Marriott Will Sell Catering Unit to One of NWA’s Buyers

Marriott Corp., the nation’s largest hotel operator, agreed Tuesday to sell its leading airline catering business to an investment group that includes Frederic V. Malek, a former Marriott president who participated in the recent buyout of Northwest Airlines.

The price was not disclosed, but lodging industry analysts estimated the price at $650 million.

Marriott had previously said it planned to sell the catering unit--Marriott In-Flite Services--in order to concentrate on its hotels and restaurant operations. Though the airline catering business is profitable, lodging industry analysts said it is growing at a rate of 5% a year, about half the growth rate of Marriott’s other businesses.

Marriott, based in Bethesda, Md., said it would use the proceeds from the sale to reduce its debt. “It will make Marriott more flexible to grow faster,” said Michael Mueller, a lodging industry analyst with Montgomery Securities in San Francisco. “It makes a lot of sense.”

The deal is the second airline-related transaction in three weeks for Malek, an equity partner with Alfred A. Checchi in his $4.05-billion winning bid for NWA Inc., the parent of Northwest Airlines. In an interview, Malek said no special relationship between Northwest or the catering company is contemplated. Currently, Northwest is a Marriott customer for the meals served to passengers.

Founded in 1937, Marriott In-Flite Services is the largest airline catering business in the world. Serving 150 airlines from 83 airports, it is twice the size of its next largest competitors, Dobbs International and Sky Chef. It has annual revenue of $800 million and, Mueller estimated, operating income of $60 million. It employs 19,000 worldwide.

Mueller said Marriott dominates the airline catering business by strict attention to detail and an ability to motivate hourly workers who prepare and deliver the food. “They are more sophisticated than their competitors,” he said.

Besides Malek, other members of the acquisition group are 40 high-level executives from Marriott’s airline catering unit, including Daniel J. Altobello, president of Marriott’s airport operations group. Marriott will continue to own a “significant” stake in the catering business, which will continue to operate under the Marriott name, Altobello said.

Altobello said he plans to offer ownership stakes to 100 middle managers “right down to the kitchen general manager.”

Altobello said he sees strong growth opportunities for the company as airlines begin to emphasize service over ticket costs. He said he believes that the catering company will be able to react more quickly to changes in the marketplace since it is no longer “a small part of a giant company.” Marriott has about $7.4 billion in revenue.

Financing for the acquisition is being arranged by the Carlyle Group, a Washington merchant bank. Malek is a senior adviser to the Carlyle Group, which will also acquire a small equity stake in the catering company.