Photographer: Mark Elias/Bloomberg

Carlyle Wins U.S. Approval of $2.07 Billion Aviation Deal

  • Buyer is world’s biggest provider of services like refueling
  • Must sell assets at 6 airports to avoid `monopoly or duopoly'

Carlyle Group LP’s $2.07 billion sale of the flight-support business Landmark U.S. Corp. was approved by the U.S. on the condition that the buyer, BBA Aviation Plc, sell some of its American facilities to avoid imposing a “monopoly or duopoly” on customers at half a dozen airports.

BBA, of London, announced in September that it planned to acquire Landmark from the Washington-based asset management firm. BBA’s Signature Flight Support division is the world’s biggest provider of refueling and other on-the-ground services to private, business and commercial aircraft, with 70 facilities in the U.S., according to a Justice Department filing. Acquiring Landmark would add about 60 locations in the U.S. while reducing costs from combined operations.

The Landmark deal threatened to reduce competition in these services at six airports, the U.S. said in a filing in Washington federal court, citing Washington Dulles International Airport as well as airfields in Scottsdale, Arizona; Fresno and Thermal, California; White Plains, New York; and Anchorage, Alaska.  

As a condition of approving the purchase, the Justice Department said that BBA must sell Landmark operations at those facilities and that those sales must be to buyers approved by the U.S. The accord remains subject to court approval.

‘Monopoly or Duopoly’

“The merger would have subjected general aviation customers at six airports to a monopoly or duopoly for critical fueling and support services,” Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division said in a statement Wednesday. “Higher prices and lower quality services were the likely result.”

BBA Aviation said in a statement that it was pleased with the result and that the sales process for the six facilities was under way. Randall Whitestone of Carlyle declined to comment on the pact.

Carlyle is the world’s second-biggest manager of alternative assets such as private-equity holdings, real estate, credit assets and hedge funds. Private-equity firms typically aim to hold the companies they acquire for about two to five years, to return profits to the clients in their funds. Carlyle closed its deal to buy Landmark in the fourth quarter of 2012.

The process can go faster when a business in the firm’s portfolio has a “strategic” buyer, a company in the same industry, rather than another private-equity firm or an exit from an initial public offering of stock. Such a buyer can use its own stock to finance the deal and pay a premium for the strategic value the asset brings it -- those much-vaunted “synergies.”

Good Price

Carlyle is getting 12.8 times Landmark’s earnings before interest, taxes, depreciation and amortization, or Ebitda, based on an annualized estimate of the cash-flow figure provided in the September deal announcement by BBA. That’s probably more than it could have gotten for the business by selling it to another private-equity firm, based on the median 9.9 times Ebitda paid for leveraged buyouts in the past five years, according to data compiled by Bloomberg. BBA justified the multiple by citing $35 million in annual cost savings due to synergies.

Carlyle, founded in 1987, spent its early years carving out divisions of aerospace, defense and industrial companies before opening up to other industries in the 1990s. Among its early deals was an acquisition, with Northrop Corp., of LTV Corp.’s aircraft operations, which it renamed Vought Aircraft Co. after completing the purchase in 1992.
 
Since then, the firm has invested in Standard Aero Holdings Inc., an aircraft engine maintenance, repair and overhaul company; Arinc Inc., an aviation communications and information systems provider; and Sequa Corp., which provides aftermarket services for aircraft and jet engines. Carlyle has also struck joint ventures to make aviation investments, including a 2010 agreement with RPK Capital Management to deploy $600 million in such deals.

BBA had about $2.3 billion in global revenue in 2014, according to a Justice Department statement, while Landmark brought in more than $700 million the same year, mostly from its U.S. refueling and other ground services. The facilities at the six airports contributed about $16.1 million in earnings before interest, taxes, depreciation and amortization.

The case is U.S. v. BBA Aviation, 16-cv-174, U.S. District Court, District of Columbia (Washington).

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