Shares in India's Jet Airways jumped on Friday after the government cleared the group to sell a 24-percent stake to Abu Dhabi-based Etihad in the first such foreign deal since reforms last year.
Jet announced the plan to sell its shares to Etihad in April, taking advantage of a government move to open the aviation sector a year ago to allow international carriers to buy up to a 49 percent stake in domestic operators.
Jet shares rose as much as 7.27 percent in morning trade, and was later up 2.55 percent at 396.45 rupees on the Bombay Stock Exchange.
The deal is worth $335 million, but its completion could be further delayed after the Supreme Court agreed to hear a public interest litigation against the acquisition, the Press Trust of India reported on Friday.
The deal has been regarded as a key test of India's ability to attract foreign investors to its ailing airline sector.
Indian carriers need money to fund expansion and cut debt after years of losses caused by the fierce fare battles and rising fuel costs.
The aviation sector, once vaunted as a symbol of economic vibrancy, has also seen its fortunes fade in the face of a slowing economy, over-expansion and rundown infrastructure.
Only privately held low-cost carrier IndiGo was in profit in the year to March 2012, out of India's six main scheduled carriers.
Kingfisher Airlines, controlled by liquor baron Vijay Mallya and once the second-biggest carrier, remains grounded and teetering on the edge of bankruptcy.