Shares in Norwegian soared by almost 48 per cent after it emerged IAG has taken a 4.61 per cent stake in the airline and was considering a full acquisition.
IAG added, however, that "no such discussions have taken place", and the company hasn't decided whether it will make an offer.
Shares in Norwegian Air - which is reportedly worth $1.2bn (£845m) - soared by 37% following Thursday's announcement.
The acquisition of the stake "suggests that IAG feels that there is an opportunity here given the level of the share price, or it could simply be keeping its options open in the event of further difficulties" with Norwegian, said Hewson.
"Norwegian believes that interest from one of the largest worldwide aviation groups demonstrates the sustainability and potential of our business model and global growth".More news: Tesla (TSLA) Upgraded to "Hold" by Jefferies Group
A trailblazer of low-priced long-haul flying in Europe, Norwegian has been leading the charge to eat into the trans-Atlantic market where traditional full-service carriers like British Airways have historically made most of their profits.
Norwegian started operating transatlantic routes from Dublin, Cork, Shannon and Belfast to airports in the New York-Boston region last summer.
IAG, formed by the merger of Iberia and British Airways, has used acquisitions to grow in the past, adding Aer Lingus and Spain-based low cost carrier Vueling to its portfolio in 2015.
The budget airline is trying to crack the transatlantic market by undercutting established rivals but faces pressures to control costs and shore up its balance sheet.
The IAG movement has been a surprise to market considering that Norwegian competes directly with both Level and Vueling, both brands of British group.More news: Black Panther Overthrows James Cameron's Titanic On Highest Grossing Films List
Norwegian's shares shot 47 percent higher at one point before descending to 38 percent gain on the Oslo stock exchange.
This year, Norwegian wants to boost its offer by 40 percent.
The buy-up caught Norwegian by surprise.
In June 2017, IAG launched rival low-priced transatlantic carrier Level, applying the same bare-bones business model.
Lufthansa and easyJet expressed interest in Italy's struggling Alitalia this week.More news: MotoGP: Marquez: 'Track conditions' cause of Rossi clash