Emirates are rumoured to be considering taking over Etihad, which would form the world’s biggest airline by passenger traffic.

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Bloomberg reports “four people familiar with the matter” who asked not to be named, said the Dubai airline was in preliminary talks to consider buying its neighbouring unprofitable Abu Dhabi airline, though negotiations could yet fall through.

Both airlines have denied the allegations, after initially declining comment.

But if the transaction were to go ahead, it would require the blessing of the most wealthy sheikhdoms in the UAE.

Plus, the merger would make Emirates bigger than American Airlines, which has a market value of $26.3 billion.

According to IATA, Emirates is already the world’s biggest airline on international routes and ranks fourth overall behind the top three US carriers.

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Forbes reports speculation that Emirates might step in to save Etihad has been lingering for some time, with Etihad having recently failed in an attempt to reinvent itself by investing in smaller struggling airlines in Europe and Asia.

One of these airlines, Air Berlin, collapsed last year and another, Alitalia, has filed for bankruptcy protection.

Emirates President Tim Clark said in June that he saw nothing happening in the way of an acquisition in the short-to-medium term.