Business First of Columbus: Milestone Aviation hits new high with $600M credit line

Business First of Columbus

Evan Weese

22 August 2013

After just three years, Milestone Aviation Group is soaring in the helicopter leasing business.

Co-founded and led by former NetJets Inc. CEO Richard Santulli and with its U.S. operations based in Columbus, the young company is expanding at a rapid pace, most recently closing on what it called the biggest debt facility for a helicopter lessor.

Dublin, Ireland-based Milestone got its start with a $500 million private placement in August 2010, a year after Santulli stepped down from NetJets, the Columbus-based fractional jet ownership company he founded. Milestone buys new and used helicopters and leases them to a range of clients, including oil and gas producers, search-and-rescue agencies and medical services providers.

The company, which runs an office in Colts Neck, N.J., has seven employees at its Arena District office.

Milestone has made strides to establish itself in the industry, but none was more important than this month’s closing of a $600 million revolving line of credit. The five-year financing is a rarity for a company three years old, said President Daniel Rosenthal.

The debt facility includes a revolving accordion feature that could expand the borrowing capacity up to $750 million, the company said.

“It will change the way we do business and reinforces the financial strength as a company,” Rosenthal said. “It allows us to be more aggressive about pursuing deals.”

Milestone since 2010 has acquired more than 100 aircraft valued at more than $1.5 billion. It also has future helicopter orders and secured options valued at $2.2 billion. It has leased to 22 operators in more than 20 nations.

In its niche, Milestone aims to move quickly when a customer needs aircraft, said Rosenthal, formerly executive vice president at NetJets.

Offshore drillers have proven to be major clients. While aircraft makes up 3 percent to 4 percent of an oil rig’s production budget, “the other 97 percent is worthless without the asset,” Rosenthal said.

“That’s where leasing has become more attractive,” he said of the industry.

Milestone in July secured a $300 million credit facility to acquire and lease helicopters valued at $400 million to Houston-based Bristow Group, which provides the aircraft to offshore energy companies.

A former Goldman Sachs principal, Santulli formed NetJets in 1984 when he bought Executive Jet, which got its start in Columbus in 1964. NetJets was acquired in 1998 by Berkshire Hathaway Inc.

Santulli was not available for comment.

The company stayed close to its Columbus roots by partnering with Huntington Bank for financing, as well as for advice on debt, interest rates, foreign exchange and depository needs. Huntington played a big part in the $600 million financing deal, though it would not disclose specifics.

For Huntington, financing the unique, high-cost industry is not viewed as an excessive risk, said Michael DiCecco, chief commercial officer and head of the equipment finance division for Huntington.

“It’s not higher risk,” he said. “In fact, we believe specializing (in specific industries) is a de-risking strategy more than a risk-attraction play.”

Rotorhub: Milestone announces new $300 million credit facility


30 July 2013

Milestone Aviation Group has announced that it has secured a new $300 million credit facility that will enable the company to acquire and lease helicopters valued at US$400 million to affiliates of Bristow Group. The assets include the Sikorsky S-92, Eurocopter EC225 and AgustaWestland AW189 and AW139 aircraft.

Lloyds Bank acting through its Corporate Asset Finance division was the mandated lead arranger and facility agent while Lombard, the dedicated asset finance arm of The Royal Bank of Scotland Group, and Barclays Bank served as original lenders for the credit facility.

Richard Santulli, chairman and CEO, Milestone, said: ’We are delighted to have closed this innovative, single lessee transaction with Lloyds, Barclays and Lombard. We structured this transaction with Bristow and worked together to bring it to completion. The proceeds will allow us to continue to support Bristow and grow this important relationship while diversifying our sources of capital.’

Milestone’s capital strategy is focused on developing diverse sources of funding to conservatively grow its business and best meet the needs of the helicopter community. The company has over $500 million in equity capital and has raised $1.8 billion in debt commitments from leading banks in North America, Europe and Asia as well as insurance companies and the US capital markets.

The news of the credit facility follows the announcement that the company is supporting the growth of helicopter services provider, Blueway Offshore Norge, by financing the delivery of a Eurocopter EC225 to the company for change missions to offshore oil and gas platforms in the North Sea.

Milestone leases EC225 helicopters to a number of operators throughout Australia, Brazil, Denmark, Norway and the UK.

AIN: Milestone Inks $300M Credit Facility for Bristow Deal

by  Chad Trautvetter

Aviation International News

July 30, 2013

Milestone Aviation Group, the helicopter leasing firm headed by NetJets founder Richard Santulli, closed a new $300 million credit facility yesterday. The company will use these proceeds to acquire and lease helicopters–including Sikorsky S-92s, Eurocopter EC225s and AgustaWestland AW189s and AW139s–valued at $400 million to affiliates of Bristow Group. The credit facility is the largest ever for a helicopter lessor, the company said.

“We are delighted to have closed this single lessee transaction,” said Milestone chairman and CEO Richard Santulli. “The proceeds will allow us to continue to support Bristow and expand this important relationship while diversifying our sources of capital.”

In other news, Milestone financed the delivery of a Eurocopter EC225 to Blueway Offshore Norge, a subsidiary of Blueway. The Norwegian-registered helicopter will be used for crew-change missions to offshore oil and gas platforms in the North Sea. This European delivery is the first since the aircraft was cleared for a full return to flight, it said.

To date, the company has 10 EC225s in its fleet portfolio, with these aircraft currently on lease to four operators. Milestone also has 30 EC225s worth $850 million on order, and these aircraft are scheduled to be delivered over the next five years, starting later this year.

