Dow Jones’ Private Equity Analyst – “Jordan, Nautic Investing $500M in Milestone Aviation”

Dow Jones’ Private Equity Analyst – By Daniel Hausmann

Dublin — Jordan Co. is leading a $500 million investment in new aircraft-finance business Milestone Aviation Group Ltd.

Nautic Partners LLC also is investing in the deal. The specific breakdown of ownership stakes hasn’t been disclosed.

Richard Santulli, chairman of Milestone, was a co-founder of NetJets Inc. The company’s chief executive, William Kelly, was previously chief executive of NetJets Europe. Santulli, Kelly and others started putting Milestone together over seven months ago.

They met with a number of private equity firms and settled on Jordan and Nautic, Santulli said. He said he has known Jordan Chairman John Jordan for over 20 years.

The company will focus on providing financing for helicopters and private jets–a contrast from earlier private equity deals in aircraft leasing that focused on commercial planes.

“We know a lot about private jets, we know a lot about helicopters,” Santulli said. “This is more of a relationship deal.”

And in another difference from other leasing businesses, the company won’t acquire a bulk of equipment and attempt to lease it out. Milestone will work with customers on selecting aircraft, acquire those planes and helicopters, and then enter into lease deals with customers. Kelly estimated the company could own $3 billion to $4 billion in assets in the next five to six years, with expected debt financing.

The customers would operate the leased aircraft and bear operating costs. Milestone targets operators at the small-to-medium-sized space that may not have the balance sheet freedom to finance the purchase of aircraft but need to compete with larger operators, Santulli said.

Jordan officials weren’t available for comment.

In the last eight months, there has been a flurry of activity in the aircraft sector. Carlyle Group and other investors committed $600 million behind RPK Capital Partners, a newly formed aircraft-leasing company. CVC Capital Partners, Cinven Group Ltd. and Oak Hill Capital Partners combined to put $1.4 billion, including debt, behind Irish aircraft-leasing company Avolon. Oaktree Capital Management LP committed $500 million to Sky Holding Co., a new venture in the space, late in 2009.

Nautic officials couldn’t be reached for comment.

Milestone, of Dublin, was advised by Credit Suisse Securities LLC, Clifford Chance LLP and Proskauer Rose LLP. Jordan was advised by Mayer Brown and Winston & Strawn LLP.

Reach Jordan Co. at 212-572-0800; Nautic Partners at 401-278-6770.

Aviation Week – “NetJets Execs Launch New Leasing Firm”

Aviation Week – By Kerry Lynch

Fractional ownership pioneer Richard Santulli and former NetJets Europe CEO William Kelly have resurfaced in the aviation industry with a newly established helicopter and business jet leasing firm, Milestone Aviation Group.

The company today announced it has secured $500 million of equity capital commitments to formally launch the business. The Jordan Company, a middle-market private equity firm, is the leading investor with equity firm Nautic Partners.

The company will have bases in Dublin, Ireland, and Columbus, Ohio, which is the home of Santulli’s previous venture, NetJets. Santulli was widely believed to be a rising star in NetJets’ parent Berkshire Hathaway, when he stepped down a year ago as chairman and CEO of NetJets amid mounting losses.

Santulli had formerly created RTS Helicopters, a helicopter leasing company that primarily served the offshore oil and gas industry. In 1986, however, he turned his attention to the concept of selling fractions in aircraft, an enterprise that initially was met with substantial skepticism.

But after several years, the fractional ownership company, then called Executive Jet Aviation, began to take off and was acquired by Berkshire Hathaway’s Warren Buffet for $725 million. The company was renamed NetJets in 2002.

In his newest venture, Santulli returns to the helicopter/business jet leasing business. “Starting a new business when I see a marketplace opportunity is what I love to do,” Santulli says, calling the helicopter and private jet financing niche an important, but underserved market. “Today, many good helicopter operators worldwide cannot get access to capital despite a demand for their services.”

The business will be headquartered in Dublin and provide up to 100% financing for new and used aircraft transactions. Milestone will purchase the aircraft and lease to the customer.

“Our entire management team has experience in running an aviation company, which helps us uniquely understand our customers’ needs,” says Kelly. “We understand safety, flight operations and maintenance.” Kelly joined NetJets in 2002 and took over the NetJets Europe operation in 2006. He left the company last fall.

Bloomberg News – “Buffett Protege Santulli Back in Aviation With Helicopter Fund”

Bloomberg News – By Andrea Rothman

Aug. 4 (Bloomberg) — Richard Santulli, who quit as chief of Warren Buffett’s NetJets Inc. unit last year, raised $500 million to return to aviation with a venture that will help provide helicopters for oil companies and police.

Milestone Aviation Group, based in Dublin, aims to become a multibillion-dollar company financing the purchase of rotorcraft for competitors to the four main helicopter operators in North America, Santulli said in an interview today.

