Tuesday, April 1, 2008

Carlyle Affiliate Does April Fool's on State of Texas

The Carlyle Group purchased Vought Aircraft Industries in July 2000. In 2004, the state of Texas gave Vought $35 million as an incentive to create 3,000 jobs. Later, those plans changed. According to Vought's SEC filings:

In February 2004, we announced plans to consolidate portions of our manufacturing operations to Dallas and Grand Prairie, Texas. The consolidation plan, as originally designed, was intended to renovate and modernize the Dallas facilities, close the Nashville and Stuart sites and reduce the size of the Hawthorne site. In December 2005, we announced our intention to keep the Nashville and Stuart facilities open to support certain programs whose future deliveries did not justify the costs to move the programs to Dallas and these plans were finalized in April 2006.

That same month, Vought Aircraft announced it would eliminate 600 Texas jobs vs. adding the promised 3,000 new positions. Two years of interest earned on $35 million, say at 5%, meant a $3.6 million boon to Vought's financial position. One might expect that to secure those Texas jobs.

So what happens if they don't meet their targets? Time is running out on those 3,000 new positions, promised by 2009. A Dallas Morning News piece offered this several years ago:

Vought executives said they still expect to reach their job-creation goal, but they provided little detail about how they would do so.

Neither does their just issued annual report shed any insight. While it shows the Texas $35 million in grant monies as a liability, there's no footnote, unlike South Carolina 's $66.7 million. Vought just announced the sale of their South Carolina joint venture to Boeing, mostly due to poor manufacturing performance. Boeing sought control to get production back in line.

So where will these 3,600 Texas jobs come from? The company has little time to manufacture the 3,000 jobs promised plus the 600 lost. The Texas Congressional delegation rode to the rescue with a $2.4 billion earmark that helps Vought.by extending the C-17 program and its 650 Texas jobs. Otherwise, the company fallls further into the hole relaitve to those promised targets. What happens if it fails? The Dallas Morning News article shed some light on that question:

Penalties may apply if Vought fails to maintain the required jobs level through 2019. But the maximum amount it would need to refund is $33 million, potentially netting Vought a $2 million gain.

Not only do they pocket $2 million, but they can earn interest on the $35 million for five years, as well as the slowly declining principal between 2010 and 2019. At a conservative 5%, Vought can earn $9.7 million in interest income for 2004-2009. Over the next ten years, the job reneger could pocket an additional $23.1 million in interest income, even while returning $3.3 million per year to TEI coffers. That totals $32.8 million in interest earned during the life of the grant. Adding the $2 million freebie and Vought can earn $34.8 million from Texas taxpayers for absolutely nothing.

Governor Rick Perry had this to say when announcing the award to Vought in Februray 2004:

“Taxpayers can know that this is a wise investment of public dollars because, once this expansion is finalized, the annual return will be more than twice the original investment.”

Some four years later, it's clear Texas citizens have been April Fooled.