Carlyle acquisition of Garrett will build bizav powerhouse

 - October 12, 2006, 5:50 AM

With the announcement last month of its intent to acquire Garrett Aviation Services, The Carlyle Group is creating a formidable business aviation industry presence in the U.S.

The Washington-based global private equity firm expected to close the $160 million cash deal to acquire Garrett from General Electric by the end of last month and will integrate Garrett into its U.S.-based Piedmont Hawthorne holdings.

Garrett Aviation offers a broad range of aftermarket business aviation services, including engine and auxiliary power unit maintenance; repair and overhaul; airframe maintenance; avionics installation; interior completion and refurbishment; engine retrofit; and three full-service FBOs. According to Garrett president Frank Klaus, Garrett is “the single largest worldwide source of TFE731 engine overhaul service and the single largest maintenance and repair resource for the business aviation community.”

Piedmont Hawthorne, based in Winston-Salem, N.C., is the second-largest FBO network in the U.S. with 32 facilities nationwide. Most of the FBOs also provide airframe maintenance and avionics service, and the company’s assets include The Associated Air Center interior completion and refurbishment facility at Dallas Love Field.

In an interview with AIN, Klaus said the acquisition was a step in the right direction for Garrett. “As I explained to our employees, General Electric is a great company, but it’s an airline business. Now we’ve gone from being in the back row with GE to being in the front row with Carlyle.”

Klaus described Garrett and Piedmont Hawthorne as having revenue sources both complementary and in common. Neither company operates facilities at the same location as the other. And Garrett’s interiors shop in Los Angeles is focused on large- and midsize business jet interiors, while Associated’s market is the completion and refurbishment of Airbus ACJs, Boeing Business Jets and larger airliners in executive/VIP configuration.

“But I’m puzzled as to what we would call ourselves as a single entity,” he admitted, pointing out that Garrett, Piedmont Hawthorne and Associated Air Center are three well recognized brands. “So for now, we’ll retain our individual identities, and at the same time operate as one company in terms of packaging of our services.

“The most obvious opportunity for the new company is the cross-selling of products and development of new products. We’re also considering, among other ideas, packaging fuel discounts with maintenance and repair services.”

He said the combined annual revenue of the three companies is currently about $700 million and described the growth potential for the new company as about $100 million a year, “before we even get into brick-and-mortar expansion.”

Klaus declined to discuss the deep pockets of Garrett’s new parent company. But this latest acquisition, combined with previous ones, makes The Carlyle Group–with more than $18.3 billion in managed assets–a major player in the aerospace industry. The company owns 33.8 percent of UK-based QinetiQ, one of Europe’s largest high-tech research-and-development organizations, and a controlling 70-percent interest in European engine repair and overhaul provider FiatAvio. Among Carlyle’s board members are former British Prime Minister John Major and former U.S. Secretary of Defense Frank Carlucci.

Klaus has been selected to serve as CEO of the integrated companies.