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India's Jet Airways board agrees deal with Etihad

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(Globalpost/GlobalPost)

India's Jet Airways said Wednesday it had agreed to sell a minority stake in the carrier to Etihad in a $380-million deal giving the Abu-Dhabi-based airline access to the vast Indian market.

The agreement would be the first overseas investment in an existing Indian carrier since the government eased restrictions to allow foreign airlines to buy up to 49 percent of Indian carriers last September.

Debt-laden Jet said in a statement the company would sell 27 million shares to Etihad, at 754.74 rupees ($13.7) per share -- representing a 32 percent premium to the airline's last traded share price.

Under the deal worth 20.4 billion rupees ($380 million), Etihad will have a 24 percent stake as a result of the issuing of new shares by Jet and dilution of founder Naresh Goyal's roughly 80 percent stake.

"The approval of the shareholders for such issuance and allotment will be sought at an extraordinary general meeting," the company said.

Analysts had earlier said Etihad would have a nearly 32 percent stake of Jet's existing share capital but with the newly issued shares the UAE company will have a 24 percent stake.

The agreement comes after Asia's biggest low-cost airline, AirAsia, announced it would set up a no-frills carrier in India with the Tata group that is expected to start flying later in 2013.

"This is a ground-breaking deal for Etihad and a deal of a lifetime for its CEO James Hogan," said Kapil Kaul, South Asia head of Centre for Aviation.

Jet will benefit from strategic expertise and a capital injection from Etihad, Kaul said.

"We are pleased to have reached this significant stage in India with Jet Airways and are certain the partnership will bring significant benefits and opportunities for global growth to both airlines," Etihad's Hogan said.

"It 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," he said.

Etihad said the two airlines would introduce new routes between India and Abu Dhabi, providing an ever wider choice to the travelling public.

They will combine their network of 140 destinations, with Jet establishing a Gulf gateway in Abu Dhabi and expanding its reach through Etihad's growing global network.

India is one of the biggest aviation markets in the world as its large 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.

Sharan Lillaney, an analyst with Mumbai's Angel Broking, said "for Jet, it means money coming in to reduce debt, a very strong partner and improved global exposure".

Jet, which swung to profit in the last financial quarter, had a total debt of over $2 billion as of the end of December.

The Indian carrier already has a codeshare agreement with Etihad to sell seats on each other's flights.

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.

With the Jet deal, this could rise to 20 to 25 percent, they said.

In February, Etihad said it posted a 200 percent rise in net profit at $42 million in 2012, led by strong growth in revenues, passengers and cost control.

Indian budget airline SpiceJet earlier said it was in talks with foreign investors for a possible stake sale.

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http://www.globalpost.com/dispatch/news/afp/130424/indias-jet-airways-board-agrees-deal-etihad-1