Thursday, July 9, 2009

Boeing Buys Out Second Problem 787 Supplier Affiliated with Carlyle Group

Despite paying $2 million in annual management fees to the Carlyle Group, affiliate Vought Aircraft Industries and a joint venture partner clogged the 787 Dreamliner production line. Boeing purchased Vought's interest in the JV in June 2008. It took until May 2009 (nearly a year) for Boeing to clear up the bottleneck in the former JV's operations.

Did Boeing turn their attention to the next kink in the supply chain? Bloomberg reported Boeing purchased Vought's North Charleston operations for $580 million and will forgive $422 million in advance payments. Consider the words of Vought CEO Elmer Doty in Vought's press release:

“The financial demands of this program are clearly growing beyond what a company our size can support.”

Odd, the Carlyle Group has billions on the sidelines for infrastructure and failing financial institutions. This isn't the first time Doty complained of "financial demands."

Last October, Doty acknowledged that Vought was the highest-risk supplier on the 787 industry team. At the time, Doty attributed Vought's struggles to an internal liquidity crisis in 2006 that prevented the company from ramping up investment in the 787 programme at a sufficient rate.

Vought added to their difficulties with a $1.5 million settlement in an employment discrimination lawsuit.

Bloomberg noted Vought invested $540 million including capital and inventory in its South Carolina operations. The State of South Carolina provided $66.7 million in incentives for Vought to locate Dreamliner operations in the Palmetto State. That was nearly double Texas' $35 million job incentive. The point is Carlyle/Vought didn't pony up all $540 million in capital and inventory. They had public assistance.

What about other help? Carlyle had one insider on the Boeing board, the CEO of The Nielsen Company. The Carlyle Group purchased Nielsen in June 2006. Mr. Calhoun was appointed Nielsen's Chairman of the Executive Board and Chief Executive Officer that same year.

Vought booked a $47 million gain on the sale of the joint venture, according to SEC filings. How big a gain will they claim on the sale of Vought's North Charleston operations? It could range from $40 million to $529 million. I bet it lands toward the top of the scale. Stay tuned...