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India's Jet says to buy Air Sahara for $340 mln

(Adds detail, comments, share price)

MUMBAI, April 12 (Reuters) - India's top private sector airline, Jet Airways Ltd. JET.BO, said on Thursday it had agreed to buy Air Sahara for 14.5 billion rupees ($340 million), about 34 percent cheaper than an earlier deal it had abandoned.

The price includes 5 billion rupees that Jet had paid its smaller rival last year as a bank guarantee pending an acquisition, as well as 4 billion rupees that Jet will pay on or before April 20, said Harish Salve, a legal counsel for Jet.

The balance will be paid in equal, interest-free annual instalments from March 2008 to 2011, he told reporters.

“Commercially, it is good,” Jet Chairman Naresh Goyal said.

“Keeping in mind the present condition in aviation, it is good commercially, as well as for the shareholders,” he said.

He did not say whether operations of the two airlines would be merged or if Sahara would be relaunched as a discount carrier, as some local media reports have indicated.

Shares in Jet rose 3.2 percent to 628.65 rupees in a Mumbai market that fell 0.5 percent. The shares had fallen 5.6 percent on Wednesday, after some news reports indicated it would pay about 18 billion rupees for Sahara.

But analysts still remained unconvinced of the lower price.

“It’s cheaper than last year’s price, but it’s not exactly cheap even at this price,” said Hemant Patel at Enam Securities, who has a ‘sell’ rating on the stock.

“If the industry had been at a better point, it would’ve made sense, but it is a difficult time, payback periods are long and Jet is barely breaking even itself,” he said.

BUMPY RIDE

The deal was done more due to the legal complications that arose after Jet backed out of the earlier share purchase agreement, said Gautam Roy at Edelweiss Securities, who has a “reduce” recommendation on the stock.

Jet, which has about a third of India’s fast-expanding domestic market, has a fleet of 61 aircraft and also flies to some overseas destinations. It had struck a deal in January 2006 to buy Air Sahara from the Sahara group, whose interests also include financial services, real estate and broadcasting.

After the deal failed to get regulatory approvals, Jet said last June it had decided not to pursue the acquisition for commercial reasons and in the interest of its shareholders.

Sahara had argued that the deal should have been completed, and asked for compensation. An arbitration panel, which held hearings in January, had deferred a final decision to April.

Jet returned to profit in its fiscal third quarter to end-December after losses in the previous two quarters on account of higher aviation fuel costs and discounting by new carriers.

Sahara, which began operations just months after Jet in 1993, has also been steadily losing share to the new carriers in a fiercely competitive domestic market which is forecast to grow at more than 20 percent a year over the next four years.

The combined entity will have a market share of about 40 percent. Low-cost carrier Deccan Aviation Ltd. DECA.BO has a little more than a fifth of the domestic market, just ahead of state-owned Indian [IA.UL].

The UB Group's Kingfisher Airlines, SpiceJet Ltd. SPJT.BO and GoAir also compete, besides a handful of smaller carriers.

($1= 42.9 Indian rupees)

((Reporting by Rina Chandran, editing by John Mair and Ranjit Gangadharan; Reuters Messaging: hiral.vora.reuters.com@reuters.net; +91-22-6636 9244)) Keywords: JET SAHARA/

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