India's second-biggest private airline, Air Sahara, on Wednesday denied reports that it was selling out to Jet Airways and said it was only in talks with Jet on strategic alliances.

Local newspapers had reported Jet was close to buying out Air Sahara in a deal worth USD$560 million.

"We are in talks with Jet for strategic alliances... we have not finalized anything," Air Sahara Executive Vice President Alok Sharma said.

Jet officials did not return calls seeking comment through the day. They had, a few months back, denied being interested in a stake in Air Sahara.

Air Sahara said last September it was exploring opportunities for alliances and partnerships to help fund expansion and that adviser Ernst & Young had put its enterprise value at USD$750 million to USD$1 billion.

Indian drinks company UB group, which runs private carrier Kingfisher Airlines, had bid for Air Sahara, but Chairman Vijay Mallya said his valuation of the airline had not been acceptable to Sahara, and that he was unwilling to revise his valuation.

The Economic Times said a merged Jet-Sahara entity would have more than half the domestic market and a fleet of more than 90 aircraft, with revenue of 70 billion rupees (USD$1.6 billion) and a market value of 115 billion rupees.

Sahara, which began operations just months after Jet in 1993, is part of a USD$12 billion group owned by flamboyant tycoon Subroto Roy, with interests spanning finance, housing, power and media.

India's domestic air travel market is forecast to grow by more than 20 percent a year over the next five years, boosted by rising incomes and lower fares. An estimated 19 million domestic passengers travelled by air in the year to March 2005.