* Etihad to take 24 percent stake in Jet
* Price at 31.7 pct premium to Jet share price
* First foreign investment since ownership rule change
* Deal seen as a game-changer for local aviation industry
By Sumeet Chatterjee and Praveen Menon
MUMBAI/DUBAI, April 24 (Reuters) - Fast-growing EtihadAirways is taking almost a quarter stake in India's Jet Airways, giving it a bigger foothold in the fast-growing Indianmarket.
The $379 million investment is the first by an overseasoperator in an Indian airline since ownership rules were relaxedand provides India's largest carrier with a deep-pocketed globalpartner as well as cash to retire debt.
Etihad, which has minority stakes four other carriersincluding Air Berlin and Virgin Australia, hasbeen expanding quickly as it competes with regional rivals QatarAirways and Emirates, which carries a significantshare of the Indian traffic to Gulf and beyond.
"It's a game-changing opportunity for Etihad, and agame-changing opportunity for India," Kapil Kaul, regional headof the Centre for Asia Pacific Aviation (CAPA), told Reuters.
Kaul said Jet would benefit from strategic expertise, cheapfinancing and possible fuel import benefits in addition to thecapital injection.
"It (the deal) is expected to bring immediate revenue growthand cost synergy opportunities, with our initial estimates of acontribution of several hundred million dollars for bothairlines over the next five years," said James Hogan, Etihad'schief executive.
As part of the agreement Jet will establish a hub in AbuDhabi and expand its reach through Etihad's global network whilethe airlines will also expand existing operations and introducenew routes between India and the Gulf.
The deal, finalised after months of negotiations, is avindication for the Indian government which has struggled toattract overseas companies wary of regulatory uncertainty andbureaucratic red tape.
Etihad will buy 27.3 million new shares of Jet at 754.74rupees per share, a 31.7 percent premium to Jet's closing shareprice on Tuesday, and acquire 24 percent of Jet's expanded sharecapital.
Etihad will also invest an additional $150 million in Jet'sfrequent flyer programme and spend $70 million to buy Jet'sthree pairs of Heathrow slots through the sale and leasebackagreement announced in February.
Jet owner Naresh Goyal will hold 51 percent of the airlineafter the deal.
"The price is good for Jet. I think Etihad may have paidover the odds slightly, but with Kingfisher out of the picturethere is only one full service heavyweight in town, and that'sJet," said Sudeep Ghai, partner at consultancy Athena Aviation.
The deal sets a valuation benchmark for further investmentin Indian airlines, with budget carrier SpiceJet Ltd frequently the subject of stake sale reports.
Jet shares have had a turbulent ride in recent months astalks with Etihad dragged on.
The stock is up about 70 percent since November, after mediareports about a possible stake sale.
Despite high growth potential, India has been a toughaviation market in recent years, although competition has easedsince former No.2 Kingfisher Airways stopped flyinglate last year, dragged down by debt and cash-flow problems.
The premium paid by Etihad is sharply higher than the 5.5percent premium Singapore Airlines Ltd paid to liftits stake in Virgin Australia Holdings Ltd to 19.9percent in another deal announced on Wednesday.
"This transaction further strengthens the balance sheet ofJet Airways and, more importantly, underpins future revenuestreams, which will accelerate our return to sustainableprofitability and liquidity," Goyal said.
Bank of America Merrill Lynch and Credit Suisse advised Jet on the deal, while HSBC was theadviser for Etihad, several sources said.
HSBC Holdings (HSBA)
