Both Naresh Goyal-promoted Jet Airways, the biggest private airline in India, and Air Sahara have denied media reports that a $560 million deal has been struck between them for Jet Airways to buy out Air Sahara promoted by Subroto Roy, a Bengali settled in Lucknow since long.

Air Sahara Executive Vice President Alok Sharma said last week "We realise that it is time for consolidation in the Indian airlines industry. So, we are talking to Jet for a strategic relationship to work towards a better tomorrow."

According to Jet Airways spokesperson Nandini Verma, negotiations were on for an alliance. She declined to give out details of the talks.

Air Sahara had first thought of selling 25 percent equity in the company but later decided to exit from the business after suffering losses, industry sources said.

The talks between Jet and Air Sahara came after liquor baron Vijay Mallya had said last week that he was withdrawing from the race to buy Air Sahara as his own Kingfisher Airlines is doing well.

There are reports that Mallya's bid had fallen through because he was offering just $200 million in hard cash and the rest through debt and equity sale while Jet Airways was reportedly willing to pay the entire price in one go.

If Jet Airways and Air Sahara indeed merge, they will capture more than 50 percent of the Indian civil aviation market, more than Indian's (formerly Indian Airlines) 30 percent or so, one estimate says.

Civil aviation sector has been abuzz with speculation about Air Sahara's takeover by Jet Airways for quite some now given the growing competition set off by the entry of eight domestic low-cost airlines and half a dozen others waiting to take off this year.