Oil prices to stay low; GECAS buys Milestone

Dino D'Amore
By Dino D'Amore October 14, 2014 20:35

Oil prices to stay low; GECAS buys Milestone

Saudi Arabia has once again made it clear that it wants to see oil prices above $80 a barrel with no aims to see it higher than this mark, thus dispelling any thoughts of production cuts following oils recent price weakness. Some wonder if this move is designed to damage competitors such as shale producers in the US who need oil to be above $90 to make an acceptable margin, something at this time is not likely. Although the move by the Saudis is more likely to increase shale oil production R&D in the long term which in turn will allow the US producers to fight back against the Middle Eastern oil producers.

So could there ever be such a thing as an oil production market share war on the horizon? Either way right now as oil stands at $85.74 for WTI and $88 for Brent the weakness continues to give airlines with fuel hedges in place real headaches. There is no question that the likes of SIA, following the price falls below $90 a barrel will be worried that it is going to face significant hedge losses as Saudi officials told oil market investors and analysts recently in New York that it is ready to accept prices between $80-$90 a barrel for the next few years.

The Saudis and OPEC with them are playing their card by curbing new shale patch or ultra-deepwater drilling spend to repair their falling market share. This action should assist the global economy and at the same time many airlines, especially those in India. Right now as things stand the outlook for Indian aviation, especially, is far better than it was a month ago. The casualty will be the Venezuelan economy which now looks to be in for a battering if oil does not rise.

GE Capital Aviation Services (Gecas) has agreed to buy helicopter leasing specialist Milestone Aviation for $1.775bn. The deal is expected to close in the first quarter of 2014. Goldman Sachs advised Gecas on the deal, whereas Bank of America advised Milestone.

Gecas is expected fund the deal with cash, which also has a forward order and option book of $3 billion with a variety of helicopter manufacturers. Milestone, which focuses on leasing equipment to oil and gas, and mining industries, and emergency search and rescue services, has a portfolio of 168 helicopters worth $2.8 billion, which are leased to 31 operators in 25 countries.  Milestone’s assets have been funded using a mix of bank debt and export credit financings, while the company has raised funds in the debt capital markets. Post-merger, those asset-backed transactions will likely be refinanced by Gecas.

Milestone Aviation Group was established in 2010 by Netjets with an initial $500 million in financing from private equity firms Jordan Co and Nautic Partners.

Gecas is diversifying its aircraft leasing business and growing its helicopter financing platform with this deal. Sources suggest that this deal could be the start of a trend for larger leasing companies to spread into the helicopter leasing market through acquisitions of this type.

Dino D'Amore
By Dino D'Amore October 14, 2014 20:35