Despite Reservations, Orbitz Sets IPO - TheStreet

Orbitz

, the money-losing online travel agency that is currently under federal investigation for allegedly unfair price advantages, wants to raise up to $125 million from public investors via an initial offering.

The Chicago-based company was launched last June by five major airlines:

American,

(AMR)

Continental,

(CAL) - Get Report

Delta,

(DAL) - Get Report

United

(UAL) - Get Report

and

Northwest

(NWAC)

.

"They've been very successful," said Steve Weinstein, an analyst at Pacific Crest Securities. "They've only been in a business about a year and a half, and they're already the No. 3 player."

Indeed, Orbitz reaped $542 million in gross travel bookings in the quarter ended March 31. But the company lost about $9 million in that period.

The Department of Transportation and the Justice Department are investigating whether Orbitz is getting special bargain fares because of its affiliation with the carriers. Regulators are concerned that the firm's super low rates will drive out competitors such as

Expedia

(EXPD) - Get Report

and

Travelocity

(TVLY)

, raising fares in the long term.

In its filing with the

Securities and Exchange Commission

on Monday, Orbitz said it will "continue to attract significant scrutiny by federal agencies," as well as by the attorneys general of various states.

"At any time, the outcome of these investigations and other regulatory scrutiny could lead to compulsory changes to our business model," the firm said in the filing.

Weinstein said the investigations won't necessarily prevent the deal from getting done but said they could "limit the number of people looking at the deal."

"A big piece of their value proposition is they get access to special fares, so if that value proposition is being threatened, there is just a fair amount of risk," he said.

Still, the Department of Transportation already has cleared Orbitz of antitrust concerns once the Web site was established last year and Orbitz says it competes fairly. The company maintains that by eliminating the middleman it can cut airlines' ticket distribution costs by as much as 30%.

Meanwhile, Orbitz does not compete as effectively with other online sites for hotel reservations. Travelocity's agreement with Hotel Reservations Network and Expedia's access to wholesale hotel room rates give both companies an advantage over Orbitz.

Orbitz said it hopes to trade on the Nasdaq under the symbol "ORBZ" and will use the proceeds of the sale for working capital and general corporate purposes. Investment banks

Goldman Sachs

and

Credit Suisse First Boston

will be the co-lead managers of the sale.