Mumbai: Eight months after the Indian government permitted international airlines to invest in domestic passenger carriers, Jet Airways on Wednesday announced a 24 percent stake sale to Abu Dhabi-based Etihad Airways to raise around Rs 2,000 crore ($379 million).

Etihad Airways is betting big on India. The ambitious UAE carrier is throwing indebted Jet Airways, the largest publicly traded airline on the subcontinent, a $600 million lifeline.

"Under the strategic partnership, the airlines will gradually expand existing operations and introduce new routes between India and Abu Dhabi," Jet Airway's said in a statement on Wednesday evening.

"They (Jet and Etihad Airways) will combine their network of 140 destinations, with Jet Airways establishing a Gulf gateway in Abu Dhabi and expanding its reach through Etihad Airways' growing global network," the statement added.

Deal buys Etihad 24pc stake

Ambitious Gulf carrier is taking almost a quarter stake in India's Jet Airways, giving it a bigger foothold in the fast-growing Indian market.

The deal buys Etihad a 24 percent stake, control of Jet's loyalty programme, and landing slots at Heathrow. That makes it the first company to take advantage of newly relaxed foreign ownership rules in India, as it seeks to tap one of the fastest growing aviation markets in the world.

Jet is one of India's top airlines but the price paid still looks a bit generous. Etihad is paying $380 million or a 32 percent premium for its minority interest. That's on top of a 63
percent rise in the share price since mid-September when reports of a deal between the pair first surfaced.

That type of premium is usually justified by a change of control. In this case, Jet founder Naresh Goyal will remain non-executive chairman, and retain a 51 percent stake.

Direct international flights in 23 Indian cities

According to the company, the deal will allow passengers from 23 Indian cities to get direct international flights, while they can also avail the frequent flyer programmes of both airlines. Both the companies expect the deal to bring immediate revenue growth and cost savings in areas including fleet acquisition, maintenance, product development and training.

"The Indian market is fundamental to our business model of organic growth partnerships and equity investments. This deal will allow us to compete more effectively in one of the largest and fastest-growing markets in the world," James Hogan, president and chief executive of Etihad Airways said in a statement.

Through the deal, Etihad is expected to get additional passenger traffic to its Middle Eastern, North American and European destinations.

Currently, Etihad operates to nine Indian destinations - Delhi, Chennai, Mumbai, Kozhikode, Thiruvananthapuram, Hyderabad, Bangalore, Ahmedabad and Kochi - with 59 flights per week.

Estimates predict the size of the Indian market to grow to 42 million travellers over the next five years at 10 percent per year. Jet Airways' chairman Naresh Goyal described the deal as a win-win situation for all stakeholders, adding the transaction will allow the company to return back to sustainable profits.

"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.

The two airlines were negotiating a Jet Airways' stake sale since last September. However, the deal was delayed due to investment protection and management control issues.

Interestingly, the announcement comes just a day after India and the UAE began negotiations to enhance bilateral air traffic rights on the India-Abu Dhabi sector. Indian passenger carriers, especially Jet Airways have sought an exponential increase in seat capacity on the sector.

Fresh funding offers for Jet

The existing bilateral air service agreement (BASA), entitles India based airlines to offer 13,300 seats per week on the route. According to sectoral experts, the deal will bring in fresh funding opportunities for Jet Airways, which has an estimated debt of around Rs 12,000 crore, whereas passengers will get better connectivity options through the Jet-Etihad network.

Jet passengers will also be able to leverage the networks of Air Berlin, Air Seychelles and Aer Lingus, Ireland's national carrier, which Etihad Airways has already invested in.

"It is a very positive move. There were negotiations going on for a long time. It will provide Jet with much needed financing options and a major international partner," Sharan Lillaney, aviation analyst at broking firm Angel Broking said.

The company's scrip at the BSE might touch its circuit breaker limit of Rs.659.40 when the markets open Thursday. On Tuesday, the Jet Airways' scrip at the Bombay Stock Exchange (BSE) rose by 4.43 percent or 24.35 points to Rs.573.85 per share from its previous close of Rs 549.50.Earlier, Jet-Etihad Airways concluded a deal Feb 27 to acquire three Jet Airways slots at London airport for $70 million.

There are also talks of Etihad investing $150 million in Jet's frequent flyer program "Jet Privilege", which is subject to regulatory approvals and commercial agreements which are expected to be completed within the next six months.The government last year allowed foreign airlines to invest up to 49 percent in private domestic carriers. This was not permitted earlier for security reasons, although 49 percent FDI by non-airline players was allowed.


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