Australia agrees to loosen overseas ownership cap on Qantas

By Lincoln Feast

SYDNEY (Reuters) - The Australian government has agreed to loosen restrictions on foreign ownership of Qantas Airways Ltd (ASX:QAN) that the loss-making national carrier says have put it at a disadvantage versus its main rival in a battle for market share.

Prime Minister Tony Abbott on Monday announced plans for legislation to amend the Qantas Sale Act to remove conditions limiting ownership by a single foreign investor to 25 percent and all airline investors to 35 percent.

An overall cap on foreign ownership of 49 percent will remain under separate legislation, while a request for a government guarantee of Qantas' debt was turned down.

"I have enormous faith in the ability of Qantas to compete and to flourish, but I think it is best placed to compete and to flourish if it is unshackled and un-propped up by government, I hasten to add," Abbott told reporters after the cabinet agreed the changes late on Monday.

Both Qantas and its main domestic rival Virgin Australia Holdings Ltd (VAH.AX) have been racking up big losses as they fight for market share in Australia and struggle to cope with high fuel prices.

Qantas last week said it was cutting 5,000 jobs as it posted an underlying loss before tax of A$252 million (135 million pounds) for the six months ended December 31, while Virgin made a pre-tax loss of A$49.7 million over the same period.

Although officially a domestic airline, Virgin Australia is nearly two-thirds owned by non-Australian carriers - Etihad, Singapore Airlines (SES:C6L) and Air New Zealand (NZC:AIR) - whose investments have provided funds for growth.

The deal will still need parliamentary approval, which is not guaranteed given scepticism voiced by opposition and independent members of the Senate upper house.

In addition to the ownership restrictions, the section of the act the government wants to remove includes requirements that the airline is headquartered and have its main operations, maintenance and administration in Australia, raising the prospect of some of those functions being moved offshore.

(Editing by David Holmes)