Aer Lingus IPO Priced At Lower End Of Range

September 27, 2006

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Irish state airline Aer Lingus priced its initial public offering at 2.20 euros a share on Wednesday, at the lower end of its range, valuing the group at EUR1.13 billion euros (USD$1.43 billion).

Earlier this month, Aer Lingus gave a range of between 2.10 and 2.70 euros a share for the Dublin and London listing, which is scheduled for October 2.

"It is at the lower end of the range but at that level demand was very strong," Roy Barrett, managing director of IPO joint sponsor Goodbody Stockbrokers said.

Analysts said the float valued Aer Lingus roughly similar to British Airways, which has one of the lowest valuations of major European carriers.

Exane BNP Paribas said Aer Lingus had a valuation of about 12.7 times earnings per share for calendar 2006 if the company's results matched the previous year. This compares to about 11 times for British Airways.

Collins Stewart analyst Andrew Fitchie said the valuation was broadly in line with British Airways, which trades at about 10 times forecast EPS for the year to March 2007.

The listing will raise gross proceeds of EUR501.8 million (USD$636.8 million) for Aer Lingus, which it will use towards a EUR2 billion (USD$2.54 billion) fleet expansion plan and to make a one-off EUR104 million (USD$132 million) payment to help reduce the airline's pension deficit.

Commissions, fees and expenses payable out of the gross proceeds are expected to amount to about EUR30 million (USD$38 million).

"We've made our plans on the basis that with an equity injection of EUR400 million (USD$507.6 million) that will give us the ability to go and leverage that, borrow the rest of it as required in the debt markets and indeed we may do some operating leases as well," Chief Executive Dermot Mannion said.

"We're definitely not expecting to come back to the equity market any time soon for additional equity to support the fleet acquisition program," he said.

It is the first airline flotation on the London Stock Exchange since easyJet six years ago and comes amid fears about airline security and high fuel prices, although world crude oil prices have dropped in recent days.

Earlier this year, Air Berlin cut the number of shares on offer and lowered its issue price to get its IPO away.

Aer Lingus's IPO was 3.8 times oversubscribed, Goodbody's Barrett said, adding that 45 percent of the total institutional demand came from the UK, 20 percent from Ireland, 20 percent from the rest of the world and the rest from the United States.

Aer Lingus will issue 208.4 million new shares as part of the offering, while the Irish government -- which held 85 percent of the airline -- will retain a 34.8 percent stake on listing. Assuming the IPO's underwriters exercise their over-allotment option, that stake will fall to 28 percent.

Around 2.8 percent of the share capital held by the government is subject to a call in favor of the Aer Lingus Employee Share Ownership Trust.

The trust will hold around 9.9 percent of Aer Lingus at listing. Employees and former employees have subscribed for some 2.2 percent of the entire issued share capital.

Around 11.6 percent will be owned by the public and 40.3 percent by institutional investors.