Staying on the Scent

“There are some men who lift the age they inhabit, til all men walk on higher ground in their lifetime. Mr. President, you are such a man.”

Frances Townsend, White House Homeland Security Adviser, used the compliment to George W. months before her resignation. She read it as her closing line during an October 21st, 2007 speech at Effat College in Saudi Arabia. For some reason, neither Karen Hughes’ hard work, nor Fran’s testimonial swayed the audience to think better of him. Only 12% of Saudis view Bush positively, according to a recent poll.

In December, the New York Times suggested Fran would leave office unscathed. Funny, how does one write a report on Hurricane Katrina, yet leave out the hospital with the highest number of patient deaths? Fran omitted any mention of LifeCare Hospital and its 24 patient deaths. Just weeks before Katrina sideswiped New Orleans, The Carlyle Group closed its purchase of LifeCare.

When Mrs. Townsend retired, she said she wanted to do global risk management for a large bank or financial services firm. She certainly has experience managing Carlyle's risk. They have to be happy about entering 24 potential wrongful death lawsuits with the feds silent on everyone’s performance.

Guess what else didn't come up recently, as Carlyle sought to buy huge nursing home provider, ManorCare? One might expect failing patients in a time of crisis to be an important consideration, but the topic never arose. Carlyle closed on ManorCare's over 500 facilities just before Christmas. If Carlyle can fail patients in one of twenty one long term acute care hospitals in a time of crisis, what can they do with over 500 mostly nursing homes?

But back to Fran's future and those managing her next steps. She hired an attorney who lists senior members of The Carlyle Group amongst his star struck client list. Hmmm, Fran leaves Carlyle out of an important government investigation and then hires a lawyer with experience serving their senior managers? Which large investment house will end up with her services? Could it be...

Dubai's Owning Six Ports vs. Fifty Airports?

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...