The Aer Lingus prospectus to be issued later today puts a post-flotation value on the airline of between €1.1 and €1.3 billion.

The financial advisers and sponsors of the IPO - AIB Capital Markets and UBS Investment Bank - were last night putting the finishing touches to the document, which includes financial results for the first half of 2006. The flotation will take place in early October.

The scale of Aer Lingus is set to be radically altered by the IPO process. The raising of fresh funds over €530 million will boost the airline's balance sheet and provide a market capitalisation of as much as €1.3 billion.

Various valuation figures have been included in the prospectus. The smaller figure of between €600 and €770 million concerns the pre-IPO valuation. But advisers emphasise that this figure, known as the "pre-money equity figure", does not include the money raised in the IPO.

Advisers have accepted that benchmarking Aer Lingus against the low-cost carriers like Ryanair and easyJet would prove difficult and instead the airline is best compared with traditional flag carriers like British Airways.

Airlines in this category are normally valued based on five times earnings before interest and tax, depreciation, amortisation and restructuring costs (EBITDAR). Based on an EBITDAR figure of €150 million for Aer Lingus in 2006, this would give the company a valuation of approximately €750 million before the IPO takes place.

Aer Lingus plans to increase its long-haul fleet from seven to 14 aircraft and its short-haul capacity from 28 to 42 aircraft. While the proceeds of the sale will only fund a small portion of this, the fresh capital will bolster the Aer Lingus balance sheet and allow it borrow more money. It has a €2 billion capital expenditure plan.

The results from the airline will today reveal that there has been a 60 per cent increase in fuel costs. This year the airline has been paying about $506 per tonne for jet fuel, versus an average of $348 per tonne in the equivalent period in 2005.

Once the prospectus is issued the airline will then test the market to see what the level of demand is. Early indications are that despite the €10,000 limit on participation, interest among retail investors is high. As for institutions they traditionally talk down the stock in the hope of the price being discounted. Some fund managers believe the airline is too much of a hybrid, with one yesterday saying: "it's neither fish, nor fowl."

However, wooing the Irish institutional investment community will be a key objective for the advisers because 50 per cent of the shares must remain in Irish hands.

Most overseas fund managers are already aware of the airline's story and many of them have been given overviews of the company by their research teams. As a result the presentations by chief executive Dermot Mannion and his team will be short, no longer than 45 minutes in most cases.

The Aer Lingus team is inexperienced in selling an IPO, but they remain confident the airline's story of recovery and growth will prove appealing.

While the decision to benchmark against British Airways indicates that Aer Lingus has not yet made the full transition to a low-cost airline like easyJet or Ryanair, there will be determination to hold the valuation at the kind of multiples British Airways trades at.

While the two airlines are similar in some respects, their operations are very different. For example only 65 per cent of British Airways passengers come from short-haul routes, whereas the Aer Lingus figure is much higher.