“We intend to be the predominant player,” Santulli said from New York. “We’ll be providing capital to a marketplace that really needs it. There are good operators out there who can’t compete with the big four on major contracts.”

Santulli left NetJets last August after the business he founded and sold to Buffett in 1998 slid into losses during the recession. Milestone will focus on helicopters and jets, with 100 percent financing for new, used and sale-and-leaseback deals, he said. Target markets include oil and gas exploration, medical services, law enforcement and construction, he said.

North America’s main helicopter operators are CHC Helicopter Corp. of Canada, the largest provider of flights to offshore oil rigs and platforms and owned by First Reserve Corp.; Houston-based Bristow Group Inc.; and PHI Inc. and Era Helicopters LLC, both based in Louisiana. Milestone said it will also aim to provide financing for those companies.

Buffett Contact

While still at Columbus, Ohio-based NetJets, Santulli was regarded by analysts as a possible successor to Buffett at Berkshire Hathaway Inc. He said the two remain in touch.

“I just spoke with Warren yesterday,” said Santulli, 65, a one-time head of Goldman Sachs Group Inc.’s equipment-leasing group. “He asked me to send him materials about the company.”

Berkshire’s NetJets allows clients to buy fractional ownership in private jets. Gains at NetJets helped boost the parent company to a $3.6 billion first-quarter profit, Berkshire said May 7.

Milestone is talking with helicopter manufacturers including the Eurocopter unit of European Aeronautic, Defence & Space Co., Finmeccanica Spa’s AgustaWestland division and United Technologies Corp.’s Sikorsky brand, with initial purchases “close to fruition,” Santulli said.

While the military-helicopter market is booming, with sales up more than 30 percent in 2009, civil demand fell 12 percent last year and may decline further in 2010, partly because of difficulties in financing, said Richard Aboulafia, vice president of Teal Group, a Fairfax, Virginia-based consultant.

‘First Effort’

“To the best of my knowledge, this is the first effort at creating a business of such magnitude in this market,” Aboulafia said. “There’s still a credit crunch for smaller businesses, but demand is high as oil prices drive the need for exploration.”

Santulli said his initial $500 million comes from U.S. private-equity firm Jordan Co. LP, together with Nautic Partners. He and Milestone CEO William Kelly have also contributed funds. Longer term, Santulli said he expects to tap capital markets for debt as the business expands.

Milestone will provide operators with leases that span the same period as their service contracts, and also bear residual risk beyond the immediate operating costs, Santulli said.

AIN Online – “Santulli Back in Bizjet Business”

AIN Online – By Matt Thurber

Richard Santulli announced today the launch of a new business jet and helicopter leasing company, Milestone Aviation Group, headquartered in Dublin, Ireland. Santulli in the mid-1980s founded fractional share company NetJets, which was sold in 1998 to Warren Buffett’s Berkshire Hathaway. Santulli left that company last year. He is now chairman of Milestone. Before launching NetJets, Santulli was in charge of equipment leasing for Goldman Sachs Leasing and founded helicopter leasing company RTS Helicopters. William Kelly, former CEO of NetJets Europe, is Milestone’s CEO.

Milestone is starting with $500 million of equity capital provided by The Jordan Company,a private equity firm. It is leading the investment team and partner Nautic Partners. Milestone will purchase aircraft selected by customers then lease the aircraft to the customer. The lease covers new, pre-owned and sale-leaseback transactions, and customers are responsible for all operating costs for the leased aircraft.

According to Santulli, Milestone has already signed up one firm customer and is working on deals worth about $110 million in Brazil, Canada and Nigeria. He expects about 80 percent of Milestone’s business to be helicopter related, with the rest business jets. Milestone will lease only turbine-powered aircraft, and helicopters will be available solely for customers that use them for revenue-producing purposes, such as oil and gas work, aeromedical operations and private and government search-and-rescue activities. The customers that Milestone will partner with must have excellent operational and maintenance records, he said, but their balance sheets might be stretched to the point where it’s difficult to obtain traditional financing, making it hard to bid on contracts.

Business jet buyers will be able to obtain short-term leases through Milestone. “We’re not competing with Bank of America,” Santulli said, “which does a spectacular job. We’ll tend to be a creative player in the airplane space.” Milestone will offer lease periods as short as one to three years and limit customers to about a dozen jet types. No deals involving fractional shares will be considered, however.

Santulli said that he decided to return to the aviation business because, in consulting with Kelly and other team members, he saw that there wasn’t much competition in the helicopter and business jet leasing arena. “We felt that we had the ability to service that market very well,” he said. “I believe we will build a successful company and provide help to companies that otherwise would not be able to bid on these contracts.” Both Santulli and Kelly have an equity stake in Milestone Aviation. Berkshire Hathaway is not financially involved in Milestone.