Loss-making private Indian carrier Jet Airways said on Thursday that it was in talks with Etihad Airways about selling a stake to the Abu Dhabi-based airline.
"These discussions are in progress but no terms have been firmed up at present," Jet said in a statement to the Bombay Stock Exchange.
Jet shares rose as much as 6.1 percent to 615.4 rupees at the BSE, reacting to the news. Its shares have jumped over 60 percent since India's government relaxed rules for foreign investment in the aviation sector.
The airline said an "appropriate announcement" would be made once the terms of the investment by Etihad were finalised.
Jet said that "various structures" are being explored.
"By its very nature, there cannot, at this stage, be a firm time line as to the progress of these negotiations, considering the complexity of trans-national transactions such as this," the statement said.
The Business Standard newspaper reported on Thursday that Etihad may pick up a 24-percent stake in Jet, valued at between 15 to 18 billion rupees ($270-320 million), quoting an unnamed aviation ministry official.
Tail Winds, the Isle of Man-based investment firm of Jet founder Naresh Goyal, currently holds nearly 80 percent of Jet Airways.
Several loss-making Indian airlines have been in talks with foreign carriers after the government last year opened up the aviation sector further to allow non-Indian airlines to invest in their counterparts in the country.
A deal between Jet and Etihad could make matters worse for ailing Kingfisher Airlines, which is in desperate need of cash to fly again and was in talks with Etihad to sell a stake.
"Jet-Etihad talks are on but it (Etihad) may not be in a hurry," said an aviation analyst with a Mumbai-based brokerage, declining to be named.
"Valuation will be the most critical," he said, adding that the balance sheets of most local airlines are weak.
Only one of India's six main scheduled carriers -- privately held low-cost carrier IndiGo -- was in profit last year, helped by a strict business plan and on-time performance.
Indian carriers need money to fund expansion and cut debt after years of losses caused by intense air-fare battles and rising fuel costs.
Losses for Indian airlines come despite rising demand for airline travel spurred by the rising incomes of India's middle classes.
Jet and Etihad may also consider a "marketing agreement", another analyst said, which could allow for training and technology facilities to be used between the two.
Factors like high fuel taxes, weak policy, regulations and infrastructure challenges, could dampen hope of deals being finalised quickly, analysts said earlier.
Aviation consultancy firm Centre for Asia Pacific Aviation has said that low-cost GoAir and SpiceJet were carriers "with the greatest prospect" to attract foreign airline investment.