Corporate Jet Investor: A textbook example, an inside look at the first helicopter export credit bond

Jun 19, 2013

Sophie Segal

Corporate Jet Investor 

Milestone launched the largest helicopter export credit financing ever in 2013. It was a transaction of many firsts: Milestone’s first export credit guaranteed deal; the US Export-Import Bank’s first bond secured by helicopters; and, Deutsche Bank’s first Ex-Im guaranteed bond issuance.

But the deal took patience and determination. After three years of meeting with US Export-Import Bank (often at Corporate Jet Investor conferences), the Dublin-based helicopter lessor mandated Deutsche Bank in the last quarter of 2012 to raise an Ex-Im guaranteed bond for nine Sikorsky S-92s.

The $187.4 million helicopter deal, which launched on May 22, raised cheap, long-term funding for aircraft acquisitions. “In this era, to secure 12-year financing at such a low cost provides confidence to our investors and provides good stability to Milestone as we continue to grow our overall strategy,” says Daniel Rosenthal, president, Milestone Aviation Group.

Twelve-year funding is rare in the helicopter market, and the capital markets option allowed Milestone to achieve attractive terms. (Before the bond, the lessor was using a commercial bridge facility from Deutsche Bank to fund deliveries, which began in November 2012.)

“We want to blend low cost financing with long term maturity financing,” says Daniel Rosenthal, president, Milestone Aviation Group. “Ex-Im provides us with both.”

Milestone is the first company to issue an Ex-Im bond that is secured by helicopters. The fact that helicopters are less familiar to bond investors than commercial aircraft made this transaction slightly more complicated said a banker working on the deal. But it did not impact the end result. The deal was two-times over subscribed and priced at mid-swaps +51bps with a coupon of 1.87%. This is easily Milestone’s lowest cost of debt.

The Ex-Im capital markets option was created as an alternative type of capital when bank debt dried up in 2009 during the financial crisis. A guaranteed bond allowed purchasers of US manufactured aircraft to reach a deeper investor base in the US capital markets who would buy US government risk. Since Emirates’s inaugural issuance in October 2009 there have been over 70 Ex-Im bonds issued for a diverse group of commercial airlines.

“This is not a transaction that happens overnight. It was the product of working with Ex-Im Bank for three years,” says Rosenthal. Milestone management started working with Ex-Im Bank just after establishing the company in August 2010.

“We had been in discussions for a long time,” says Kathleen Flanagan, senior loan officer, Ex-Im Bank. “Usually we would require three years of audited financial statements, but we made an exception in this case because of the industry experience of the principals involved.”

Flanagan is keen to emphasize that this was an exception. This deal was the product of a dedicated effort to establish a relationship between the bank and lessor.

“What is different about Milestone is the size of the order and its experience in the bond market,” says Flanagan. “A bond deal was an attractive option as opposed to individual ‘plain vanilla’ loans because of the volume of aircraft and the relatively short interval over which they are being delivered. The fact that Milestone had issued a bond previously was also a factor.”

After receiving approval from Ex-Im Bank to proceed with the bond, Deutsche Bank – the mandated arranger – was left to execute the deal. While these bonds typically have a regular pool of investors, Milestone’s deal expanded the investor base, attracting two new accounts as well as a large order from an investor who had not purchased Ex-Im bonds for a long time.

One complication was that investors do not know helicopters as well as fixed-wing aircraft because it is a smaller market. Also, there was a perception that helicopters are more prone to accidents, so while the bond is guaranteed, investors need to get comfortable with the technology to understand the investment risks. Bondholders were not concerned about principal risk because Ex-Im guarantees the bond, but they did have concerns about the ‘make whole’ clause in the event of an accident. The fact that it was a new asset class that investors were learning about meant that the company and bankers had to spend time and effort to educate the investor base according to the banker working on the transactions.

Diversity of lessees was key to create a strong product. The nine-aircraft deal includes five customers based in Brazil, Norway and the United Kingdom.


Timing mattered too. Milestone was scheduled to go to market in May, but given the option to delay a couple of weeks if necessary. “If Milestone had gone to market a week later, the pricing would have been about 20bps higher,” says the banker.

Milestone should be thrilled with its 1.86% coupon, particularly given the dearth of long-term capital available for helicopters. And while it is unlikely that this structure will be replicated for a vast number of clients due to the small nature of the market and that there are only a few companies with large equipment orders, Rosenthal says that Milestone will definitely consider a repeat transaction.

“This is a textbook example of how the Ex-Im process should work,” says Rosenthal. “It wasn’t easy and it wasn’t quick, but it was thoughtful and thorough.”

Vertical Magazine: Making Waves

Making Waves – Article from Vertical Magazine

2013-06-11 by Oliver Johnson of

Something akin to a revolution is taking place in the helicopter industry. And it isn’t a particularly subtle one. Just a few short months ago, at Helicopter Association International’s Heli-Expo 2013 in Las Vegas, Nev., the helicopter leasing business had a very public coming of age. The big headlines at the show were not made by new product unveilings, but enormous blockbuster deals. And standing toe to toe with perennial industry heavyweight Bristow Group in announcing these deals was Milestone Aviation Group, a leasing company that hasn’t even completed its third year in business — yet already has a leasing fleet valued at over $1.3 billion US, and has orders and options for additional aircraft worth another $2.2 billion.

