updated 8/28/2006 11:43:52 AM ET 2006-08-28T15:43:52

The Irish government will sell most of its stake in Aer Lingus Group PLC next month to permit the airline to buy new aircraft and expand services worldwide, the government and company directors announced Monday.

The Sept. 29 flotation on the British and Irish stock exchanges is expected to raise about more than US$500 million and enable the airline to borrow up to $2.5 billion from banks for the purchase of new long-haul and short-haul aircraft.

Transport Minister Martin Cullen said the sale would “give Aer Lingus both the commercial flexibility and the financial strength to succeed in what is a highly competitive global marketplace.”

The Aer Lingus chairman, John Sharman, said the sale “will give the company access to the wider capital markets and enable it to realize its full potential. Aer Lingus and its staff can now look forward to the future with confidence.”

The joint government-Aer Lingus statement said qualifying investors would need to commit a minimum of 10,000 euros ($12,800). It said the price of Aer Lingus stock would be fixed a few days before the flotation following a meeting of the Cabinet of Prime Minister Bertie Ahern.

The government currently holds more than 243 million shares, or an 85.1 percent share, of Aer Lingus stock, while an employee trust holds the remaining 42 million, or 14.9 percent. Until now, the public has been unable to trade Aer Lingus shares.

Cullen said the government would retain a minimum 25.1 percent stake in the privatized Aer Lingus. He said this holding would be strong enough to block the sale of airline assets considered of Irish public interest, such as Aer Lingus’ current landing slots in Heathrow Airport in London.

Ahern has been considering a sale of Aer Lingus since he came to power in 1997, but has repeatedly delayed the move because of the potential of labor-union unrest and fears a that a flotation could prove unpopular with the wider public. The government’s previous privatization, of state telephone company Eircom in 1999, proved a bad deal for investors, most of whom lost about two-thirds of their money.

Aer Lingus came close to collapse in 2002 amid heavy losses caused by a bloated payroll and the effects of the Sept. 11, 2001 terrorist attacks in the United States. But the company made a rapid return to profit by slashing staff nearly in half and introducing a low-fares, Internet-based system that mimicked its principal domestic rival, Ryanair.

Nonetheless, the government and company directors agreed that the company needed to go private to drum up sufficient capital to invest in a new fleet of aircraft. They cited the fact that European Union competition law severely restricts the ability of state-owned airlines to expand through taxpayer subsidies.

Aer Lingus says it wants to increase its short-haul routes to continental Europe in competition with Ryanair, increase the number of locations it serves in the United States — it currently operates from New York, Boston, Chicago and Los Angeles — and pursue potential new routes to Asia and South Africa.

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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