5 reasons why the Jet Airways stock gained 20 per cent

Offer price a steep premium: The sale price is a 31.7 per cent premium to Jet's closing share price on Tuesday. The stock markets were closed on Wednesday.

"The price is good for Jet. I think Etihad may have paid over the odds slightly, but with Kingfisher out of the picture there is only one full service heavyweight in town, and that's Jet," said Sudeep Ghai, partner at consultancy Athena Aviation.
Positive feedback from brokerages: Global brokerage Citi has upped its target price to Rs 766 from Rs 545 while retaining its 'buy' call after the deal was announced, saying liquidity and solvency ratios of the company will improve and can lead to interest cost savings of Rs 190 crore for the Indian carrier.

Domestic brokerage IIFL also has a 'buy' on the stock with a target price of Rs 790 per share. It said the deal will bring down Jet Airways' debt significantly, and improve its international operations.

Global consulting firm KPMG termed said the deal is "extremely positive news".
Debt reduction: The deal will result in a substantial cash infusion for Jet. Etihad will also invest an additional $150 million in Jet's frequent flyer programme and spend $70 million to buy Jet's three pairs of Heathrow slots through the sale and leaseback agreement announced in February. The cash will help Jet pare its Rs 11,600 crore debt.

"All in all, Jet will get close to $600 million (Rs 3,249.50 crore) against a debt of almost $2 billion -- that is extremely good news when it comes to the balance repair for Jet," said Mahantesh Sabarad of Fortune Equity Brokers.

"This transaction further strengthens the balance sheet of Jet Airways and, more importantly, underpins future revenue streams, which will accelerate our return to sustainable profitability and liquidity," Jet chief Naresh Goyal said.
The deal sets a valuation benchmark for further investment in Indian airlines, with budget carrier SpiceJet frequently the subject of stake sale reports. The sale is EPS accretive by around 6 per cent in FY14. Etihad is buying the stake at 8.1x one-year forward enterprise value/ EBITDAR.

"It (the deal) is expected to bring immediate revenue growth and cost synergy opportunities, with our initial estimates of a contribution of several hundred million dollars for both airlines over the next five years," said James Hogan, Etihad's chief executive.
As part of the agreement, Jet will establish a hub in Abu Dhabi and expand its reach through Etihad's global network while the airlines will also expand existing operations and introduce new routes between India and the Gulf.

The deal makes Jet a formidable presence in India's international aviation sector and will pit it against Emirates and Air India, which carry a significant share of the Indian traffic to West Asia and beyond.