Rotorcraft leasing is hardly a new concept — Calgary, Alta.-based Eagle Copters Ltd. has, for example, been doing so for the past 30 years — but Milestone is undoubtedly leading the charge of a host of ambitious new companies, including Lease Corporation International Helicopters (LCIH) and Waypoint Leasing Ltd., that have been launched in the firm belief that investment in rotary-wing aircraft is the next big thing in aviation finance. Why now? What is it that makes the helicopter industry suddenly so appealing to financiers? And what benefits, if any, are operators likely to see from this sudden rush for their business?

“It’s a really interesting market,” said Usman Ahmed, an aviation analyst with consultancy firm IBA Group Ltd. “There were lots of banks who were in to helicopter financing before the recession, but they were not really interested in anything below $15 or $20 million. . . . I think the reason you are seeing suddenly an influx of lessors coming into the market is that they’ve realised just how liquid the helicopter is in terms of its value retention.” In stark contrast to the fixed-wing market, where aircraft such as a Boeing 737 or Airbus A320 may be worth just 50 to 60 percent of their purchase cost after 10 years, Ahmed said helicopters generally maintain, at the very least, 70 to 80 percent of their value over the same time frame. For financiers, this makes them a relatively lowrisk asset and market in which to invest. Add to this a new wave of technologically- advanced — and expensive — medium to heavy helicopters entering a booming oil-and-gas transport sector that’s providing high demand, allied with an upcoming replacement cycle for older offshore models, and it adds up to an enticing package for many financiers.

The New Colossus

Since its launch in 2010, Milestone has been appearing with growing frequency in industry headlines for the size of its orders and contracts with operators. At Heli-Expo 2013, it announced an astonishing batch of orders with Eurocopter and Sikorksy that included 14 EC225s, five EC175s, 23 S-92s and seven S-76Ds. Launched with $500 million of equity seed, it’s headed by Richard Santulli, the founder and former chairman and CEO of NetJets, the ground-breaking fractional private jet ownership company. However, Santulli’s history with the rotorcraft industry stretches back almost 30 years — he founded another helicopter leasing company, RTS Helicopters in the early 1980s, and ran equipment leasing for Goldman Sachs.

“I guess I have an affinity and fondness for the space,” said Santulli of his return to the rotorcraft industry in an interview with Vertical. “It really is the fact that [helicopters] hold their value much better [than fixed-wing aircraft]. They don’t go through cycles. If you go back 30 or 40 years, those that work on producing revenue, hold their values.” And it’s those “revenue-producing” helicopters — rather than VIP or corporate aircraft — with whom Milestone wants to do business. “We won’t do VIPs, executive transport. We don’t have any interest in that. From day one we’ve said that we will do helicopters that earn a living, that earn revenue,” said Santulli. “A company or individual can wake up that day and say I want to sell that asset.” Whereas a revenuegenerating helicopter “really is the lifeblood of a company,” — meaning that the operator is very unlikely to risk losing it by not make a lease payment.

While Milestone has lease arrangements with operators working in helicopter emergency medical services (HEM S), the bulk of the company’s business is in the offshore transportation sector, where the operating giants have been quick to partner with it. When Milestone and Bristow announced the signing of an operating lease for five aircraft valued at $125 to $135 million in February 2012, Bristow CFO Jonathan Baliff said it reflected a new fleet strategy for the operator. “We are reducing the number of aircraft owned by Bristow in favor of a mixed fleet of owned and leased aircraft,” he said. “This, combined with selling off our older model aircraft, will enable us to accelerate the shift to the latest technology aircraft preferred by our clients.”

Santulli said that when Milestone’s founders were raising the capital for the company, a lot of potential private equity investors thought that they would never do business with the big operators. “We said that eventually we would,” said Santulli. “Did it happen sooner than we thought? Maybe. But the two biggest players in the space account for almost 50 percent of the business — CHC and Bristow. So if you’re not doing business with them, you’re not going to be a very big company.”

Different Models 

Perhaps one of the longest-standing major lessor in the industry, Eagle Copters has been leasing helicopters for the last 30 years. The company has a diverse range of activities that also includes maintenance, repair and overhaul support; product development (such as the Eagle Single and the much anticipated 407HP — an STC program that re-engines the Bell 407 with a Honeywell HTS 900); completions; and aircraft sales. According to Spyke Whiting, vice president of sales and marketing at Eagle, the growth of the leasing side of the business has been very organic, and was begun by company founder Mel O’Reilly “with nothing more than a gut feeling,” with aircraft added to the fleet as the company’s capital allowed. Today, the company has more than 70 helicopters — primarily Bell medium-lift aircraft — out on lease, including what Whiting believes is one of the largest fleets of Bell 205s still in existence.

“We may not be what’s considered a typical finance company, but we sure do lease a lot,” said Whiting. “We compare to them, we just happen to have somewhat different helicopters that make up the lease portfolio.” Although many of the leased aircraft are working in utility operations, Whiting said the company doesn’t box itself in to a particular market segment. “The other big part of our business is buying and selling helicopters, and it gives us a unique opportunity to cross multiple platforms,” he said. “Not only do we have the capability to configure the helicopter, we also have a pretty good idea of where the market is for that particular piece of equipment.”

The Eagle lease fleet is being continually grown and updated — any helicopter added to the portfolio right now is either larger or newer, said Whiting, with the company looking at a range of platforms. “We are known primarily for our Bell specialty,” he said, “but as other manufacturers introduce the helicopters people want, you’ve got to be able to move with that – so we are considering diversification as a growth opportunity.”

