Shares of Jet Airways slid as much as six percent on Tuesday amid new investor worries over whether the Abu Dhabi-based Etihad airline would get final permission to buy a stake in the private Indian carrier.
The Jet-Etihad deal, announced in April, marks the first overseas investment in an existing Indian carrier since New Delhi eased restrictions to allow foreign firms to take up to a 49 percent holding in the country's airlines.
But a request by the prime minister's office on Monday for the plan to be discussed by cabinet raised new worries about the fate of the deal. It sent shares of Jet down six percent before they retraced to trade two percent lower at 455 rupees.
Aviation minister Ajit Singh, who is reported to have threatened to resign if the deal collapses, said: "I don't see a problem in the Abu Dhabi deal going through."
Speaking to India's NDTV, he added: "Ask the prime minister's office if the deal is on hold despite being signed."
Etihad plans to pick up a 24 percent holding in Jet under the 20.5-billion-rupee ($344 million) deal that would allow the Indian carrier to reduce its hefty debt and expand its global reach by using the UAE airline's network.
But the deal, the largest foreign investment proposal in the aviation sector, faces regulatory hurdles, with various ministries raising objections over control of Jet after the deal as well as over bilateral plans for an increase in flights between India and Abu Dhabi.
Many of the new seats would go to Jet and Etihad. India's opposition has alleged that the nearly fourfold rise in flights was aimed at clinching the deal and could divert vital business from ailing state-run flagship Air India.
The Jet-Etihad deal would supply the Abu Dhabi carrier with hundreds of thousands of new passengers on its routes to Europe, Africa and West Asia as the emirate aims to become a hub for intercontinental air traffic.
Ajit Singh said Tuesday the deal's opponents were "long on politics and short on facts".
Federal cabinet secretary Ajit Seth was due to chair a high-level meeting of bureaucrats late Tuesday in a bid to iron out difficulties.
A parliamentary committee last month recommended the bilateral agreement with Abu Dhabi "be reconsidered by the government to protect our national carrier and the airports of India".
The committee charged that the 32 percent premium to Jet's April share price offered by Etihad "could be a backhanded way of obtaining access to the huge civil aviation market in India".