Kingfisher Airlines, owned by Indian liquor baron Vijay Mallya, is in talks with two foreign carriers, including International Airlines Group (IAG)- the owner of British Airways and Iberia - for a potential rescue package, a report said.
This could pave the way for IAG to take a minority stake in the troubled Indian airline, 'The Times' said.
Mallya, who controls 58 per cent of Kingfisher, told 'The Times' that he had secured provisional approval from the Indian government for a change in the law that would ease restrictions on foreign ownership of airlines.
He claimed that the foreign carriers, which he refused to identify, stood ready to invest as soon as the change was announced - possibly within days.
It would allow overseas airlines to own up to 49 per cent of an Indian airline for the first time.
Mallya expressed confidence that a deal with a "foreign strategic investor" was likely. The report quoting a financial source in Mumbai named one of the airlines involved as IAG.
Etihad, the UAE-based airline, is also keen to have discussed a tie-up, which would involve the foreign groups providing equity in exchange for a minority stake.
Kingfisher which has debts of Rs 6,300 crore, needs an immediate cash injection of up to $160 million to remain solvent, the report said.
Its fleet of aircraft has fallen to 28 from 64 and many of its pilots have deserted because they have not been paid.
Last night, IAG, according to the report, welcomed the possibility of a liberalisation of India's aviation industry but said that it was "too early to speculate about IAG's interest in any Indian airline at this stage."
Etihad said: "We talk regularly and frequently to many airlines about issues and opportunities."
Kingfisher Airlines, which has not turned a profit since it was formed in 2005, has been hit hard by a combination of rising fuel prices, high taxes in India and a falling rupee.
Some sources cautioned, though, that Kingfisher's financial condition was so poor that IAG and Etihad could be reluctant to get involved.
In a further sign of the financial strains on his business, Mallya said that he was considering the sale of a stake in Whyte & Mackay as part of a drive to cut his group's $4 billion (2.5 billion pounds) debt.
Mallya said that Consolidated USL, his spirits holding group which has debts of $1.68 billion, was considering the sale of a 49 per cent stake in Whyte & Mackay, the Glasgow-based whisky maker which he bought in 2007 for $1.2 billion.
The report also quoted Ravi Negundadi, the chief financial officer of Mallya's parent company, UB Group, saying that there had been interest from "a number of private equity players" in W&M, which owns single malt whisky brands such as Jura and Dalmore.
He said that UB Group would retain ownership of 51 per cent and that the proceeds would be used to cut USL's debt and to help fund an expansion drive, including the construction of new distilleries and India's biggest glass plant.
Negundadi denied that the cash would be used to pay off any of Kingfisher Airlines' debt. "If we were to sell or dilute any of those assets the proceeds would go only to repay or reduce United Spirits' debt."
"We are still operating 200 flights per day, still earning revenues and meeting our creditors," Mallya told the daily while conceding that the airline is in dire straits.
Blaming the crisis on a mixture of high fuel prices, taxes and a plunging rupee, but not on bad management, Mallya said that its future lies in the hands of the Indian government, which relies on a strong aviation sector to support economic growth, the report said.