Era Group Inc., parent company of renowned offshore operator Era Helicopters LL C, joined the leasing industry with the launch of Era Leasing LL C in 2005. According to Era CEO Sten Gustafson, the move into leasing offered many advantages, allowing the operator to take full advantage of the flexibility of helicopters by tapping into different markets. “These things are very expensive, so to generate a sufficient return, you’re always focused on making sure that an aircraft works as much as it possibly can and is generating revenue,” he said. “From our perspective, our primary business is servicing the oil-and-gas sector, but having the leasing angle allows us to have access to a much broader market for helicopters — without all the cost and infrastructure.”

While Era doesn’t currently lease any helicopters to Bristow, it does lease to CHC, and is happy to lease to companies that may be deemed competition, said Gustafson — although this would be in areas Era doesn’t operate in. This provides the company with access to places like the North Sea, West Africa and Australia, offering the benefits, albeit indirectly, of these working in these markets. And while fleet leases may be more desirable for many leasing companies, Gustafson said that for Era, sending aircraft out in ones or twos was “more of our sweet spot.”

Currently, of Era’s total fleet of 175 helicopters, around 40 are out on lease. There is no “leasing fleet” per se — when an aircraft finishes a contract (whether operated by Era or a lessee), the company will simply assign it where it will generate the highest return. That could be on another Era contract, out to a lessee for work in HEM S or searchand- rescue (SAR), for example, or it could even be sold — an option that is particularly viable in the rotorcraft industry, with the extremely high value retention of the aircraft. “We have sold a lot of aircraft and, on average, we have sold at a very meaningful premium to book value,” said Gustafson. “We have made over $25 million of profit above where we bought the aircraft. It’s a pretty unique asset that can do that.”

In terms of future growth opportunities, Era will be looking to further explore what it deems untapped leasing markets. “I think we probably haven’t really fully accessed all the different potential areas into which we could lease helicopters,” said Gustafson. “We’re going to really explore opportunities outside the traditional oil-and-gas sector, get out the map if you will, and say, ‘Here are all the potential uses for a helicopter, are there people that we can lease them to in those areas?’ And really make a very targeted effort.”

New Entrants 

Lease Corporation International (LCI) has been leasing aircraft to the fixed wing market since 2004, but launched a subsidiary, Lease Corporation International Helicopters (LCIH), in 2011. “The operating leasing of helicopters is a pretty new concept and we were able to get in on the ground floor,” said Mike Platt, CEO of LCI. “With few other competitors, there’s a real opportunity for us being here in the early days — we see lots of opportunity for growth.”

In particular, Platt said the company liked the underlying user base for the offshore fleet, with oil and gas companies offering very strong credit — as compared to fixed-wing airlines that are dependent on the changeable appetites of the public. “Oil companies don’t tend to come and go, and as long as the operators are doing their job I think it’s a good and stable place to be.”

LCIH currently has about $400 million of helicopters on order with AgustaWestland, including AW139s, AW169s and AW189s. In April 2013, it made its first delivery (an AW139 to Bond Offshore Helicopters in Aberdeen, Scotland), and while the supply of medium-to-heavy helicopters to the oiland- gas transport and SAR sectors is certainly LCIH’s initial focus, Platt said the company would also be looking at the HEM S and law enforcement sectors, with orders for smaller helicopters considered, dependent on demand.

The latest major entrant into the helicopter financing market is Waypoint Leasing Ltd., which is headed by Ed Washecka, the former CEO of Era Group. Washecka oversaw the launch of Era’s leasing business, and was keen to enter the market with his own company following his departure from Era in 2011. At Heli-Expo 2013, the fledgling company signed a deal with AgustaWestland for four aircraft (GrandNew, AW139, AW169, and AW189 helicopters), and then in early May, Waypoint announced that it had secured $375 million of equity growth capital from three major investors (MSD Capital, Soros Fund Management and Cartesian Capital Group), allowing it to build business.

“Now that we have the capital backing, we are certainly interested in speaking to OEM s, but our focus is going to be providing capital to operators by doing sale-leasebacks with their existing fleet, or by supporting their new deliveries that they’ve already ordered,” said Washecka. He said MSD and Soros had the capacity to commit more capital once the initial $375 million was invested. “These firms are all very long-term focused, and I think that’s very good for our business — and I think that’s good for the industry.”

For Waypoint, diversity is the key, said Washecka. “We’re not going to focus on one sector, one manufacturer, [or] one part of the world.” Like the other major financial leasing companies, Waypoint will steer clear of leasing to corporate or VIP customers, but every other sector will be explored. “I would like avoid being too concentrated in oil-and-gas,” said Washecka. “I think oil-and-gas is a great market . . . but the fact is, I’d prefer the diversity of having some contracts through search and rescue, others that are EM S, and I think the challenge will be that there’s a lot of growth opportunity in oil-and-gas, so how do we make sure that we don’t get too concentrated? That will be the challenge.”

But is there a danger that the market could soon become saturated by the sheer number of leasing companies now entering the market? “I think that’s certainly a risk,” said Washecka. “It’s a niche market where one or two well-capitalized and experienced operating lessors can succeed, but not the type of environment where numerous companies will compete and thrive.”

According to IBA aviation analyst Usman Ahmed, the liquidity of the helicopter as an asset is, in addition to its flexibility, due to the fact that there’s a relatively limited supply from the OEM s. “The only concern we have is that the more the leasing fleet grows, the asset itself may not be as liquid as it is now,” he said. “If the industry grows at an alarming rate whereby operators are simply finding lots of leased helicopters from lessors, if the production and delivery industry is not as disciplined as it is now . . . that would drive down the value of the helicopter.”

