The Carlyle Group, the Washington-based merchant banking firm, has signed a non-binding agreement giving it the right to purchase a majority stake in a financially troubled Newport News, Va., defense contractor, according to a statement released yesterday.
The contractor, Flight International Group Inc., said the two companies have until Dec. 15 to reach a binding agreement.
"We are very enthusiastic about the prospects of completing this transaction. It clearly represents a major step in our efforts to restructure Flight International," said Nelson Happy, chairman and chief executive of the Newport News company.
The 14-year-old Flight International Group provides mock combat services to Navy and Air Force fliers, using Lear jets to mimic the actions of enemy planes. The company, which had fallen on hard times, was only beginning to recover.
Its new management under Happy has succeeded in restructuring more than $27 million of its $63 million debt; it has reached a $5.25 million settlement with stockholders who accused the company of releasing inaccurate financial statements in 1988 and 1989; and it has brought its financial reports up to date with the Securities and Exchange Commission, allowing its stock to be listed again on over-the-counter markets.
For Carlyle, whose vice chairman is former defense secretary Frank Carlucci, the talks with Flight International reflect the firm's continuing interest in reviewing possible acquisitions in the depressed defense sector. Earlier this fall, Carlyle purchased control of McLean-based defense contractor BDM International Inc. The firm also owns a stake in Harsco Corp., a Pennsylvania-based defense and industrial products company.
A New York firm, Smith Technologies Inc., also has an option to buy a controlling interest in Flight International during a 10-day period that started Sunday, but that option is not likely to be exercised, sources said.
Though it is highly contingent, the agreement between Carlyle and Flight International was made public because of Flight's desire to avoid any further trouble with federal regulators, one source said, adding that Flight International approached Carlyle and is paying the cost of Carlyle's study to see if it wants to go forward with a deal.