* IPO funds to allow Flybe to buy rival airlines
* British Airways says plans to retain 15 percent stake * Half of proceeds to be used to expand aircraft fleet
* Expected to value airline at 200 million pounds
(Adds stock sale, roadshow, fleet details)
By Kylie MacLellan and Rhys Jones
LONDON, Nov 30 (Reuters) - British budget airline Flybe is planning to raise 60 million pounds ($93 million) in a London initial public offering (IPO) next month to buy out rival European airlines and beef up its fleet.
Flybe, Europe's largest regional carrier, said on Tuesday half the funds from the share sale would be used to fund the expansion of its aircraft fleet and the other half to strengthen its cash position to allow it pursue other growth opportunities, such as acquisitions.
"A listing will assist Flybe in achieving the next stage in its ... strategy for growth," the airline's chief executive Jim French said in a statement.
Most of the stock would be sold to UK investors, a source close to the deal said, meaning the roadshow would be shorter. Pricing is expected towards the end of next week or early the following week, the source added.
After the offer it is expected that around 25 percent of the shares would be freefloat, a source familiar with the matter said, and the company would be valued at around 200 million pounds.
Earlier this month the UK's Sunday Times newspaper said Flybe would use the proceeds to fund the takeover of Flybaboo, a Swiss regional carrier, and an unidentified Finnish airline.
Flybe made an order earlier this year for 140 Embraer aircraft to add to its fleet of 68 Embraer and Bombardier planes that run on domestic and European routes.
West England-based Flybe, which posted a pretax profit of 12.8 million pounds on revenues of 572.3 million pounds for the year to March 31, bought the former regional airline business of British Airways, BA Connect, in 2007.
"They are well positioned in the UK and integrated the BA Connect business well, so you would think their aim would be to try something similar in another European market," said Arbuthnot analyst Gerald Khoo. The carrier's biggest shareholder, with a 69 percent stake, is the trust that looks after the estate of the late Jack Walker, the former steel magnate and owner of Blackburn Rovers Football Club.
British Airways, which owns 15 percent of Flybe, said it planned to subscribe for enough shares in the offer to maintain the size of its holding. The remainder of the company is owned by Flybe employees and its chief executive.
"I would have expected BA to sell up on a float, but they are actually putting cash in. You could speculate they are staying around to help if there's a takeover attempt, but you wouldn't think 15 percent was enough," said Khoo.
The airline, which carried more than 7 million passengers last year, recently struck code-share deals with Air France on some European routes and Finnair on Scandinavian and Baltic Sea co-operation.
Flybe, which focuses on niche UK routes and operates 45 routes between the UK and France, has tried to float several times but has been forced to shelve plans because of tough market conditions.
Bank of America Merrill Lynch is the sole global coordinator and bookrunner on the offer. (Editing by Will Waterman) ($1=.6417 Pound)