Financing your helicopter 

From an operator’s perspective, what are the benefits of acquiring an aircraft through a lease? With the huge cost of the latest and greatest technology being beyond the reach of some operators through traditional financing means, the very ability to acquire a helicopter at all may be a key reason, with the deep pockets of lessors providing access to the required capital that banks may baulk at. In addition, “there definitely is an aspect of some risk mitigation,” said Era’s Gustafson — with the asset appreciation or depreciation absorbed by the lessor rather than the lessee. “Also, if you need an aircraft quickly . . . you probably have a better ability to access an aircraft faster through a leasing company,” he said.

Chuck McGuire is managing director of aviation finance, lease, and consulting company Avstar Finance. “[Leasing] is the lowest cost of capital you will find because the depreciation and tax benefits are being kept by the financial institution and they’re giving those back to you in the form of reduced payments,” he said. He added that while the older generation of operators often think of their aircraft’s residual value as part of their retirement savings, this attitude may be changing among the next generation. “If you want to grow your business, leasing allows you to do it quickly and at lower cost. But when you go to buy the helicopter at the end, if you want to buy it, you’ll probably pay [its original purchase price]. A loan, of course, gives you the full utilization of the asset as well, plus the equity at the end — but it’s going to cost you a little bit more money in the middle.”

McGuire said there are a few key things operators should be doing before they finance a new aircraft. “If you go to any of the big OEM s, a key question to ask is: ‘Do you have any relationship lenders or lessors that you recommend we talk to?’ ” he said. “Nine times out of ten, they know the people that really understand their particular product, the value retention of that particular product compared to the others, and who really likes to [finance] that product. You’re not asking for help, you’re just asking for a little direction.”

Secondly, McGuire recommends talking to peers and friends within the industry to benefit from their experiences. “The last thing, and oftentimes the most important, is to have a candid look at yourself,” he said. “It’s amazing that each and every day the helicopter operator goes to work and he knows what his proprietary niche is, why he is better than anyone else, and why he should win the contract. Seldom do these guys ever tell this to their banks or their financial institution. They need to provide a financing package that is as well thought out as a proposal for a contract.”

Future growth 

According to IBA figures, only five percent of the world helicopter fleet is currently composed of leased aircraft — but with the current boom in leasing companies, that figure is likely to soon grow. “You will see a lot of operators will switch to the leasing option,” said Ahmed. “The smaller operators, who are operating four to five helicopters, that is the large proportion of the market — and this market is untapped, basically. There’s hardly any support from banks at the moment. So we are trying to have the banks [see that] the benefits to the banks are too good; and for operators, it gives them the flexibility of having that cash available for difficult times rather than tying it up in the asset.”

One thing is for sure: the increasingly large pool of potential lessors vying for operator business is only going to get bigger. But the extent to which the benefits of this will trickle down from the major operators to those managing smaller fleets remains to be seen.

Oliver Johnson is managing editor of Vertical Magazine. He can be reached at

Corporate Jet Investor: The New Age of Helicopter Operating Leasing

May 23, 2013

Corporate Jet Investor

By: Sophie Segal

At an investor analyst day in April, Bristow Group disclosed that it had 15 bids to lease helicopters for the take over of the UK’s Search and Rescue (SAR) operations. The contract is worth over $3 billion and includes assets totaling about $600 million. Bristow announced that it had signed a letter of intent with Milestone Aviation Group to be the primary lessor and the company is in discussions with additional lessors.

While helicopter leasing is not a new phenomenon, the last two years have seen a number of dedicated asset managers emerge. Milestone was the first to announce its helicopter leasing platform in 2010, shortly followed by LCI Aviation, which is already an established fixed-wing lessor; Waypoint, which secured a $375 million equity check last month; and, Lobo Leasing, which is keeping its strategy and the identity of its investors closely guarded.

“This is a space that was highly underdeveloped,” says Bill Wolf, president and CEO, Lobo Leasing. “The attraction of capital to the helicopter leasing space in such a short period of time is amazing.”

That is not to say that operating leasing is new to this asset class. In the 1980s Richard Santulli, founder of NetJets, bought helicopters to lease to operators. By 1986 he had built a fleet of 192 helicopters. As he moved into the fractional ownership market he sold off the helicopters to fund his new ventures, selling 190 of 192 helicopters at a price higher than the original purchased price. It is no surprise that Santulli has returned to the helicopter leasing market with his latest venture Milestone Aviation Group.

“It’s a nice return in a low risk business,” says William Kelly, CEO, Milestone. “Working helicopters have a very robust model and have not seen the same kind of volatility as has been seen with fixed-wing aircraft in recent years.”

Milestone prides itself on being the first truly global helicopter lessor, with contracts in North America, South America, South East Asia and Continental Europe. While Milestone has been in the market for over two years, LCI Aviation has been looking at entering the market since 2009, launching its platform with a $400 million order with AugutaWestland in 2012. “We’ve been looking at this space for four to five years,” says Crispin Maunder, executive chairman, LCI Aviation. “Helicopters are a much smaller segment of the aviation industry. Until recently, all leasing was being done between the operators to each other.”

This distinction between operating leases offered by banks and those offered by lessors is important and key to the new arrival of several aircraft lessors to the market.

Typically banks have only focused on local markets, taking residual value risk on when it comes to a local company’s assets.

“The customer base sees the value of non-bank operating lessors – that’s our growth opportunity,” says Ed Washecka, CEO, Waypoint Leasing. The company secured $375 million in April from three private equity funds, including George Soros’s and Michael Dell’s investment funds. Cartesian Capital, the third investor, specializes in emerging markets and will extend its expertise to the Waypoint management team as the company works with international clients.

