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Update 1/17/17 2:00pm: Reuters is now reporting from additional sources that while Lufthansa and Etihad are discussing code sharing and catering cooperation, a financial stake between the airlines “is out of the question at the moment.”

Could another airline mega-merger be in the works?

Italian newspaper Il Messaggero reported today that Etihad Airways and the Lufthansa Group are in discussions for Etihad to purchase a 30-40% minority stake in the German airline, with potentially a complete merger to follow.

The Middle Eastern carrier already has significant investments in two other European airlines — Air Berlin and Alitalia – but both have been experiencing serious financial issues. Meanwhile, Etihad is somewhat constrained from increasing those investments by German law and European Union regulations, and has itself recently announced layoffs to reduce its expenses.

Last month the two carriers announced a codeshare agreement in which Lufthansa is coding on several Etihad flights between Abu Dhabi and Germany, while Etihad is placing its code on some Lufthansa flights out of Frankfurt to South America. At the same time, Lufthansa also agreed to wet-lease nearly 40 aircraft from Air Berlin for its Eurowings and Austrian Airlines subsidiaries.

While the unsourced Il Messaggero report is intriguing, it also arouses skepticism since European foreign ownership rules and international traffic rights would make any such major investment or merger difficult to pull off.

Both Lufthansa, which is a Star Alliance member, and non-allied Etihad are well-known in the travel world for their high-end premium cabins and service. TPG Editor-in-Chief Zach Honig reports that Lufthansa’s first class cabin is “consistently very good” and the ground services in Frankfurt, Munich and abroad “cannot be beat,” while TPG’s review of The Residence on Etihad demonstrates that though the cabin is ultra expensive, even with miles, it’s an “amazing experience” that went above and beyond his expectations.

The Italian newspaper said that the parties would meet shortly to speed up the talks.

H/T: Il Messaggero via Reuters

Featured image courtesy of CHRISTOF STACHE via Getty Images.

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