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Bankrupt aircraft maker Hawker Beechcraft Inc, owned by Goldman Sachs (GS.N) and Onex Corp (OCX.TO), said it is in exclusive talks with a little-known Chinese aerospace firm over the sale of the company for $1.79 billion, an offer that may flush out higher bids from other parties.

A successful deal would fill a gap in China's aviation capabilities as the company seeks to secure business jet technology and help develop China's small but growing private aviation market.

Superior Aviation Beijing Co is a 60-40 joint venture between privately owned Beijing Superior Aviation Technology Co and government-backed Beijing E-Tong International Investment & Development Co.

"There could be lot of opportunities for us if the government opens up the private jet sector," said Superior's spokesman, Qian Chunyuan, adding the deal would be funded with bank loans and the company's own money.

If the deal does get through, the priority for Superior is to keep Beechcraft afloat rather than moving its plants to China, he said. The Chinese maker of plane engines and parts has offered to fund Hawker Beechcraft's jet operations over the next six weeks.

"It's not as simple as a car plant. It's much more complicated...We wouldn't move the plants to China and start making jets in China right away. Our priority will be to keep Hawker Beechcraft afloat and resume its normal operations in the U.S. rather than moving everything to China."

When asked if other parties are interested in the company and willing to raise the price, he said money was not the main problem.

"The approval could be a bigger issue for us," he said.

A deal with Superior would be subject to approvals from the Chinese government, the U.S. bankruptcy court and the Committee on Foreign Investment in the United States, known as CFIUS.

CFIUS, which includes top officials from the U.S. Treasury, Commerce, Justice, State and Defense departments, has authority to review potential national security risks in deals that could result in foreign control of a U.S. business.

Hawker Beechcraft, whose exclusivity period with Superior runs for 45 days, said in a statement on its website the defense business would remain a separate entity. The defense unit manufactures military training, surveillance and light-attack aircraft.

Including the defense unit in a sale to a Chinese company, especially one that is partly state-owned, would be problematic politically, so a U.S.-based buyer for that unit is more likely.

Bankers said U.S. defense industry players or private equity firms could be interested in the defense business and British defense contractor BAE Systems (BAES.L) has also been touted as a potential buyer.

If the defense business is sold to another company, up to $400 million of the $1.79 billion purchase price would be refunded to Superior.

If finalized, Superior Aviation's offer for the U.S. business jet maker will be subject to an auction process overseen by the bankruptcy court.

Other aircraft makers such as Brazil's Embraer (EMBR3.SA) or Textron (TXT.N) could bid for Hawker Beechcraft when the auction process starts, industry bankers said.

Hawker Beechcraft filed for Chapter 11 bankruptcy in May, unable to support a $2.5 billion debt load amid a weak market. The Wichita, Kansas-based maker of business jets, general aviation turboprops and military aircraft has filed a reorganization plan that will give secured lenders at least 81 percent of the company's equity when it emerges from bankruptcy.

The Superior offer "is very good news for existing customers, which means the company will stay alive and continue to invest in parts and support," said Chris Buchholz, chief executive of Hongkong Jet, which is owned by China's HNA Group.

STATE SUPPORT

Industry players said the offer was confirmation of China's aim to grow the private aviation industry in line with the 12th five-year plan mapped out by Beijing, which has a track record of using deep government pockets to push state-backed companies up the ladder.

"If China wants to build a new industry or grow the aviation industry, you have to have the knowledge. Where is the knowledge? It's not in China, so you buy it in," said Bjorn Naf, chief executive of Hong Kong-based business jet operator, Metrojet.

China's private jet sector is in its infancy compared with the United States and Europe. It faces challenges such as restricted air space, a lack of infrastructure and pilots as well as high tax rates for imported jets.

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

Credit Suisse said in a July 9 report that China has made "substantial inroads" into various transportation industries and private aviation was not impervious.

"We have therefore raised our view of the global competitive threat from Chinese business jet manufacturers to 'medium' from 'low'," the bank said.

The Beechcraft deal underscores the steady pace of outbound acquisition offers that China has pursued in the last five years to support its rapid economic growth and signals a shift from traditional areas of interest such as resources.

Excluding Tuesday's activity, China's outbound acquisition offers so far this year total $18.1 billion from 148 deals, according to Thomson Reuters data, slightly ahead of last year's pace. China's 2011 outbound M&A total was $58 billion, the data show, its highest level since 2008, and well above the few billion in deals it did a decade earlier.

This article is copyrighted by Reuters