Like Milestone and Waypoint, LCI will be targeting an international client list. The company already has experience with commercial aircraft. “We see both helicopters and fixed-wing aircraft in our portfolio mix – in many ways they are complementary and have different market cycles,” says Maunder. “However, helicopters are without doubt a far more complex class of lease product and call for a lessor to have an expert and experienced team.”

About 65% of the civilian helicopter fleet works offshore. The extreme conditions in which these assets are deployed means that these helicopters require a tremendous amount of maintenance and parts replacement. However, the constant regeneration of these assets gives them a longer life than is seen in the fixed-wing market. “You have a thirty-to-forty year asset that’s pretty resilient when markets crash,” says Clark McGinn, managing director, CHC Leasing. “If you’re leasing to one of the major operators you have a highest and best use asset with a long life. That’s a great value proposition and investment.”

This is definitely the case for utilitarian helicopters. While corporate jet values dropped as much as 50% after the financial crisis according to some estimates, medium-to-heavy helicopters saw at most a 10% drop in values. And, even then, values rebounded within 12 months. This is in large part due to the fact that they serve businesses like oil and gas, search and rescue and emergency medical services that are not sensitive to consumer demand.

Milestone and LCI have already signed several deals. Milestone has over 90 helicopters already on lease to about 20 customers in jurisdictions all around the world and LCI has placed all of its 2013 deliveries and is working on 2014 orders. Both companies have placed orders for helicopters in the hundreds of millions of dollars. Waypoint, which has also signed one lease as of last month, also placed a direct order with manufacturer AugustaWestland in March. Lobo Leasing, which was originally backed by Perella Weinberg Partners, has not placed any aircraft orders and it has not announced who are their shareholders.

In addition to those lessors who have placed director orders with manufacturers, all four lessors will provide sale/leasebacks on secondary equipment, offering refinancing opportunities to operators.

Flexibility and demand

Investors are bullish about the underlying fundamentals of the industry, particularly in the oil and gas industry. They are encouraged by the trend towards deeper water drilling, which will continue to necessitate helicopter transport and result in sustained returns. And, there will be a large replacement requirement according to Kelly, who notes that 35% of the civilian helicopter fleet is over 20 years old.

In addition to attractive opportunities in the market in the long-term, the post-financial crisis climate has created a demanded for alternate sources of funding after many aggressive players scaled back lending in 2009. This new wave of lessors has come at a time when alternative sources of capital are in demand and where some operators would rather retain cash.

As a result of the economic downturn, loan-to-values have fallen, meaning that the equity check for an acquisition is much higher and rates are higher too. But leasing has other notable benefits aside from having to invest in the equity of the asset.

“Some operators would rather have more balance sheet flexibility,” says Washecka. “Or they’d rather do operating leases that match the contracts that they are getting with their end users.”

CHC Helicopters has used structured financing to lease aircraft since the early 2000s to fund its aircraft fleet. In fact, McGinn says the majority of the portfolio is leased. He acknowledges that there has been nothing like the aircraft lessors in the commercial aviation space until now. And just like CHC uses export credit, bank commercial equipment financiers and insurance companies to fund aircraft acquisitions, the company is also speaking to operating lessors. “This is just another iteration of a theme of diversification we’ve seen over the last decade,” says McGinn.

On the other hand, Bristow Group, who could not comment for this article due to a blackout period, said in an analyst meeting in April that the majority of the helicopters in its UK SAR deal would be leased. Including the UK SAR deal, the company would like to grow the total number of leased aircraft fleet from 15% to 30%. In the meeting Bristow executives said that leasing helped achieve a “very competitively low cost of capital from the lessors”. While the company is building its leasing profile, it still operates an ownership business model and will continue to maintain its own helicopters.

But it is not just the large companies that will benefit. “We thought we could enter the market and really help some small to medium sized companies to establish their fleets, as well as offer competitive solutions to bigger players,” says Kelly. Milestone has recently leased aircraft to international customers in India, Indonesia and Mexico as well as to large helicopter operators such as Bristow and CHC.

Operating leasing provides an opportunity for smaller operators, which might not have upfront capital to invest in the equity of the asset, do not have access to cheap debt to make a deal viable, or do not have the technical and asset management capabilities.

“To the extent that we (and operators) can educate the market on the benefits of leasing it will bring the cost of capital down for the whole industry, which would result in lower costs,” says Washecka.

Stable returns and low risk

One of the reasons this sector has attracted capital is because of the stable residual values. Most other hard assets depreciate in real economic terms. That degradation does not happen with helicopters, however, because of maintenance and replacement. Hence, why Santulli was able to sell so many helicopters at higher prices than for that which he purchased them.

“The residuals are certainly much higher than commercial aircraft,” says McGinn. “Helicopters are a utility workhorse, so they look like a sound investment to investors.”

The base case is that the assets will retain their value, but in the best case they will appreciate in real terms. “That’s the bet everyone is making, and it has been proven over time,” says Wolf. “What’s new to the equation is that lots of new capital is available.”

At the moment, aircraft lessors are confident that there is a demand for their services and that placing orders will not negatively impact the market by creating too much supply. “Even with a modest uptick in production that Sikorsky and Eurocopter have announced, we still have a shortage of heavy helicopters in particular,” says McGinn. “It’s all about a rational balance and I don’t see any irrationality in the market at this point.”

The helicopter lessors are only in the assent of their first cycle, so predicting the outcome of a platform sale is difficult. What an exit might look like or what kinds of returns to expect are anyone’s guess. “It is still too early to reliably gauge expected returns,” says Maunder. “But, we’re not in it to make a loss.”

