Local aviation services company Mercury Air Group has filed to undertake an initial public offering as a means of spinning-off one of its operating divisions as an autonomous public company to be based in Los Angeles.

Mercury Air plans to sell a 19 percent stake in its MercFuel Inc. subsidiary by selling 1.4 million shares in the unit to the public. Mercury Air would initially retain the remaining 81 percent stake in MercFuel, but within six to eight months it would fully divest its stake, said Joe Czyzyk, president and CEO of Mercury Air and chairman and interim CEO of MercFuel.

Market conditions for the IPO, which is expected to raise as much as $15.1 million with an assumed offering price of $9 to $11 a share, may not be ideal right now, but company executives are optimistic that the stable industry in which MercFuel operates will be attractive to investors. MercFuel sells fuel to more than 100 commercial passenger and cargo airlines.

“We could’ve said now is not the best time (for an IPO spin-off), but there is a significant amount of interest today in basic brick-and-mortar businesses, and these have to do with energy and fuel,” Czyzyk said.

Evidence of a possible re-opening of the long-shut IPO window surfaced last week when Tarzana-based Unilab Corp. was taken public. The clinical laboratory company had been private since November 1999, and the 6.7 million shares it sold June 6 rose from an initial offering price of $16 each to close at $23 on their first day of trading.

Besides an improving IPO environment, there are other factors prompting Mercury Air to undertake a spin-off of its MercFuel unit. Last July, three board members of Mercury Air Group acquired the interest of the former chairman and took over control of the company, Czyzyk said. As a result, Mercury Air is restructuring its business, and part of that process involves ridding itself of the fuel sales division, which is the poorest performing in terms of net income, he said.

While Mercury Air does not break out quarterly operating results for its subsidiaries, it did break out the results of MercFuel for the nine months ended March 31.

For that period, MercFuel reported net income of $1.4 million (21 cents per share), up from a net loss of $48,000 (1 cent per share) in the like year-earlier period.

Its nine-month revenues were $240.5 million, vs. $149.2 million in the like nine months of 2000.

Selling fuel is the only commodity business within Mercury Air Group, which employs nearly 2,000 people in its three services divisions.

But the outlook is bleak for MercFuel, said Alan Weber, an analyst at Robotti & Co. in New York.

“I think the problem is it’s too small,” said Weber, who covers the industry’s leading company, World Fuel Services. “I’m not totally convinced they’ll get the deal done if they’re selling 1 million shares at $8 or $9 a share. World Fuel is the biggest player, and (even) they’re not that well known.”

In addition, the economy may not turn around in the next six months, said Gary Dickey, a partner at Deloitte & Touche in Los Angeles. Most of the companies that have aimed for an IPO in the past year and a half have pulled out, he said.