Jet Airways (India) Ltd. won approval from India’s investment panel to sell a stake to Etihad Airways PJSC, the first share sale by a local carrier to a foreign airline after the nation eased ownership rules.
Jet’s plan to sell a 24 percent stake to Etihad was approved by the Foreign Investment Promotion Board, Economic Affairs Secretary Arvind Mayaram told reporters in New Delhi yesterday. The deal will need approvals from India’s finance minister and Cabinet Committee on Economic Affairs, a government official said, asking not to be named pending a formal announcement. Jet rose as much as 8.3 percent in Mumbai trading.
The agreement with Abu Dhabi-based Etihad will help Jet raise 20.6 billion rupees ($347 million) of funds for fleet expansion and pare debt after six years of losses caused by a price war and high fuel costs. Etihad will gain access to a market where air travel is forecast by CAPA Centre for Aviation and SITA to triple to 452 million by 2020.
“This deal is progressive for air transportation in the South Asian region and will have an impact on the global aviation business,” Mark D. Martin, chief executive officer of Dubai-based Martin Consulting LLC, said in a telephone interview. “There will be challenges that will take about 9-12 months to iron out after which they can focus on improving marketshare and optimizing the synergies.”
The Indian carrier will need government approvals for any future change in shareholding agreement, the official said. Etihad will have two representatives on Jet’s board, he said.
Ragini Chopra, a spokeswoman for Mumbai-based Jet, declined to comment as the “regulatory process” is still underway. Etihad yesterday declined to immediately comment on the deal.
Etihad in April had agreed to pay 754.74 rupees a share.
Shares of Jet jumped 2.6 percent to 421.80 rupees as of 9:38 a.m. The stock had surged 11 percent to 634.80 rupees on April 25, a day after the deal was announced.
The Indian airline will boost domestic seat capacity by as much as 8 percent annually over the next three years as it takes delivery of 46 aircraft, ordered with Boeing Co. earlier, K.G. Vishwanath, vice president of commercial strategy, told analysts in a conference call on May 27. The company is considering an order for Boeing 737 planes, he said.
Jet also hired a new chief executive officer. The carrier named Gary Kenneth Toomey, the former CEO of Air New Zealand Ltd., to succeed Nikos Kardassis who resigned June 5, less than two months after the stake sale agreement. Prime Minister Manmohan Singh’s government in September allowed foreign carriers to buy as much as 49 percent of local operators.
State-owned Etihad has invested in smaller operators to help feed long-haul flights and turn its home emirate into a hub for intercontinental travel. It owns stakes in Air Berlin Plc, Air Seychelles Ltd., Virgin Australia Holdings Ltd. and Aer Lingus Group Plc.
Jet is in talks with Etihad to lease out some excess aircraft capacity including Airbus SAS A330 planes, Vishwanath had said.
The carrier has said it will focus on increasing services to Abu Dhabi by adding more direct flights to the emirate from smaller Indian cities. It will also look at expanding services to Europe with new direct flights.
Jet, due to announce first-quarter results on Aug. 8, in May reported a wider-than-estimated fourth-quarter loss of 4.96 billion rupees because of higher aircraft lease costs and a one-time expense.