Given Santulli’s 99% rate of success in making money on his helicopter investments, one can predict that the four companies above are making a good bet.

But, the utilitarian helicopter market is still small in comparison to the commercial fixed-wing in terms of number and value of aircraft delivered (about $85 million) in 2012. According to the General Aviation Manufacturers Association, some $3.36 billion of helicopters were delivered in 2012. While a lot of this value came from the 214 twin turbine helicopters that were delivered it also includes 328 piston helicopters and 502 single turbine aircraft.

These four lessors will target twin turbine helicopters as their core market. This does raise the question of whether the market is oversaturated at with four leasing platforms for a small market.

Investors agree that there might be capacity for one or two additional helicopter lessors. There are rumors of another company (not named in this article) speaking to private equity companies about raising capital to enter this market.

“We’ve always had a lot of competition in this industry,” says Kelly. “People see there are opportunities there, and success breeds competition.”

Based on the 15 bids that Bristow received for the UK SAR deal, there appears to be a lot of interest and opportunity. Lessors should expect fierce competition over the next few years, which will benefit operators.

Helicopter-leasing company takes off

Milestone Aviation, a helicopter-leasing company created by the founder of NetJets, is climbing higher after only 2 year

By  Steve Wartenberg

The Columbus Dispatch Friday October 12, 2012 5:55 AM

It’s always been all about the numbers for entrepreneur Richard Santulli.

And when they add up, it’s time to get to work and create a new company.

“It starts off with the math,” said Santulli, who came up with the idea of fractional-jet ownership and turned Columbus-based NetJets into an industry leader. He sold the company to Warren Buffett’s Berkshire Hathaway for $725 million in 1998, then left NetJets in August 2009.

Soon after, Santulli — who earned an undergraduate and master’s degree in applied mathematics from Brooklyn Polytechnic Institute — began tinkering with a new set of figures. Liking what he saw, he formed Milestone Aviation in August 2010 with several former NetJets executives.

“I wanted to build something else and had a bunch of young guys who wanted to build it with me,” Santulli said.

Milestone purchases helicopters and leases them to commercial operators around the world, especially those involved in offshore oil-and-gas exploration.

The company’s fleet already includes more than 60 helicopters worth about $750 million, said Daniel Rosenthal, the company’s president. Milestone has offices in the Arena District, as well as Dublin, Ireland, and in New Jersey, near Santulli’s home.

“I studied the helicopter market,” said Santulli, adding that very few manufacturers offered financing options to their customers, and financing from banks was also limited.

“And I studied the offshore market … where the exploration is today and where it is going. It’s going further and further offshore, and they need larger helicopters to get to the rigs, and these helicopters are more expensive.”

These long-range twin-engine helicopters can cost $25 million or more each.

“Milestone has clearly changed the helicopter leasing business,” said Joe Baj of Bristow, a Houston-based company that is one of the world’s largest helicopter operators, with a fleet of about 280 aircraft.

Bristow leases five large helicopters from Milestone that operate in Norway and Great Britain and are valued at about $130 million. The company is in discussions with Milestone to lease additional helicopters.

“They’re very focused on building a relationship and getting to know us,” Baj said. “They put a lot of time and effort into helping us think about our business and are more like a partner, even though we don’t have any sort of partnership agreement.”

This type of attention to detail and customer service, along with a commitment to his employees, is the Santulli way, Rosenthal said, adding this is why he jumped at the chance to work with his former boss again.

“We wanted to stay involved with Rich. We love his approach to business and life,” he said.

Early in his career, Santulli led the leasing operations of Goldman Sachs. He then founded RTS Helicopters, which at its peak leased about 200 aircraft.

He purchased Columbus-based Executive Jets in 1984, and two years later introduced the idea of fractional-aircraft ownership. The company name was changed to NetJets in 2002.

“Rich revolutionized the industry,” said Scott Liston, a longtime NetJets executive who is executive vice president of Argus International, an aviation services company.

Santulli also created a corporate culture modeled after his vision of how a successful business should be run.

“Rich knew that his employees were his family,” Liston said. “And he knew if he didn’t treat us like family, he couldn’t expect his employees to treat the customers like family.”

The Milestone family includes former NetJets executives Rosenthal,

Matthew Harris, John Burns, William Kelly and Robert Dranitzke.

“The guys working for me are all superstars,” Santulli said.

Rosenthal cited “a difference in philosophy” with new CEO David Sokol as the reason he and other top executives left soon after Santulli’s resignation. Jordan Hansell took over in April 2011, soon after Sokol resigned.

Starting a helicopter leasing company in the midst of a recession was a gamble.

“And we didn’t even realize at the time how much of a gamble it was,” Rosenthal said. “We had to raise $500 million in capital for a company that didn’t even exist. It was a huge risk.”

But, once again, Santulli’s numbers and business model worked.

“For an operator, they know their lease (with Milestone) is for X-amount of dollars a year, and this allows them to bid on a contract with enough of a margin to make money,” Santulli said, adding that his company will only lease its helicopters to companies “who have a contract to use it to make money.”

Milestone charges its customers 11 to 16 percent per year of the total purchase price of a helicopter, Rosenthal said, adding that the average lease is for about 66 months.

Milestone already has begun to turn a profit.

“We’ve had a positive cash flow for the past (nine) months,” Santulli said, but declined to give specifics.

The commercial helicopter market is growing, said an industry expert.

