* Jet, Air France-KLM sign agreement in Mumbai
* Plan is to boost traffic to Europe and then North America
* Potential challenge to Jet shareholder Etihad (Adds details, quotes, analyst comment)
By Sankalp Phartiyal
MUMBAI, Nov 29 (Reuters) - India's Jet Airways and Air France-KLM on Wednesday announced a partnership to route more traffic through Europe and on to North America, in a potential challenge to Gulf carrier Etihad Airways that is a shareholder in Jet.
Indian international air traffic is booming, but much of the growth has been captured by the three big Gulf carriers including Etihad, which owns 24 percent of Jet.
The "enhanced cooperation agreement" with Air France-KLM, signed in India's financial capital Mumbai, is designed to expand the number of flights to Europe and make Paris and Amsterdam hubs for connecting flights to the United States.
The agreement also includes Delta Air Lines, with which Air France KLM has an existing partnership.
International carriers are increasingly tying up on routes in the face of rising competition.
Jet's chief financial officer Amit Agarwal said in September that there was "continued weakness in the Gulf market both on the demand as well as yield." He said flights into Amsterdam and Paris, which Jet launched recently, were a "brighter spot".
The Gulf will continue to be an important market and Jet will not reduce its operations there, Naresh Goyal, chairman of Jet, told reporters alongside Jean-Marc Janaillac, Air France-KLM's chairman. Goyal added that Jet had a "great relationship with Etihad" and that would continue.
Under its previous CEO, James Hogan, Etihad had invested in Jet Airways as part of an aggressive strategy of growing its Abu Dhabi hub by taking stakes in other airlines that would funnel traffic to the United Arab Emirates.
Two of the airlines, Alitalia and Air Berlin, have since entered administration and incoming Etihad CEO Tony Douglas is expected to reexamine its other equity investments when he starts in January.
Etihad was not immediately available for comment.
CAPA Centre for Aviation senior analyst Will Horton said the Air France KLM partnership was a "textbook example" of the downside of Etihad having only a minority investment in Jet.
"Under the new/expanded deal, Jet Airways will do more flying on its own compared to the Etihad deal. That boosts revenue," he said. "Jet's widebody fleet will also be better utilised - that’s also good for Jet."
Jet and Air France-KLM said in a statement the agreement announced on Wednesday would involve coordination of sales and services. They also signed a memorandum of understanding to strengthen cooperation in cargo operations.
Jet shares were trading 1.7 percent higher on Wednesday, while Air France-KLM shares were up 1 percent. (Reporting by Sankalp Phartiyal; Additional reporting by Jamie Freed in SINGAPORE, Writing and additional reporting by Tommy Wilkes; Editing by Himani Sarkar and Kim Coghill)