Doug Cameron

Belgium-based City Bird's rocky initial public offering suggests that the recent spate of successful IPOs by European airlines may be over.

Last year, low-cost European airline stocks benefited from a surge in interest from US investors who moved heavily into Ryanair and Virgin Express. However, the troubled sale last October of Brussels-based City Bird indicates that investor interest in low-cost airlines may have peaked. The City Bird issue's three lead managers - Paribas, Generale Banque and Banque Degroofe - pulled back amid poor institutional demand for the offering in London and Brussels.

City Bird was bailed out, however, by City Hotels, which owns a 46.1 per cent stake in City Bird Holding. City Hotels stepped in and underwrote half of City Bird's planned issue, investing US$16 million in the long-haul budget airline. Sabena ensured the carrier's survival by purchasing 10 per cent of the company for US$1.9 million and striking a three-year alliance with City Bird. Sabena has the right to buy another 5 per cent of City Bird by November.

City Bird's troubled IPO illustrates how the investor boom in Europe's airlines may be over. Transport stocks have fallen in investors' eyes, according to a January survey of European fund managers conducted by Merrill Lynch. Moreover, investors believe that earnings in the sector have peaked and have already discounted the impact of Asia's economic turmoil into share prices. The survey suggests, however, that IPOs of smaller airlines with a strong growth story may have a stronger case than the large scale flotations scheduled this year by airlines such as TAP Air Portugal.

Source: Airline Business