Shares in Jet Airways surged 19.7 percent on Wednesday after TV channel ET Now cited unidentified sources as saying Etihad Airways was close to a deal to purchase a 24 percent stake in the Indian carrier.
Abu Dhabi's Etihad has already paid a "token" amount of USD$70 million, and will likely pay USD$400 million in the first tranche of the deal, the channel reported.
A Jet Airways spokeswoman referred reporters' queries on the report to Etihad. Etihad said it did not have an immediate comment.
Indian TV channels said Etihad had bought Jet's slots at London's Heathrow airport for USD$70 million, but did not say whether that was a part of the stake purchase agreement.
A Jet-Etihad deal would be the first since India relaxed ownership rules in September and allowed foreign carriers to buy up to 49 percent in local airlines, which are battling stiff competition and high operating costs.
Malaysia's AirAsia also plans to launch a regional airline in India in a venture with the Tata group, marking a return to aviation for India's biggest business house, and betting on potential growth despite near-term issues.
Etihad, launched in 2003, is on a buying spree to compete with regional rivals Emirates and Qatar Airways. The Gulf carrier has taken stakes in Virgin Australia and Aer Lingus and raised its shareholding in Air Berlin and Air Seychelles.
Senior executives from Etihad and Jet met Indian ministers earlier this month, but the deal faced a setback later as the Gulf carrier's chairman told reporters the deal needed to be revised.
Etihad will have to find a way around Jet's complicated shareholding structure before a deal can be agreed.
Tail Winds, the Isle of Man-based investment vehicle of Jet founder Naresh Goyal, currently holds 79.99 percent of Jet Airways.
According to Indian rules, foreign companies can hold a maximum 49 percent stake in local carriers, but so-called non-resident Indians like Goyal are exempted.
Goyal is likely to convert shares owned by its holding company into his personal stake to comply with foreign investment regulations, an Indian government source has said.
As a foreign company, Tail Winds cannot engage in share trades with another foreign company but Goyal can sell his personal stake.