Shares in India's Jet Airways extended gains to more than 13 percent on Friday, after CNBC TV18 reported that Abu Dhabi's Etihad Airways may buy a 10-12 percent stake in the company directly from promoters.
Etihad may pay as much as 750 rupees ($13.75) a share for the stake, the report said.
Etihad has been in talks with Jet to buy a 24 percent stake, government sources have told Reuters.
The channel said Etihad may buy the remaining stake by issuing preferential shares.
The 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 carriers, which are battling stiff competition and high operating costs.
Malaysia's AirAsia, Asia's largest budget carrier, 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.