Australian airline Qantas has failed to persuade the government to relax limits on foreign ownership that it says restrict its ability to compete internationally.

The Australian transport minister John Anderson said the arguments for allowing more foreign ownership were "not deep enough or strong enough".

I fail to see how the national interest will be advanced by denying Qantas the opportunity to access much needed equity capital

Qantas chairman

He said the cabinet had decided it was "in the national interest" that the current arrangements should be left in place.

The ruling means that British Airways (BA), the major foreign airline with a stake in Qantas, will not be able to increase its shareholding.

Privatisation legacy

When Qantas was privatised in 1995, the Australian government set limits on how much of the national flag carrier foreign airlines could buy.

Qantas has been lobbying the government to lift those caps on foreign ownership for the last two years.

Qantas chairman Margaret Jackson said the airline was "disappointed" with the decision and believed it had made a "detailed, strong and compelling" case for scrapping the current limits.

"I fail to see how the national interest will be advanced by denying Qantas the opportunity to access much needed equity capital on a cost-effective basis," she said.

The current cap sets an overall limit of 49% on foreign ownership, while no single foreign airline is allowed to hold more than a 25% slice of Qantas.

Furthermore, the portion of Qantas that can owned by other airlines is limited to 35%.

Ms Jackson added that the company needed capital "in order to invest, grow and compete on the lopsided, harsh and unforgiving international playing field".

Modernisation plans

BA currently has a 21.4% stake in Qantas and has said in the past that it would be willing to increase its investment.

For its part, Qantas wants to raise funds to buy new planes and modernise its business.

It has argued that the cheapest way to do this would be to raise funds abroad and to be able to issue more shares to foreign investors.

"The government believes that the Australian capital markets are capable of supporting Qantas' capital raising requirements," a spokesman for the transport secretary told Reuters news agency.

Qantas hopes to raise about US$1.3bn (A$2.4bn; �800m) a year of new investment every year till 2005.

Shares in the company fell after the government's decision, closing down 12 Australian cents at A$4.63 ($2.5; �1.62).

Qantas' business has been growing rapidly since the collapse of its main domestic rival, Ansett, handed it a more than 80% share of the country's market for internal flights.