“And it’s being led by the offshore oil segment,” said Douglas Royce of Forecast International. “ And the oil and gas industries are well funded and have certain worker-safety requirements that encourage the use of the newer, larger helicopters.”

This bodes well for Milestone, whose goal is $2 billion in assets by its fifth anniversary, Rosenthal said, adding that the company is ahead of schedule.

He and Santulli are confident their gamble has paid off and their numbers will work for the long term.

“The key is developing relationships and partnerships with the major helicopter operators around the world,” Santulli said. “We’re going to grow our business and control a significant portion of the helicopters being used for offshore oil.”



Milestone Media Contacts:

Eric Berman or Nathan Riggs

of Kekst and Company

+1 (212) 521-4894 / +1 (212) 521-4804

Wall Street Journal – “Big Order Shows Recovery”

The founder of NetJets placed one of the largest-ever orders for commercial helicopters, as the industry rebounds thanks to work from the oil and gas industry and the privatization of coastguard services.

Milestone Aviation ordered 19 Sikorsky helicopters with a list price of $682 million. Above, a Sikorsky S-92 helicopter seen on an oil rig.

By Doug Cameron

The founder of NetJets has placed one of the largest-ever orders for commercial helicopters, as the industry rebounds, thanks to work from the oil and gas industry and the privatization of coastguard services by governments overseas.

Milestone Aviation Group Ltd.— a company started by Richard Santulli two years ago after leaving NetJets, a corporate jet specialist he sold to Berkshire Hathaway Inc. in 1998—has ordered 19 more Sikorsky helicopters, adding to an existing order for three. The 22 have a total list price of $682 million including options. Milestone plans to lease the aircraft to big offshore operators such as Houston-based Bristow Group Inc., which fly workers and supplies to and from oil platforms in the North Sea, Gulf of Mexico and off the coasts of Brazil and West Africa.

Orders from Milestone and LCI Aviation, a London-based leasing company, have helped the commercial helicopter sector recover from the severe slump that started in 2008 as oil exploration slackened.

The big four global manufacturers are pressing ahead with plans for new aircraft: Sikorsky’s main rivals—AgustaWestland, Eurocopter and the Bell unit of Textron Inc.—are developing larger new helicopters with more speed and range to reach oil platforms hundreds of miles offshore.

Bob Kokorda, vice president of sales and marketing at Sikorsky, a unit of United Technologies Corp., said the faster speeds achieved by the new generation of twin-engine medium and heavy helicopters allows them to access far-flung oil facilities. Sikorsky builds 94 helicopters a year, and is looking to increase production.

Milestone already had three of the 19-seat Sikorsky S-92s on order and has leased 53 aircraft to 20 operators. Earlier this year, it agreed to buy 16 Eurocopter EC225s, a deal worth $480 million at list prices. Eurocopter is a unit of European Aeronautics, Defence and Space Co.

“We go where the oil is,” said Mr. Santulli in a recent interview. He said the company aims to have $1.1 billion in assets by the end of the year, with another $700 million in the pipeline. He started the company with $500 million from two private equity houses—the Jordan Company and Nautic Partners—and plans to seek more, having also recently raised $400 million in debt from a group of banks.

Operators such as Bristow, Vancouver-based CHC Helicopters and Inaer-Bond are contracted by oil and gas companies to service exploration and production rigs, but the sector remains fragmented with mixed credit quality, driving more to look at renting rather than buying aircraft.

That has been a boon for start-ups like Milestone and London-based LCI, an established commercial jet lessor, which moved into helicopters earlier this year with a $400 million order placed with AgustaWestland, a unit of Finmeccanica SpA.

While the oil and gas business is cyclical, a new market has emerged to provide search and rescue services previously performed by military or government agencies, notably in Europe.

The most closely watched is the result of final bids due in the fall for the U.K. government’s 10-year contract worth up to $5 billion to provide search and rescue services, with Bristow, CHC and Inaer-Bond all vying for the deal. Inaer-Bond was formed last year when funds associated with Investindustrial and KKR Financial Holdings LLC bought U.K.-based Bond Aviation Group Ltd. and merged it with their existing helicopter assets.

Mr. Santulli said the search and rescue market wasn’t even factored into his business plan when he started Milestone. It is only seen generating 10% of revenue in the $4 billion-a year global commercial helicopter market, but would represent a stable revenue stream for operators. The U.K. is expected to announce the winner of its contract early next year.

Business Air News – “Capital and creativity leads Bristow to opt for leasing”

Bristow is to acquire five large helicopters for North Sea operations by means of leasing agreements with Milestone Aviation Group.

William E Chiles, Bristow Group president and ceo, says: “The terms of these agreements, with Milestone covering 100% of the acquisition cost of the aircraft, meet our commercial needs to better manage our financial performance.

“What’s more, Milestone brought capital, creativity and commitment to the transaction process. We look forward to building a broader relationship with the Milestone team in the future.”

The companies completed operating leases in December for two Eurocopter EC225s deliverable in mid-2012 and anticipate closing the leases for three 2011 Sikorsky S-92 helicopters later this quarter. The total value of the five aircraft is in the range of $125 to $135 million.

This agreement with Bristow Group marks the largest for Milestone since its launch in August 2010. The company currently has an asset portfolio representing more than $500 million in financing commitments and now holds leases with three of the four largest helicopter operators in the world.

Richard Santulli, Milestone chairman, says: “We are delighted to enter into a financing relationship with Bristow, which operates the world’s largest fleet of commercial helicopters for the offshore oil and gas industry.”

AIN TV piece featuring Milestone

Milestone Aviation Group appear on AIN TV, click here to view video