The error observed is agents simply hanging while starting. This happens about 5% of the VMs started in this manner.

Anka Build plugin is used and the VM which is spun by it is 100% functional.

Investigating the tread dump shows a deadlock between launch and 

teardownConncetion methods in SSHLauncher.

I have attached stack trace of both threads as files.

The launch method seems to be hanging while executing this:
java.lang.Thread.State: TIMED_WAITING (on object monitor)
at java.lang.Object.wait(java.base@11.0.15/Native Method)

• waiting on <no object reference available>
  at hudson.remoting.Request.call(Request.java:177)
• waiting to re-lock in wait() <0x00000005f9721350> (a hudson.remoting.UserRequest)
  at hudson.remoting.Channel.call(Channel.java:999)
  at hudson.FilePath.act(FilePath.java:1194)
  at hudson.FilePath.act(FilePath.java:1183)
  at hudson.FilePath.exists(FilePath.java:1748)
  at jenkins.branch.WorkspaceLocatorImpl.load(WorkspaceLocatorImpl.java:254)
  at jenkins.branch.WorkspaceLocatorImpl.access$500(WorkspaceLocatorImpl.java:86)
  at jenkins.branch.WorkspaceLocatorImpl$Collector.onOnline(WorkspaceLocatorImpl.java:601)
• locked <0x00000005f97214e0> (a java.lang.String)
  at hudson.slaves.SlaveComputer.setChannel(SlaveComputer.java:727)
  at hudson.slaves.SlaveComputer.setChannel(SlaveComputer.java:437)
  at hudson.plugins.sshslaves.SSHLauncher.startAgent(SSHLauncher.java:645)
  at hudson.plugins.sshslaves.SSHLauncher.lambda$launch$0(SSHLauncher.java:458)
  at hudson.plugins.sshslaves.SSHLauncher$$Lambda$393/0x0000000840c2c040.call(Unknown Source)
  at java.util.concurrent.FutureTask.run(java.base@11.0.15/FutureTask.java:264)
  at java.util.concurrent.ThreadPoolExecutor.runWorker(java.base@11.0.15/ThreadPoolExecutor.java:1128)
  at java.util.concurrent.ThreadPoolExecutor$Worker.run(java.base@11.0.15/ThreadPoolExecutor.java:628)
  at java.lang.Thread.run(java.base@11.0.15/Thread.java:829)