The Carlyle Group, a large politically connected private equity underwriter (PEU), kept news of a pending sale of two of its aerospace companies off its website. Three months ago Carlyle agreed to sell Standard Aero Holdings Inc. and Landmark Aviation, two U.S. aviation maintenance companies, to Dubai Aerospace for $1.8 billion. The deal is under review by U.S. regulatory authorities.
Recall that Dubai-owned DP World's purchase of terminals at six U.S. ports in 2006 triggered a furor among U.S. lawmakers such as Senator Charles Schumer of New York, who said the deal would compromise national security. DP World completed the sale of the facilities to AIG Global Investment Group on March 16, fulfilling a pledge to jettison U.S. operations.
Should this sale go through the United Arab Emirates would control an airport refueling and maintenance company with sites all across America and an aftermarket jet engine servicing company with worldwide aspirations. Fifty airports is a much bigger deal than six ports. No news of the sale exists on either the Landmark and Standard Aero websites. The Emirates have big plans for the aviation market intending to have $7 billion in sales in two years and will finance its expansion using Islamic bonds.
Carlye is well known for growing the government portion of the business and Landmark is no exception. It recently received a military refueling contract in San Antonio. If America's ports are an attractive target for terrorist infiltrators, how excited might they be at striking a blow at U.S. military might on its home turf? One intrepid blogger researched CIA rendition flights and tracked them back to Landmark Aviation's Dulles operations.
So why the huge fuss over ports back then and the silence since early April? Could it be private equity's considerable political connections and influence? They contribute heavily to both parties. For the 2008 presidential race five candidates have received over $50,000 in PEU contributions. That includes three Democrats and two Republicans. Or could it be Dubai Aerospace already plans to spin off much of the operation? One insider believes so. The merger agreement specifies the divestiture of the 30 airport operations run by Landmark Aviation.
So how much will Carlyle make on the deal, should it go through? They purchased Standard Aero in 2004 for $670 million. The history of Landmark is more convoluted as two companies merged, Garrett Aviation and Piedmont/Hawthorne. Carlyle did not reveal the purchase price of Garrett Aviation in 2004. Piedmont/Hawthorne was created in 1998 by the merger of two Carlyle companies, while a third was added in 2000. One can assume the prices paid for such assets are significantly less than current value given the growth in aviation services field.
For the sake of illustration, let's assume Carlyle gets a 100% return on their long held assets. A $900 million profit would require capital gains taxes of $135 million at the 15% rate. The Bush tax cuts keep $45 million from entering the federal treasury to pay for say those CIA rendition flights. If this story doesn't reflect America's bizarre present, I'm not sure what does...
