The Portuguese government threatened on Tuesday to nationalise TAP airline if the company's main private investor refuses the conditions attached to a public rescue of the airline.
Like most airlines, TAP has been hit hard by the coronavirus lockdowns that saw most air travel halted, and the government has proposed a loan of up to 1.2 billion euros ($1.3 billion) to help the company survive.
"We are ready to intervene and save the company," Infrastructure Minister Pedro Nuno Santos told a parliamentary committee.
"We will make a more forceful intervention if the private shareholder continues to refuse the state's conditions."
The European Commission approved on June 10 a plan by the Portuguese government to rescue the airline, in which it already owns a 50 percent stake, with a loan. The airline would also have to restructure and the state would get more operational control.
Santos announced however that the airline's board had rejected the state's plan, without providing any details.
TAP's main private shareholder is US businessman David Neeleman, who controls 45 percent of the airline.
Neeleman, the founder of JetBlue airline, had on Monday indicated he was willing to accept the restrictions on the use of the loan.
Santos said negotiations were continuing to find a resolution.
TAP plays a key role in Portugal's important tourism sector.
"Nearly 90 percent of our tourists arrive by plane, and half of them by TAP," said Santos. "It would be an economic disaster to lose it."
In mid-April, Prime Minister Antonio Costa had indicated the government was willing to nationalise the airline to avoid it going under.
Neeleman's Atlantic Gateway consortium owns 45 percent of TAP, with employees holding a 5 percent stake.