The market has passed its preliminary judgment on Aer Lingus. It is lukewarm at best. After two weeks of testing the appetite of investors in London, Dublin and elsewhere the advisers to the Government and the airline have indicated the price range for the airline's initial public offering.
The figures are towards the lower end of expectations. But, all going well, this will see Aer Lingus valued at somewhere between €1.1 billion and €1.3 billion. The Government will raise up to €270 million through the sale of some shares and the airline will get €530 million in new funds.
The disappointing valuation - much higher figures had been proposed - reflects a number of factors. Not least is the market's view that, despite its protestations to the contrary, Aer Lingus is still a national flag-carrier and not some hybrid of a low-cost operator and a traditional airline.
Potential investors are also clearly wary of the Government decision to hold a stake of at least 25 per cent in the airline for the foreseeable future. As the airline points out in the sale prospectus issued yesterday, the Government cannot be expected to act like an ordinary investor. It has a different agenda when it comes to strategic issues such as landing rights at Heathrow Airport. Staff will also hold a significant stake in the airline after it floats, with a target holding of 15 per cent. Again the airline has had to warn that the staff may have interests which conflict with those of the majority of shareholders - to optimise profit.
These and other caveats have dampened investors' enthusiasm and depressed the value put on the airline. It is clear that Aer Lingus has been - in the parlance of the market - priced to go. The low flotation value should ensure that the shares are well supported after the flotation. This was always going to be the case. Far too much rides on the success of the flotation for it to be allowed to flop. Leaving the future of the airline aside, the credibility of the Government is on the line.
Taoiseach Bertie Ahern and his colleagues do not want to face the electorate next year with another Eircom- type failure on their hands. The high threshold set for private investors may ensure that small punters are not burned if the shares fall; but the damage to the Government's much vaunted economic credibility would still be substantial. When all of this is set against a background of stock markets weakened by high oil prices it is clear that the highest possible value in monetary terms will not be realised by floating the airline at this time and in the manner proposed.
It is obvious, however, that the flotation of Aer Lingus will be successfully executed. In the process, the most important objective will be achieved. This is to create a well-financed airline operating with a level of commercial freedom that it has heretofore only dreamt of. That is more than a step in the right direction. It is a definite leap into a new league.