Summary
After the successful launching of commercially successful Low Cost Airlines (LCC), the dimension of the capital requirements demanded by their further growth and expansion will force them to switch from private capital sources to those only available through the stock market.
Analysis
About 30 months after spreading its wings for the first time (July, 1 2000, BCN-PAR) VUELING, the Spanish LCC, on November 16 received from the CNMV (an agency equivalent to the U.S. SEC) the approval to launch a double-barrelled IPO/IPS that may allow the airline to float on the market up to a maximum of a 46.88% of the total shares representing its stock capital, at a price that will fall within a range of 24-32 Euros per share. Depending from the specific share price finally selected on November 29, the resulting market value of the company, at the beginning of the trading operations, may fluctuate between 359 and 478.5 Million Euro.
Right before the IPO/IPS operation, the airline’s nominal share capital amounted to 116.300 Euro, represented by 11,630,000 common shares with a face value of 0,01 Euro each. On the first date of trading, these figures will amount, due to the capital increase derived from the IPS, to 149,552.59 Euro and to 14,952,259 common shares, respectively.
The pre-IPO/IPS main shareholders are Apax Partners, controlling the 40%, Inversiones Hemisferio with a 30% and the Investor Group, headed by Dave Barger, CEO of the U.S. LCC Jet Blue, with a 7%. The remaining 23% of the shares are controlled by the airline management team and executives.
Goldman Sachs, JP Morgan and Morgan Stanley are the joint global coordinators, acting also as directors and insurers of the operation, with Santander Investments, S.A. appointed as Agent.
VUELING will be the second Spanish airline (after Iberia) trading its shares in the Spanish stock market.
At the time of the filing, VUELING is serving 19 European destinations with a fleet of 14 Airbus A-320 (leased from six different major international aircraft lessors) that it will grow up to 37 units of the same model by the end of 2008. At the end of this year the airline operations are supported by a staff close to 800 professionals.
The airline will close its 2006 FY with sales receipts amounting to 260 Million Euro, doubling the figure obtained in the previous 2005 FY, and multiplying by a factor of ten the income obtained during the second-half of the 2004 FY, after launching its first commercial flights in July 1st of that year.
The outlook of the current business plan, supervised by Ernst & Young SL, anticipates that, at the end of the current 2006 FY, the company will show a loss of 7.1 Million Euro, while at the closing of 2007 and 2008 years, it will obtain benefits amounting to 24.2 and 36.2 Million Euro, respectively.
VUELING flies into the stock market favoured by friendly winds. On the one hand, the Madrid IBEX stock index enjoyed, so far in 2006, a revaluation of a solid 32% and, on the other hand, the oil prices have fallen well below the crest of the 78 $/barrel paid a few months ago, floating these last days around the mid-50 $/barrel figure. The LCC is also the only airline, other than Iberia, graced with the prestige of operating out of the ultra-modern Terminal T-4 at the Madrid Barajas airport.
The same favourable trends in the stock market have also benefited the value share value of other airlines during the current 2006: British Airways with a 35%, Air France-KLM with a 62%, Ryanair with a 14% and even Iberia with a 7%.
On the other hand, VUELING debut on the stock market coincides with increasingly competitive tensions in the already overheated LCC arena throughout Europe in general -and within Spain in particular- with strong and already long and well entrenched players such as Easyjet, Air Berlin, GermanAir, Ryanair (now mainly focused on swallowing Aer Lingus, despite hostility of the Irish Government), and even with solidly backed newcomers such as Clickair participated and sponsored by Iberia.
Only a lot of stamina and business acumen on the side of their management teams and professionals, a not less copious doses of good luck, together with a sense of opportunity and a favourable status-quo in major non-manageable key factors, such as oil supply/prices as well as a sound economic and political stability in the geographic marketplaces criss-crossed by the airline industry in general -and by the LCC segment in particular- will allow a reasonable growth and reward for their shareholders, reasonably free of ugly hiccups.
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
