Etihad Airways is reported to be in talks to buy a stake in India's Jet Airways, according to unnamed Indian government sources quoted in the country's press yesterday.
"The due diligence process is under way and there is a lot of activity on that front. But when a final deal will be struck cannot be said," India's Economic Times reported, quoting a top source from the civil aviation ministry.
"Both the sides have appointed consultants as Etihad wants to make sure that they have a sound investment in the country as cost issues remain a concern about airline companies in India," the source continued.
The speculation sent Jet Airways shares soaring over 18 per cent at one point to 598.80 rupees in Mumbai morning trading.
Etihad did not confirm or deny the speculation, but issued a statement.
"Etihad Airways has identified equity investments in other airlines as an important evolution of its successful partnership strategy. Such investments will be made where Etihad Airways believes the commercial prospects are strong, where there are like-minded business philosophies, and where such commitment will be welcomed," said the airline.
"The Indian aviation industry offers tremendous potential, with significant passenger movement on domestic and international sectors. If or when we do make further investments of this sort, we will announce them in line with regulatory and commercial requirements."
Jet Airways said: "We do not have adequate information at this stage to comment on this issue."
The Indian government amended legislation in September to allow foreign investors a stake of up to 49 per cent in Indian airlines, and industry analysts believe such a stake would fit Etihad's expansion plans.
"A deal will help the Indian company tap the Gulf carrier's global network, while Etihad can benefit from rising travel demand in India. Potentially, it can be a win-win situation," said the consulting company, CAPA - Centre for Aviation. "India is one of the fastest-growing markets in the world, which Etihad can't ignore. And for an Indian carrier, a partnership with Etihad is like plugging into a growing network in Europe, Africa and North America."
Jet Airways and Etihad already have a code-sharing agreement and a deal could help them to win market share from state-owned Air India, as well as from Dubai-based Emirates Airline, which dominates routes between India and the Middle East, it said.
With its 100 aircraft fleet, Jet Airways is India's largest airline by passengers carried, but along with nearly all other Indian carriers, it is struggling. The Indian airline industry lost a combined US$2 billion (Dh7.34bn) last year and every carrier apart from the unlisted IndiGo lost money, buffeted by high state taxes on jet fuel, expensive airports and regulatory uncertainty.
Tail Winds, the investment vehicle of the Jet Airways founder Naresh Goyal, currently holds 79.99 per cent of the airline. At current share prices, a 49 per cent stake would be valued at 24.3bn rupees (Dh1.6bn).
Etihad already has a 10 per cent stake in Virgin Australia, a 30 per cent stake in Germany's Air Berlin and a 3 per cent stake of the former Irish national airline, Aer Lingus.