Air Berlin Ipo Essay
The decision of Air Berlin to launch an IPO is based on three main reasons that go along with the company’s corporate strategy.
The company wants to raise gross proceeds of €350 million in order to fund the growth of its aircraft fleet, to pay off debt and to invest in sustainable growth.
Hereby, 50% of net proceeds (total: €290 million) will be invested into purchasing 55 new aircrafts. Air Berlin wishes to expand its fleet by Airbus 320 airplanes, which will incur economic benefits as well as enable access to a broader pool of pilots. The expansion increases Air Berlin’s growth prospects and is predicted to consolidate its position in the European airlines market.
Another 10% of the fund …show more content…
Nevertheless, as of 2006, we find many arguments against great growth opportunities regarding the industry. Investors expect a LCC-segment that becomes more mature and saturated. Overcapacity and increased competition on several routes may occur. As a result investors are deterred by the propects of an absence of profits and by too high risks.
The industry will be affected negatively by increasing fuel costs. Also, capital expenditure is extremely high, due to the purchases of expensive fleet.
From the industry-point-of-view the growth opportunities are perceived moderate, but low profits and high risks leave investors in doubt.
Looking at the situation of Air Berlin, we find that they can increase revenue from ancillaries, but it is less probable that business travelers will increase. The objective of cost savings seems unrealistic as well. In operating expenses per ASK (Available-Seat-Kilometer) the company faced a slight increase from 3.71 in 2004 to 3.78 in 2005 although fuel costs are excluded from the expenses. As stated in the text, it is furthermore not probable to cut labor costs as Air Berlin with 9.6% labor cost as % of