The numbers and the business rationale behind the recently completed acquisition of helicopter leasing group Milestone Aviation by GE Capital Aviation Services (Gecas) are fascinating. Richard Santulli, the father of fractional ownership, founded the Ireland-based company in August 2010 by raising approximately $500 million in launch capital with a consortium of investors led by The Jordan Company private equity group. Just over four years later, he convinced Gecas to pay $1.775 billion and cover Milestone’s debt as the price of entry to a market segment in which Gecas has not previously been involved.
When Milestone started building its rotorcraft leasing portfolio, the oil-and-gas sector was strong and anticipated demand for helicopter operations in support of exploration and production activities was expected to boom. And indeed it did boom, especially in what were then dynamic emerging markets such as Brazil and Nigeria.
Around mid-2010, when Milestone’s founders were gathering launch capital, the price of crude oil was hovering around $80 per barrel. By the end of that year, their optimism must have seemed entirely vindicated as the price climbed to nearly $100. As of mid-October 2014, when Gecas announced its intention to buy Milestone, the oil price was around $85. But until a late spike in trading on January 30, the day the takeover closed, the price of a barrel barely reached $50, a decline of just over 50 percent over the previous 12 months.
However, no one can accuse Santulli and the rest of the Milestone founders of bailing on the business at a time of market decline. All are remaining in their current roles. Milestone president Daniel Rosenthal continues to lead the company’s existing management team, along with other founding executives John Burns, Robert Dranitzke, Matthew Harris and Walter Horsting. But it does beg the question whether they and Gecas might feel the need to recalibrate their target market for the helicopter leasing sector in view of the energy sector’s troubles.
In early February, several leading oil exploration and production companies announced significant reductions in planned capital expenditure for 2015. For example, BP chief executive Bob Dudley said that the UK-based group will cut investment by 20 percent this year in response to what he described as the worst oil industry slump since 1986.
The Milestone fleet now consists of 178 helicopters worth approximately $3 billion and it holds orders and options for another 121 aircraft with an aggregate purchase price of $2.7 billion. The existing aircraft are being flown by 32 operators in 26 countries.
African operator SonAir is a prime example of Milestone’s client base. In June last year it took delivery of three Airbus Helicopters EC225s that it has leased from the company for use in the oil fields of Angola.
Beyond Oil Operations
Milestone’s leasing customers also include operators active in sectors other than energy, such as search-and-rescue and emergency medical operations. For example, Bristow Helicopters–a heavyweight in oil and gas support–is set to begin providing search-and-rescue operations in the UK on behalf of the country’s Maritime and Coast Guard Agency. It will use 11 Sikorsky S-92s and one AgustaWestland AW189 that it agreed to lease from Milestone last November.
“The acquisition of Milestone is a key part of our growth strategy for 2015 and beyond as we add an experienced team and expand into a natural adjacency for us, helicopters,” commented Gecas president and CEO Norman Liu.
Between now and the end of 2019, Milestone is offering delivery positions for seven different helicopter types: S-92 (35 aircraft on order or option), EC225 (24), AW189 (27), S-76D (17), EC175 (five), AW139 (five) and AW169 (eight).
Last year Gecas, a major player in the airliner leasing market, recorded revenues that were down by 2 percent compared with 2013, at $5.242 billion. Profits, however, climbed by 17 percent, to $1.046 billion.
“The Milestone acquisition is a great fit for GE; it combines Gecas’s global reach and 45-plus years in leasing commercial jets with a fast-growing helicopter financing platform that will diversify our business and put our capital to work at good returns,” said GE Capital chairman and CEO Keith Sherrin when the acquisition was announced. “The addition of Milestone will deepen our domain expertise in aviation and oil and gas, two critical GE industries.”