* Etihad to take 24 percent stake in Jet
* Price at 31.7 pct premium to Jet share price
* First foreign investment since ownership rule change
* Deal seen as a game-changer for local aviation industry
By Sumeet Chatterjee and Praveen Menon
MUMBAI/DUBAI, April 24 Ambitious Gulf carrier
Etihad Airways is taking almost a quarter stake in India's Jet
Airways, giving it a bigger foothold in the
fast-growing Indian market.
The $379 million investment is the first by an overseas
operator in an Indian airline since ownership rules were relaxed
and provides India's largest carrier with a deep-pocketed global
partner as well as cash to retire debt.
Etihad, which has minority stakes four other carriers
including Air Berlin and Virgin Australia, has
been expanding quickly as it competes with regional rivals Qatar
Airways and Emirates, which carries a significant
share of the Indian traffic to Gulf and beyond.
"It's a game-changing opportunity for Etihad, and a
game-changing opportunity for India," Kapil Kaul, regional head
of the Centre for Asia Pacific Aviation (CAPA), told Reuters.
Kaul said Jet would benefit from strategic expertise, cheap
financing and possible fuel import benefits in addition to the
"It (the deal) is expected to bring immediate revenue growth
and cost synergy opportunities, with our initial estimates of a
contribution of several hundred million dollars for both
airlines over the next five years," said James Hogan, Etihad's
As part of the agreement Jet will establish a hub in Abu
Dhabi and expand its reach through Etihad's global network while
the airlines will also expand existing operations and introduce
new routes between India and the Gulf.
The deal, finalised after months of negotiations, is a
vindication for the Indian government which has struggled to
attract overseas companies wary of regulatory uncertainty and
bureaucratic red tape.
Etihad will buy 27.3 million new shares of Jet at 754.74
rupees per share, a 31.7 percent premium to Jet's closing share
price on Tuesday, and acquire 24 percent of Jet's expanded share
Etihad will also invest an additional $150 million in Jet's
frequent flyer programme and spend $70 million to buy Jet's
three pairs of Heathrow slots through the sale and leaseback
agreement announced in February.
Jet owner Naresh Goyal will hold 51 percent of the airline
after the deal.
"The price is good for Jet. I think Etihad may have paid
over the odds slightly, but with Kingfisher out of the picture
there is only one full service heavyweight in town, and that's
Jet," said Sudeep Ghai, partner at consultancy Athena Aviation.
The deal sets a valuation benchmark for further investment
in Indian airlines, with budget carrier SpiceJet Ltd
frequently the subject of stake sale reports.
Jet shares have had a turbulent ride in recent months as
talks with Etihad dragged on.
The stock is up about 70 percent since November, after media
reports about a possible stake sale.
Despite high growth potential, India has been a tough
aviation market in recent years, although competition has eased
since former No.2 Kingfisher Airways stopped flying
late last year, dragged down by debt and cash-flow problems.
The premium paid by Etihad is sharply higher than the 5.5
percent premium Singapore Airlines Ltd paid to lift
its stake in Virgin Australia Holdings Ltd to 19.9
percent in another deal announced on Wednesday.
"This transaction further strengthens the balance sheet of
Jet Airways and, more importantly, underpins future revenue
streams, which will accelerate our return to sustainable
profitability and liquidity," Goyal said.
Bank of America Merrill Lynch and Credit Suisse
advised Jet on the deal, while HSBC was the
adviser for Etihad, several sources said.