(Adds Dubai source comments, more details)
* Etihad in talks with India's Jet, Kingfisher
* Kingfisher says to restart operations in phases
* Will not need banks' support - Kingfisher
By Anurag Kotoky and Praveen Menon
NEW DELHI/DUBAI, Dec 17 Gulf carrier Etihad
Airways, seeking to widen operations in India and other Asian
markets, is in the final stages of talks to buy part of either
Jet Airways or grounded rival Kingfisher Airlines
, an Indian government official said on Monday.
A deal, which the official said could be announced by next
week, would be the first since the government relaxed ownership
rules in September to allow foreign airlines to invest up to 49
percent in a domestic carrier.
"Etihad has not yet decided. They are talking to both," said
the official, who has knowledge of the talks but declined to be
named as the negotiations are confidential.
The decision is now with the board of Etihad and Abu Dhabi's
state-owned investment fund Mubadala, said one
Dubai-based source who did not want to be identified as
discussions were private.
Indian financial firm Edelweiss is advising Kingfisher. The
firm and the airline's management team have met with Etihad
several times over the last few days.
Buying into Jet is seen as more lucrative for Etihad as the
two carriers already have a code-sharing agreement and could
target the market share of state-owned Air India and Dubai-based
Emirates Airline, the latter of which dominates
routes between India and the Middle East.
But a stake in Kingfisher, which has been grounded after its
licences were suspended and whose owner, liquor baron Vijay
Mallya, has been looking for an investor for more than a year,
would be cheaper.
Jet Airways was set to sign a deal with Etihad valued at
around $440 million within six months, a source had confirmed in
The Dubai-based source said news leaked on the Jet-Etihad
partnership plans, which shot up the stock price, causing the
Abu Dhabi carrier to reconsider.
"The deal was almost done with Jet when it was leaked and
this upset Etihad," said the source.
Shares in Jet Airways Ltd, the No. 2 Indian carrier, closed
2.4 percent higher on Monday, after rising as much as 4.7
percent to a nearly two-year high, on hopes that Abu Dhabi-based
Etihad would strike a deal with it.
Kingfisher shares ended down 5 percent - their daily limit -
snapping nine consecutive sessions of gains.
He said Jet and Kingfisher were equal contenders for
Etihad's interest now and the Gulf airline may even look at a
stake in both, giving it a formidable market presence.
"Entering India in such a scale will block all its
competitors," he said.
Indian carriers are beset by stiff competition and high
operating costs and have been in talks to sell minority stakes
to foreign operators.
"Unbelievable as it might sound, Kingfisher at the moment
stands a better chance, but the price has to be right," said
Rajan Mehra, an industry expert and the India head of U.S.-based
private jet operator Universal Aviation.
"Etihad will be able to have control over the airline. Right
now what they want is control," said Mehra, who previously
headed Qatar Airways' India operations.
Kingfisher is considering giving up operational control of
its overseas flights if a deal goes through, a separate source
had said earlier.
The debt-laden carrier said last week it was in talks with
Etihad and other investors about taking a stake, while later in
the week it capped foreign portfolio investment in the company
at 3 percent, carving space for a foreign investor to buy as
much as 49 percent in it.
On Monday, Kingfisher said it was looking to restart
operations and would arrange funding itself. The carrier said it
would discuss a full recapitalisation plan with a small group of
Kingfisher will need about 4.25 billion rupees ($77.91
million) to restart according to its plan, said Shyamal Acharya,
a deputy managing director at State Bank of India, the
country's top lender and the lead bank to Kingfisher.
($1 = 54.5500 Indian rupees)
(Editing by David Cowell and Hans-Juergen Peters)