Struggling discount carrier JetBlue has sold a 19 per cent stake to German airline Lufthansa for $300 million on Thursday 13 December. This is the first major investment by a foreign airline in an American rival since British Airways took a stake in American Airlines in the early 1990s.

The transaction is also the latest example of how foreign entities can take advantage of a weak dollar to invest in frontline American companies. JetBlue has $433 million in current debt obligations, has substantially cut back on its growth plans and sold assets, including old planes.

Lufthansa's investment is strictly financial and does not include any strategic partnership, at least for now. But industry watchers say the deal could lead to further cooperation, giving Lufthansa an important foothold in the US. Lufthansa, Europe's second-largest airline after Air France-KLM, will buy 42 million newly issued JetBlue shares at $7.27 each. It will also get a seat on the discount airline's board.

US federal law limits the foreign ownership of any airline to a 25-per-cent voting stake and/or 49 per cent of equity. Both companies say the deal does not specify any areas of cooperation.

But a major potential benefit for Lufthansa is JetBlue's huge presence at New York's Kennedy International Airport, one of the nation's biggest hubs for foreign flights. Officials are considering reducing the number of takeoffs and landings to reduce overcrowding and delays, and this will make each existing slot that much more valuable.

JetBlue expects to complete a new terminal at the airport next year, and has an option to build a second. The terminal opening in 2008 is being built solely for domestic flights on single-aisle jets and it has no customs office. But JetBlue has the clearance to build a second terminal with international capacity.

Lufthansa flies direct to 17 US cities and has three daily flights from JFK and Newark airport. It has ticketing partnerships - called code-sharing agreements - with United Airlines and US Airways.

Whether the deal will kickstart consolidation in the US aviation industry is a topic of hot discussion. Executives of the country's largest airlines - including Delta, United, US Air and NorthWest - have talked about the need for consolidation. If nothing else, Lufthansa's investment makes it unlikely JetBlue will be a candidate for a merger with another US domestic airline.

Lufthansa, one of the world's most profitable international airlines, also owns a 30 per cent share of British Midland Airways, which has landing slots at London's Heathrow Airport. It could even end up with a majority stake, depending on British Midland's two other owners. Earlier, the German airline bought Swiss International Air Lines. it started with a 19 per cent (sounds familiar?) stake in 2005, and completing the purchase this year.

Foreign investors have been leveraging the newfound strength of their currencies against the dollar. Recently, foreign companies and wealth funds have been on a buying spree, acquiring stakes in businesses including Citigroup, Sony and the Carlyle Group.

JetBlue was founded in 1999 by David G Neeleman, a former Morris Air and Southwest Airlines employee. It became one of the best-known discount domestic airlines, with regular coast-to-coast flights. A charismatic entrepreneur, at times Neeleman pushed the company's growth past its ability to manage.

When fuel prices surged more than two years ago, JetBlue's costs rose rapidly because it had not hedged against the price increase. It could not immediately raise fares fast enough in the hypercompetitive East Coast air market to offset those costs, and it reported a small 2006 loss. The airline's stock has tumbled over the last two years.

Since then, JetBlue has slowed its growth, taking delivery of fewer planes than originally planned, and has increased its fares. It promoted president Dave Barger, a nuts-and-bolts airline operator, to chief executive. Since then, JetBlue reported a profit of $23 million for the third quarter, versus a loss of $500,000 a year ago.

The company's worst problem came in February, when nine JetBlue planes and their passengers were stranded on the tarmac at JFK for hours during an ice storm. This highly publicised event seriously damaged the airline's formerly sterling reputation.

JetBlue is facing increased competition as Virgin America, another low-cost airline, flies from New York to San Francisco. While other airlines lobbied the Transportation Department to block Virgin America's debut, JetBlue was not among them.