CHICAGO (Reuters) - Deutsche Lufthansa AG <LHAG.DE>, Germany's national flag-carrier, will buy a 19 percent stake in low-cost U.S. airline JetBlue Airways Corp <JBLU.O> in a deal worth about $300 million, the two airlines said on Thursday.
By Kyle Peterson
CHICAGO (Reuters) - Deutsche Lufthansa AG <LHAG.DE>, Germany's national flag-carrier, will buy a 19 percent stake in low-cost U.S. airline JetBlue Airways Corp <JBLU.O> in a deal worth about $300 million, the two airlines said on Thursday.
The purchase marks the first major investment by a European carrier in a U.S. point-to-point airline.
The deal which requires approval from U.S. regulators, has the potential to bolster trans-Atlantic operations for Lufthansa and its global partners. But no specific areas of cooperation between JetBlue and Lufthansa were announced.
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JetBlue Chief Executive Dave Barger said the deal is "simply a financial transaction" for now.
"At this point in time it's strictly a minority investment and we'll see where the future takes us with exploring other opportunities," Barger said on an investor conference call.
Lufthansa said it will buy about 42 million newly issued shares of JetBlue, or 19 percent of JetBlue's equity after the issuance. The airline will pay $7.27 per share, or a total of about $300 million.
Barger said the Lufthansa investment would not change JetBlue's plans to remain a stand-alone carrier.
"From our point of view, our goal is still one of organic growth," he said.
Shares of JetBlue rallied as much as 25 percent earlier in the day on an unconfirmed press report of the deal. The stock pared gains and closed up 14.4 percent to $7.15 on Nasdaq after the confirmation.
The deal represents a 16 percent premium to Wednesday's closing price of $6.25 and allows a Lufthansa nominee to be appointed to the JetBlue's board of directors when the transaction closes.
One analyst said JetBlue's domestic route -- especially its strength in New York -- eventually could provide the foundation operational partnerships.
"This would be a strategic deal that would fill a gap in the Star Alliance," which is weak in the New York market, said Craig Jenks, president of Airline/Aircraft Projects Inc, a New York-based consulting firm.
The Star Alliance is a global airline partnership, of which Lufthansa is a founding member along with UAL Corp's <UAUA.O> United Airlines and US Airways <LCC.N>.
JetBlue "provides a ready made feeder system for, not just Lufthansa, but for all Star Alliance partners," Jenks said.
FOREIGN OWNERSHIP
Jenks said a Lufthansa deal would be the first major foray by a foreign carrier into the U.S. aviation industry since British Airways took a stake in US Airways in the early 1990s. Britain's Virgin Group <VA.UL> owns a stake in new U.S. domestic carrier Virgin America.
The global airline industry has been recovering from a years-long downturn, and some experts believe carriers should consolidate to remove excess capacity and cut costs.
Talk of consolidation has been rampant in the U.S. airline industry for more than a year, although there have been no deals since 2005 when America West and US Airways merged to form a new US Airways Group.
Delta Air Lines <DAL.N> recently said it has hired advisers to help it consider strategic alternatives that could include a merger. The carrier denied it is in merger talks with United Airlines. UAL leaders have long advocated mergers of domestic airlines and the lifting of restrictions on foreign ownership.
JETBLUE SNAFU
JetBlue's reputation and financial strength were hit last February when it was forced to cancel more than a thousand flights due to an operational foul-up during a winter storm.
JetBlue is the No. 2 U.S. discount carrier, behind Southwest Airlines Co <LUV.N>.
Like many low-cost airlines, JetBlue uses a point-to-point route structure that flies travelers from one city to another without layovers. Most major U.S. airlines route passengers through hub cities where passengers take connecting flights to their destinations.
JetBlue was founded by former Southwest executive David Neeleman in 1998 and quickly made a name for itself with its new planes, in-flight entertainment and leather seats.
Neeleman was shunted into the role of nonexecutive chairman in May, several months after the embarrassing service disruption on February 14 that exposed weaknesses in the No. 8 U.S. carrier's operations.
Signs of trouble were evident last year, when the New York-based airline reined in growth plans and sold some planes after posting losses.
Lufthansa <LHAG.DE> ranks No. 2 among European carriers by traffic, behind Air France-KLM <AIRF.PA> and ahead of British Airways <BAY.L>.
The company has been seen as a potential acquirer of other airlines, but said last week it will not make an offer for loss-making Italian rival Alitalia <AZPIa.MI>.
Shares of JetBlue were halted at $7.10 in mid-afternoon Nasdaq trading, up 85 cents, or 13.6 percent, paring gains from the earlier spike.
The deal is expected to close in the first quarter of 2008.
(Additional reporting by Bill Rigby and Chris Reiter in New York)
(Reporting by Kyle Peterson; Reuters Messaging: This email address is being protected from spambots. You need JavaScript enabled to view it.; e-mail: This email address is being protected from spambots. You need JavaScript enabled to view it.; Tel: +1-312-408-8581))
