Etihad Investment in Jet Airways Approved by Indian Cabinet

Etihad Airways won Indian government backing to invest in Jet Airways (India) Ltd. (JETIN), paving the way for the first share sale by a carrier in the Asian country to a foreign airline since restrictions were eased.

The approval will result in foreign investment of 20.6 billion rupees ($332 million), the government said in a statement after a cabinet decision in New Delhi yesterday. India modified airline ownership rules last year.

Abu Dhabi-based Etihad agreed in April to buy a 24 percent stake in India’s biggest publicly traded carrier as it seeks access to a market where passengers are forecast to triple to 452 million by 2020. Rising travel has prompted both Singapore Airlines Ltd. (SIA) and AirAsia Bhd. to tie up with Mumbai-based Tata Group this year to set up ventures in the South Asian nation.

“If this goes through it could pave the way for similar deals involving other Indian carriers,” said Donal O’Neill, an analyst at Goodbody Stockbrokers in Dublin. A more favorable regulatory environment could even see network operators such as British Airways parent International Consolidated Airlines Group SA “dip its toes in Indian waters,” he said.

Jet Surge

Shares of Jet Airways fell 0.8 percent to 383.70 rupees at close of trading in Mumbai, after three days of gains. The stock has declined 31 percent this year, compared with a 2.5 percent gain for the benchmark S&P BSE Sensex Index.

Etihad, which isn’t traded, will purchase 27.26 million Jet shares. The Gulf carrier said in April the deal will lift its commitment to Jet to $600 million, including three pairs of takeoff and landing slots at London Heathrow airport bought for $70 million in February and the $150 million acquisition of a majority stake in the Jet Privilege frequent-flier program.

“Jet Airways would be one of the most important investments for Etihad,” said John Strickland, director of JLS Consulting Ltd. in London. “There is a lot of natural traffic flow from the Indian market.”

Etihad may also look at its stake in Jet as a way to overcome Indian hurdles on additional traffic rights to the country, Strickland said. Indian government efforts to protect domestic carriers by limiting the routes foreign operators can serve have been an impediment to fast-growing Gulf airlines.

Fleet Funds

The agreement will help Jet raise funds to pay for fleet expansion and pare debt after six years of losses caused by a price war and high fuel costs. India’s Foreign Investment Promotion Board approved the deal in July.

“Jet Airways needs to lower its cost base to become more competitive with the growing number of low-cost carriers in the Indian market,” O’Neill said. “Etihad could help it to do this by refocusing its domestic and short haul operations, while helping to feed Etihad’s network, and getting synergies on any potential aircraft deal, which Jet needs given its fleet age.”

An Etihad spokesman declined to comment yesterday. Ragini Chopra, a spokeswoman for Jet, also declined to comment today.

Etihad also has holdings in Air Berlin Plc, Virgin Australia Holdings Ltd., Aer Lingus Group Plc, Serbia’s Jat Airways and Air Seychelles Ltd. The state-owned airline has invested in smaller operators to help feed long-haul flights and turn its home base into a hub for intercontinental travel.

To contact the reporters on this story: Bibhudatta Pradhan in New Delhi at bpradhan@bloomberg.net; Robert Wall in London at rwall6@bloomberg.net

To contact the editors responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net; Benedikt Kammel at bkammel@bloomberg.net

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