Aer Lingus should be privatised via a flotation rather than a private placement, a report prepared for the Government by AIB Capital Markets/UBS is expected to recommend.
The report is scheduled to be passed to the Department of Transport next week. It discusses the first phase of a privatisation process and says the pension issue will need to be resolved before any sale goes ahead. The airline faces a potential pension deficit of over €300 million if the fund the company is linked to continues paying cost-of-living increases as has been its practice.
The report is expected to suggest that specific conditions are written into any sale process. It says the airline's lucrative slots at Heathrow Airport should be protected, but that this might be achieved by obliging the airline to provide a certain minimum level of service into Heathrow, rather than prohibiting the sale of slots.
The report is believed to suggest that any sale process will take at least six months to complete, and potential "shocks" in the aviation industry could impact on this timetable.
The Department of Transport asked both banks to assess the type of sale most suitable for the airline. The report is believed to point out that the private placement market is relatively restricted and is generally designed for smaller, fast-growth companies.
While the report is believed to suggest there might be interest from institutional investors, hedge funds and some high net worth individuals, a major discount would be demanded. Investors would, for instance, need a clear exit strategy.
Instead, an initial public offering would be a better option, the report is believed to suggest, allowing the airline to access the capital markets on an ongoing basis.
Shares in the airline could also be used to incentivise senior management. The key concern of the report is the price of any IPO. One source said yesterday that the price would have to be attractive. "It will have to be priced to go. Everything will be done to generate good buyer interest."
The Department of Transport yesterday declined to comment on the work of the two banks, but said the report was expected shortly.
It is understood the report includes comments on various aspects of the sale process by Aer Lingus.
