Australia plans to drop two of the three ownership caps that apply to Qantas Airways, leaving the airline subject only to a 49% limit in total foreign ownership.

The two caps slated to go under the plans are the 25% limit on ownership by a single foreign entity, individual or corporate, and the 35% cumulative limit on ownership by foreign airlines. These two caps, specific to Qantas, have been in place since 1992 when Australia was worried that British Airways or Singapore Airlines might dominate Qantas following its privatisation.

Qantas has lobbied for years for these changes, and the government has finally agreed. Its decision to drop these caps is part of a white paper announcing the government's aviation policies under prime minister Kevin Rudd.

Explaining these changes, transport minister Anthony Albanese says "This will increase Qantas's ability to compete for capital and to have more flexible equity arrangements consistent with other Australian international airlines." He says dropping the two caps will also make it easier for Qantas to form strategic partnerships in "an increasingly globalised industry".

"There are opportunities for efficient airlines to take advantage of this global rationalisation," Albanese says, adding: "The government believes that Australia's airlines should be in a position to participate in this process."

Qantas chief executive Alan Joyce welcomes the proposed changes. He says Qantas needs "policy certainty and financial freedom of movement" so that it can finance its long-term growth. "Qantas has ambitious goals for fleet, product and infrastructure renewal," Joyce says, "and access to capital will be vital to achieving those objectives."

If these two caps are removed, Qantas will be on the same footing as other Australian carriers, subject only to a 49% foreign ownership cap.

But the path to these changes could be bumpy. They require approval by parliament, where the government does not now enjoy a majority in the senate. An opposition spokesman has already attacked the plan to axe the Qantas caps, claiming to be "very concerned" about dilution of Australian control of an "Australian icon".

Both the government and opposition are jockeying for voter support in the lead-up to early elections that are likely in March.

Analysts predict removing the two caps will not be "a game-changing event" for Qantas. Joyce has said airline mergers are not high among his priorities. So long as the 49% foreign ownership cap remains, analysts claim, this is unlikely to change.

Read our earlier analysis of Qantas and its partnership options here

Source: Airline Business