The Australian government is currently reviewing Qantas' status

Trade minister Mark Vaile said a merger could not be ruled out as the global aviation industry was consolidating.

Under current law foreign investors can own only 49% of Qantas, but this cap is being re-examined as part of a review of aviation policy.

Qantas believes that foreign investment would help it to raise extra capital.

The Australian airline has faced increased rivalry in its domestic market in recent years and it revealed early this year that it could transfer up 7,000 jobs abroad in order to save costs.

Commercial challenge

John Howard's government has so far resisted calls for the ownership threshold on Qantas to be lifted.

However, Mr Vaile told The Australian newspaper that Australia's national airline was facing major commercial challenges and that a merger with Singapore Airlines was a possibility.

We are very supportive of a regime in which more consolidation can occur Peter Gregg, Qantas chief executive

"My view is if (a merger) could occur then the government should not rule that out," he said.

"Quite frankly, that is the direction that international aviation is moving in."

Qantas welcomed Mr Vaile's comments, the first public indication that the government's attitude to the ownership of the national carrier may be changing.

"We are very supportive of a regime in which more consolidation can occur," Qantas chief executive Peter Gregg told The Australian.

"It's happening in Europe, it's happening in Australia."

Trans-Pacific row

Singapore Airlines is currently in dispute with Qantas and the Australian government about access to the lucrative trans-Pacific route.

Flights between Australia and the United States are shared between Qantas and United Airlines and the Australian government last week rejected calls for Singapore Airlines to be given access to the market.

Singapore Airlines responded cautiously to Mr Vaile's comments, arguing that its priority was to see more competition on the trans-Pacific route.

"Both companies are publicly listed companies and the matter would, therefore, be extremely complex," said spokesman Stephen Forshaw.

"Given the current rules governing international civil aviation and competition, industry consolidation won't happen any time soon."