Dubai's flagship airline Emirates is looking at taking over unprofitable neighbor Etihad, according to four people familiar with the matter, in a move that would create the world's biggest carrier by passenger traffic.
Rumours of the two airlines merging have floated around even in the past.
Emirates Airline is part of the Emirates Group, which is owned by the Dubai government.
Any deal would require the blessing of the rulers of the richest sheikhdoms in the United Arab Emirates.
Both airlines, which grew rapidly earlier this decade, have faced financial pressures in the past two years because of tough competition in the industry and a regional economic slowdown due to low oil prices.
Emirates chairman Sheikh Ahmed bin Saeed Al Maktoum and its president Sir Tim Clark have previously denied reports of any merger talks between the two carriers.
A few stations have been removed from the new Etihad Cargo freighter network, the largest of which was Nairobi, citing weakening demand and market behaviours that rendered other core markets more attractive to serve.
Bringing the airlines together would not be easy because of the duplication of routes from their Dubai and Abu Dhabi bases. It's also the strongest operator on worldwide routes, on account of the success of its Dubai hub.
Meanwhile, a new terminal is scheduled to open next year at Abu Dhabi International Airport, where Etihad is based.