Founder Naresh Goyal will reportedly step down from the controls of Jet Airways in a proposal before the lenders to keep the cash-strapped carrier airborne.
The plan is to raise UAE national carrier Etihad Airways' stake in Jet Airways from the current 24 per cent, according to sources.
"Given the precarious financial situation of Jet Airways, lenders don't expect Goyal to bring in additional funds and are banking on Etihad to bail the airline out," Mint cited sources as saying.
Etihad will increase its stake in Jet Airways and infuse in fresh capital to the company. Etihad is also talking to foreign lenders to refinance Jet Airways' rupee and dollar debts that are nearing maturity, sources say.
Etihad's will agree to acquire more stake only if Goyal relinquishes control by capping some of his promoter rights, reports say.
Any increase in Etihad Airways stake will be in accordance with the resolution plan State Bank of India (SBI) has proposed to Jet Airways' foreign lenders and vendors. Domestic lenders, led by SBI, will meet on Wednesday to decide on stake increase and restructuring.
SBI earlier proposed local lenders recast Jet Airways' loans maturing until April 2019 in lieu of additional equity infusion.
The Abu Dhabi-based Etihad is eyeing a deeper foothold in the world's fastest growing civil aviation market with an increased stake in Jet Airways, which was for long India's second largest airline.
Etihad can also grow into one of the largest international airlines by leveraging the Jet Airways network to get more travellers flying to the West from South Asia through its hub in Abu Dhabi.
By gaining control of Jet Airways the Abu Dhabi government-owned Etihad Airways is expected to make it easier for the Mumbai-based carrier to raise local and overseas debt.
As part of the bailout plan, Etihad may also seek to increase its board representation in Jet Airways from the current two.
Indian law stipulates that foreign carriers can own only up to 49 per cent stake in a domestic airline. The rules also make it mandatory for the management control of the domestic airline to remain with an Indian entity.
When the debt is converted into equity by the lender the stake percentage of all shareholders will come down following which Etihad can infuse additional capital into Jet to bring its stake back to the current level, sources say.