The Australian government will relax some ownership restrictions on Qantas Airways Ltd. (QAN.AU), but will maintain its 49% foreign ownership cap, in a move that broadens Qantas' options for future mergers with foreign carriers while ruling out any full foreign takeover offer.

The government also said it is considering "more flexible arrangements" for the ownership of other Australian international airlines where an approach is made from a nation with which Australia has negotiated so-called "Open Skies" agreements.

That potentially opens up rival Virgin Blue Holdings Ltd.'s (VBA.AU) V Australia international arm--which currently has the same 49% foreign ownership restriction--to corporate activity.

In an aviation policy paper issued Wednesday, the government said it will remove current restrictions that cap the stake of any single foreign investor in Qantas at 25%. It will also remove the restriction that foreign airlines together can't own more than 35% in total of the national carrier.

"This will increase Qantas' ability to compete for capital and to have more flexible equity arrangements consistent with other Australian international airlines," the government said.

It noted an "increasing trend" toward consolidation and equity alliances among international airlines, triggered in part by a sharp downturn in the global economy.

"There are opportunities for efficient airlines to take advantage of this global rationalization and the government believes that Australia's airlines should be in a position to participate in this process," the government said. The planned changes, although paving the way for future mergers, may not trigger a deal any time soon, however.

Qantas Chief Executive Alan Joyce said in August he doesn't expect Australia's national carrier to merge with another airline for at least a decade.

Merger talks between Qantas and British Airways PLC (BAY.LN) fell through last year and Qantas also has held merger discussions with Singapore Airlines Ltd. (C6L.SG) and Malaysian Airline System Bhd. (3786.KU).

The government also reiterated that it has no immediate plans to allow foreign carriers on the lucrative route between Australia and the U.S., currently dominated by Qantas and U.S.-based UAL Corp.'s (UAUA) United Airlines.

Singapore Airlines Ltd. (C6L.SG) has long coveted access to route. The government hasn't ruled out allowing such access in future, but reiterated that it will only consider this after V Australia has been given "reasonable opportunity" to establish itself on the route.

Wednesday's white paper on aviation policy also made it clear Australia will seek significant concessions--by way of additional commercial access for Australian carriers--from anyone seeking access to the route.

"The maximum national benefit possible would be sought should such a trade be contemplated," it said.

   -By Rachel Pannett, Dow Jones Newswires; 61-2-6208-0901; rachel.pannett@dowjones.com
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