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Fri, Dec 14, 2007

Lufthansa Purchases 19-Percent Stake In JetBlue

$300 Million Deal Is Carrier's First Move Into US Market

One of American's most popular low-cost airlines will now carry a bit of German flavor. On Thursday, Deutsche Lufthansa AG announced it would pay $300 million for a 19-percent stake in JetBlue Airways Corp. -- the first time Lufthansa has made a move into the US airline industry.

The deal gives JetBlue a welcome infusion of cash, reports The Associated Press, and gives Lufthansa control over a potential takeover down the line.

JetBlue CEO Dave Barger called the deal a "significant endorsement of JetBlue's franchise from one of the most respected leaders in global aviation," adding the deal
"reaffirms our belief in JetBlue's disciplined growth plan and will also improve our balance sheet and give us greater financial flexibility as we move into 2008."

For economists, the deal is further proof European companies are looking towards the US for investment... especially as the Euro continues to strengthen against the US dollar, giving those entities additional spending power in the US market.

Lufthansa plans to acquire roughly 42 million newly-issued shares in JetBlue, for $7.27 per share -- a 16 percent premium to Wednesday's closing price on Wall Street. The deal will also give Lufthansa a seat on JetBlue's board of directors, and lays the groundwork for what Lufthansa termed "an operation cooperation."

If that sounds vaguely ominous, Lufthansa CEO Wolfgang Mayrhuber hopes his statement Thursday will allay some fears.

"We are very pleased to become an investor in JetBlue," Mayrhuber said. "Our investment reflects the confidence we have in JetBlue's quality, growth potential and management team. This investment presents Lufthansa with a compelling opportunity to invest in the U.S. point-to-point carrier market as the industry continues to evolve. The transaction links two airlines with international reputations for quality, innovation and a service culture."

Lufthansa's stake in JetBlue falls under the 25 percent level of foreign ownership where the Department of Transportation gets nervous, though as mentioned before it's possible the carrier would try to add to its stake down the line, and test the DOT's restrictions.

Calyon Securities analyst Ray Neidl said the deal will created more options for both carriers, though "it's probably better for Lufthansa than JetBlue," he added.



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