Abu Dhabi-based carrier Etihad Airways denied it was in talks to take a stake in struggling Franco-Dutch airline Air France-KLM, a spokesman said on Wednesday.
"Etihad Airways denies the rumours according to which it would be in talks to enter the capital of Air France-KLM," a spokesman said.
Netherlands newspaper De Telegraf reported on Wednesday that "Etihad is still staking out Air France-KLM", adding that "the course is set" for a buy-in.
A KLM spokesman told the paper that collaboration talks were still underway, but that the airline would not comment on specifics.
The report sent Air France-KLM shares sharply higher in late morning trade to 3.48 euros on the Paris stock exchange, a 3.14-percent gain in a market up by 1.81 percent overall. It later stood at 3.40 euros.
Air France-KLM later said that the airline was seeking a commercial partnership with the Etihad, but not a capital deal.
"We maintain the same position expressed by chief executive (Jean-Cyrille) Spinetta in the last shareholders meeting," an Air France-KLM spokesman told AFP.
The spokesman said a capital deal "was strictly not being planned" though he added by principle all options should be considered.
Qatar Airways is also interested in taking a stake in Air-France-KLM, but for now has been kept on the sidelines, De Telegraf said.
Etihad has been on a buying spree, increasing its stake in Air Berlin to almost 30 percent. It also owns 40 percent of Air Seychelles and is looking to boost its stake in Virgin Australia to 10 percent.
Yann Derocles, airline sector analyst from Oddo Securities, said that Etihad's stake in Air Berlin could give Air France-KLM unprecedented access to Germany and eastern Europe and improve margins on its medium haul business.
Derocles noted that Air France-KLM has historically kept Gulf companies at arm's length and the fact it would consider a tie-up with Etihad marked a significant change of attitude.
Struggling Air France-KLM has launched a major cost-saving programme after posting a loss of 809 million euros ($1.0 billion) for 2011 and a first quarter net loss in 2012 of 368 million euros.