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The board of Indian carrier Jet Airways said Wednesday it had agreed to sell a near 32 percent stake in the group to Abu Dhabi-based Etihad in a deal worth 20.4 billion rupees ($380 million).
The acquisition, which still needs to be approved by Jet shareholders, would be the first between an existing Indian carrier and a foreign airline since the government eased restrictions on foreign investment in September last year.
A statement from debt-laden Jet to the Bombay Stock Exchange said the company would sell 27 million shares to Etihad, at 754.74 rupees ($13.7) per share, on a preferential basis.
The deal comes after Asia's biggest low-cost airline, AirAsia, announced it would set up a no-frills carrier in India with the Tata conglomerate. The AirAsia-Tata venture is expected to start operations later in 2013.
Etihad has yet to comment on the deal.
"Etihad is a very serious partner for Jet," Sharan Lillaney, an analyst with Mumbai's Angel Broking, told AFP, adding that the Gulf carrier was attracted by the potential for growth in India's aviation market.
"For Jet, it means money coming in to reduce debt, a very strong partner and improved global exposure."
India is one of the fastest-growing aviation markets in the world as its vast middle-class scrambles for air travel, spurred by rising incomes.
But the sector, once vaunted as a symbol of India's economic vibrancy, has seen its fortunes fade in the face of aggressive fare rivalry, a slowing economy, rundown infrastructure, high airport charges and expensive fuel.
Only one among India's six main scheduled carriers -- privately held low-cost carrier IndiGo -- was in profit last year helped by a strict business plan and a record of punctuality.
Jet -- with losses in six of its past eight quarters -- had a total debt of $2.16 billion as of December-end, analysts said.
The Indian carrier, which already has a codeshare agreement with Etihad to sell seats on each other's flights, did not trade on Wednesday as stock markets were closed for a public holiday.
With a market share of 25 percent, it is an established brand with a fleet of 101 planes, connecting 72 domestic and international destinations, including Abu Dhabi, Hong Kong, London, Milan, New York and Singapore.
UAE's flagship carrier has already purchased stakes in airlines like Air Berlin, Virgin Australia, Air Seychelles and Ireland's Aer Lingus, which contribute about 16 percent of its passenger traffic, analysts said.
When India kick-started economic liberalisation in the 1990s, it allowed up to 40 percent foreign direct investment, including by overseas airlines, into its aviation sector.
But this was scrapped in 1996 as the government feared that foreign airlines, with stronger finances, would take "control" of Indian carriers.
The government allowed the re-opening of the sector last year to assist loss-making local airlines, several of which are eyeing foreign investment.
Budget airline SpiceJet has confirmed it is in talks with foreign investors for a possible stake sale, declining to confirm names.