Bush's Fancy Financial Footwork

not something George W. Bush talks about much -- indeed, it's a fact that has been virtually purged from his official biography -- but for four years in the early 1990s, Bush was a director of a company that ultimately collapsed under the weight of its junk-bond financing and management mistakes.

The privately held company, called Caterair International Inc., was created in 1989 when Marriott Corp. spun off its airline catering business to investors organized by the Washington investment bank the Carlyle Group. If you haven't heard of it, Carlyle is a sleek financial operation that does its deals with help from a roster of former government big shots such as former defense secretary Frank Carlucci, former secretary of state James A. Baker III and even former president George Herbert Walker Bush. As of 2001, a newspaper article pegged Carlyle's value at about $12 billion.

The Caterair deal was a piece of financial engineering known at the time as a "leveraged buyout." It was financed mostly by high-yielding "junk bonds," of the sort pioneered in the 1980s by Michael Milken, who later served jail time for his financial shenanigans.

Carlyle and its investors paid about $570 million for Marriott's In-Flite Services division, which the hotel wanted to sell so it could concentrate on its core business. The investor group was headed by Frederick V. Malek, a Carlyle senior adviser who had served as director of the 1988 Republican convention -- the one that nominated Vice President George H. W. Bush.

Malek resigned in September 1988 as a high-level adviser in the elder Bush's campaign after disclosure that in 1971, at the insistence of his boss, President Nixon, he had compiled a list of Jews at the Bureau of Labor Statistics, who, Nixon suspected, were part of "Jewish cabal" that was distorting his economic achievements. Several on the list were later transferred to different jobs, but Malek said he had no role in personnel decisions and denied he had willingly engaged in anti-Semitic conduct, arguing that he had been coerced by Nixon's repeated requests. The Malek flap didn't hurt his friend the vice president, who was elected as the nation's 41st president in November 1988.

It was Malek who suggested that George W. Bush join the Caterair board in 1990, according to a 1991 article in the New York Times. "I thought George W. Bush could make a contribution to Caterair," the Times quoted Malek as saying. "He would be on the board even if his father weren't President."

A March 2001 profile of Carlyle in the Times noted that the investment bank "gave the Bush family a hand in 1990 by putting George W. Bush, who was then struggling to find a career, on the board of a Carlyle subsidiary, Caterair, an airline-catering company."

Bush remained on the Caterair board until May 1994, according to a Sept. 17, 1994, article in the Dallas Morning News. He said he resigned so he could concentrate on his campaign for governor of Texas. The paper reported that Bush had previously disclosed that he owned between 1,000 and 4,000 shares of "stock appreciation rights." What intrigued the Dallas newspaper was that Bush had dropped the Caterair connection from his official campaign résumé in August 1994.

At that time, Caterair was staggering under its huge debt load, and because of unforeseen changes in the airline catering business. The Dallas paper noted at the time that in SEC filings, Caterair had disclosed $263 million in operating losses and writeoffs since its 1989 founding.