for an estimated US$400 million. The money would go to Superior.

But the machinists questioned why Superior would be entitled to a refund of as much as US$400 million once those assets are sold and why the proposal includes a provision that the Chinese firm would have "ongoing relationships" with that business.

Greater pressure

Apart from money and governmental approvals, Superior will face even greater pressure from the future operations of the combined company, said Cao.

"Cheng has been in the aviation industry for only five years," Cao said. "How can he manage to take an 80-year-old US jet maker out of difficulties?"

Richard Aboulafia, a US aviation analyst with the Teal Group, agrees.

"China's general aviation market isn't all that big," he wrote.

"It has good growth rates, but in terms of being able to sustain the company-no!"

The Beijing company's stated intention of retaining US production raises questions about the efficacy of building planes in Kansas and then shipping them to China.

"The sticking point is: Are they really going to keep all these jobs in Kansas? It really doesn't make sense," said Cai von Rumohr, an analyst at Cowen & Co.

He cited the recent move by Cessna Aircraft, also a US general aviation jet maker, to collaborate with the Aviation Industry Corp of China, a stronger player in China, to make a number of products in Chengdu, Sichuan Province, for the Chinese market.

Hawker Beechcraft employs about 7,400 people, with about 4,700 working at its facilities in Wichita, Kansas. It also has factories in Little Rock, Arkansas, and more than 100 service centers worldwide.

"We will aggressively work to keep jobs in the United States by continued production of the Hawker and Beechcraft product lines," Superior Chief Executive Officer Tim Archer said in a latest statement.

Superior boss Cheng said Hawker Beechcraft's operations in the US would give the Beijing company valuable expertise in jet manufacturing.

"It's not as simple as a car plant," spokesman Qian agreed. "It's much more complicated. We wouldn't move the plants to China and start making jets in China right away."

Moreover, China's private jet sector faces challenges such as restricted air space, a lack of infrastructure and pilots, and high taxes on imported aircraft.

Other aircraft makers, such as Embraer or Textron, may be hovering in the wings waiting to bid if the Superior deal falls through.

On the plus side for Superior, the Chinese government has been trying to promote the country's small but growing general aviation sector.

The State Council, China's Cabinet, said last week in its first guidelines for the civil aviation industry, that research and development will be encouraged and more airspace opened for private aircraft.

In March, the first Asia Business Aviation Conference and Exhibition was held at Hongqiao International Airport in Shanghai, attracting about 30 planes from jet makers, including Boeing, Airbus and Brazil-based Embraer.

At the fair, Hawker Beechcraft sold three of its King Air series business jets to the Civil Aviation University of China and to the Xinjiang Tianxiang Aviation College.

Embraer, which secured approval in June to manufacture jets on the mainland, has forecast that China will need 635 business jets, with a total market value of US$21 billion, over the next decade.

There were 137 private jets registered on the Chinese mainland last year, compared to 32 in 2008, according to state aviation authorities.