(AP) India's Jet Airways on Wednesday approved the sale of a 24 percent stake to Etihad Airways for $379 million, the first foreign investment in an Indian airline since the South Asian country eased restrictions on aviation deals last year.
The new investment rules are expected to bring more such deals, providing a badly needed influx of money and expertise to India's massive but still underdeveloped air travel market, an industry analyst said.
Jet Airways said in a statement to the Bombay Stock Exchange that it is selling 27.3 million new shares to Etihad at 754.7 rupees ($13.90) a share, subject to regulatory and shareholder approvals.
Mumbai-based Jet, founded in 1993, is one of India's largest domestic airlines and its second-largest international carrier behind state-owned Air India.
It has been aggressively expanding its routes and fleet and now flies to 42 domestic and 21 international destinations but has struggled for years to make a profit. A milestone was reached in the October-December quarter of last year when cost cutting helped to lift the airline to a profit of 890 million rupees ($16.4 million) for the three months.
Jet will likely use Etihad's cash infusion to expand its fleet of 100 aircraft. The Sydney-based Center for Aviation said in a recent report that Jet planned to increase its number of operational wide-body jets from 18 to about 30 over the next 12 to 18 months.
For such an ambitious expansion, a deep-pocketed investor such as Etihad, the flag carrier of oil-rich United Arab Emirates, is a key asset, said Kapil Kaul, South Asia chief of the Center for Aviation, an industry consultancy.
"Etihad is not an ordinary partner. It's like the government of Abu Dhabi backing you," Kaul said. "So that is a game-changing deal."
Fast-growing Etihad was set up in the UAE in 2003 and recently has been building partnerships and other alliances around the world as part of its fierce competition with Gulf rivals Qatar Airways and Dubai-based Emirates. In June, Etihad announced it bought a nearly 4 percent stake in Virgin Australia.
Etihad also gains from the Jet investment with greater access to the vast potential of the air travel market in the world's second most populous nation, Kaul said.
India has 1.2 billion people but annual airline passengers, both domestic and international, number only 160 million. The Center for Aviation predicts that number will nearly triple to 450 million by 2020.
Jet and Etihad had no immediate comment Wednesday.
Etihad is paying a 32 percent premium to Jet's closing share price Tuesday of 573.85 rupees. India's markets were closed Wednesday for a public holiday.
While India's airline industry has expanded enormously in recent years, only one airline, IndiGo, has been able to turn a consistent profit, while others suffered from labor strife and mismanagement.
Last year, the Indian government decided to allow up to 49 percent foreign ownership of airlines as part of reforms to help revive a slowing economy.
AirAsia, Southeast Asia's top budget carrier, last month said it will set up a Chennai-based airline with India's Tata conglomerate to serve the domestic Indian market.