Jet Airways board clears sale of 24 per cent stake to Etihad.

The board of directors of Jet Airways (India) has approved a proposal to allot 24 per cent stake to Etihad Airways PJSC of Abu Dhabi for Rs. 2,058 crore ($379 million).

At a meeting held in Mumbai on Wednesday, the board cleared a proposal for preferential allotment of 2.72 crore equity shares to Etihad at a price of Rs. 754.73 per share (including a premium of Rs. 744.73) of the face value of Rs 10.

The board’s decision was also conveyed to stock exchanges.

The allotment price is at a premium of 32 per cent from Jet Airways’ closing price of Rs. 573.85 on Tuesday .

The deal is subject to compliance with applicable laws and regulations, and also shareholders’ approval.

This will be the first time that a foreign airline will be picking up a stake in an Indian airline.

Last year, the government had allowed foreign carriers to invest up to 49 per cent in equity capital of Indian airlines to help revive their flagging fortunes.

“The partnership will bring in significant benefits and opportunities for global growth to both airlines. 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,” Etihad Airways President and CEO, James Hogan, said in a release.

“I am extremely happy to be in a partnership with an airline that shares our customer-centric operational philosophy and ethos. I have no doubt that this partnership with Etihad Airways is a win-win situation for all our stakeholders, especially our guests, who will now have access to a much expanded global network,” the release quoted Jet Airways chairman Naresh Goyal as saying.

As part of this deal, Etihad, in late February, had purchased three pairs of Jet Airways’ slots at London Heathrow Airport for $70 million (Rs. 380 crore).

Etihad has also agreed to buy a majority stake in Jet Airways’ frequent flyer programme JetPrivilege for $150 million within six months. Including the $ 379 million equity investment, Etihad will pump in all around $600 million into Jet Airways.

A joint project management office will be set up to ensure delivery of all synergy benefits to both parties. Substantial ownership and effective control will remain with Indian nationals, with Mr. Goyal, as the non-executive Chairman, holding 51 per cent of the company.

“It is a game changing deal for Etihad, and a deal of life for its CEO James Hogan. Etihad with this deal has now got a real home market of 1.3 billion, $ 2 trillion economy with potential to grow 7 to 8 per cent for next few decades. The deal is good for Jet as it gets them capital, expertise and Government of Abu Dhabi to back their long-term plans,” Kapil Kaul, CEO South Asia, Centre for Asia Pacific Aviation (CAPA), told The Hindu.

“It is a landmark development not only from the standpoint of Indian aviation but also in the context of the larger role being assumed by the Gulf carriers in the global aviation market. The European carriers are already feeling the heat and this development could make the South East Asian carriers nervous as well. The much needed capital will help Jet regain some of the ground they have lost to the low cost carriers,” said Ramesh K. Vaidyanathan, Managing Partner, Advaya Legal.

Etihad, in its bid to compete with already established Emirates, was looking for a partner in India, and with Jet Airways by its side, it will achieve this dream. Apart from getting funds from this deal, Jet is expected to source cheap capital from Etihad’s financers to fund its expansion plans. Jet is now working to make Abu Dhabi its international hub.

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