Air Berlin Delays Much Anticipated Flotation on Stock Exchange

Air Berlin, Europe's third-biggest discount airline, has extended the offer period for its initial public offering amid concerns about its profitability. It was due to be floated on the Frankfurt Stock Exchange Friday.

Shares will be available for purchase on May 10 and trading with them will start on May 11 instead of Friday as had been planned.

Air Berlin announced on Friday that 42.5 million shares would be sold for 11.50-14.50 euros ($14.52-$18.31)each. Initially, the firm had planned to sell almost 50 million shares for 15-17.50 euros per share. The company is expected to reap 225-284 million euros from the IPO.

Concerns had been raised over the price of the shares and the future profitability of the airline in such a competitive market as the budget sector.

"Air Berlin has a limited history, a limited track record, and their expansion plans are pretty ambitious over the next two years, at a time when we know Ryanair is planning to expand in Germany,'' said Nigel Bolton, head of equities at Scottish Widows Investment Partnership in an interview with Bloomerg.com.

The aggressive nature of the airline's push for a share listing ahead of this summer's soccer World Cup in Germany was due to be a loud and deliberate declaration of intent that Air Berlin is ready to mix it up with its rivals in a battle for a larger slice of the lucrative no-frills sector currently dominated by Irish low-cost carrier Ryanair and UK-based budget airline easyJet.

The German budget market is also a cut-throat and crowded sector and Air Berlin is locked in a tussle for customers with competitors such as TUI, Hapag Lloyd Express (HLX) and Germanwings as well as Deutsche Lufthansa and holiday airlines such as Condor.

"We have earned the number three position and we would like at least to hold onto it," Chief Executive Joachim Hunold told reporters when the flotation was announced in April.

Air Berlin had 13.5 million passengers in 2005, up 12.5 percent from the previous year. This still put it a distant third behind Ryanair with 33.4 million and easyJet with 30.3 million.

The airline views a planned expansion program as the key to making up some distance on its main rivals in Europe while consolidating its position in its domestic market.

The initial public offering (IPO), now delayed for six days, of almost 50 million shares is expected to net Air Berlin up to 870 million euros ($1.10 billion).

Up to 20 million shares will come from Air Berlin's current stakeholders and up to 23 million shares from a capital increase which is expected to come through shortly before the new floatation date on May 11. An additional 6.5 million shares may be issued through a potential over-allotment offering. Air Berlin shareholders who are selling have agreed not to release or sell any further shares for a period of six months following the IPO.

British investors waiting as Germans lament high share price

According to a report in the German financial publication Börsen Zeitung, the response during the subscription period which started on April 28 has been positive, particularly in Britain where major London-based investment firms had shown interest in the Air Berlin stock.

However, German analysts have voiced the opinion that the expected share price of between 15 and 18 euros is too expensive. "We believe the stock price is too high and will be unattractive for investors," Jürgen Pieper, an analyst with financial experts Metzler, told Reuters.

It is unclear what effect, if any, the delayed flotation and extended subscription period will have on the price of the shares.

New planes and destinations await newly floated company

According to the German DPA news agency, around 50 percent of the new capital will go toward 55 recently ordered new Airbus A320s, 40 percent will be invested to extend the current network and the remaining 10 percent will be used to refinance debt. "With the flotation, we are opening up new and attractive areas for potential growth," chairman Hunold said.

The airline currently has a fleet of 56 short-haul aircraft and mainly operates direct flights from airports across Germany to Mediterranean destinations including mainland Spain, the Balearic Islands, Greece, Turkey and North Africa. It intends to use the allotted expansion funds to branch out into the Scandinavian and eastern European markets, as well as growing in Spain and the northern UK.

Air Berlin heading back into the black with profit forecast

The IPO could be the start of better things for Air Berlin. The airline revealed recently it had a 2005 net loss of 115.9 million euros up from 2.9 million in 2004, but blamed the losses on one-time effects and fuel costs as it seeks to persuade investors to help fund its expansion plans.

However, according to a report by analysts at Commerzbank, Air Berlin is expected to return to the black this year on a 20 percent rise in turnover, with a possible net profit of 51 million euros posted this year. The report forecasts that the rise in turnover will reach 86 million euros in 2007.

Earnings before interest and tax are seen rising to 89 million euros this year from a loss of 5.5 million last year, with sales expected to grow to 1.46 billion euros from 1.22 billion in 2005, the report showed.