Qantas is to be opened up to foreign investment after the federal government rejected a debt guarantee requested by management and instead resolved to repeal key sections of the Qantas Sale Act.

The potentially historic move came after a two-hour cabinet discussion and is likely to spark a bitter political battle with the ALP.

Prime Minister Tony Abbott conceded the decision to attempt to repeal part three of the Qantas act could send maintenance jobs offshore.

''If some jobs have to go offshore in order to ensure that Qantas has a strong and viable long-term future, it may be regrettable, but nevertheless it is the best way to guarantee Australian jobs for the long term,'' he said.

''What Qantas would do, under the situation that we are proposing is a matter for Qantas management.''

Late on Monday the ALP signalled it would oppose any changes of Qantas ownership to the act, plunging the national carrier into a period of extended uncertainty.

Opposition Leader Bill Shorten said the move would send thousands of jobs at the airline overseas, from maintenance positions through to board positions. He vowed the ALP would oppose the plan.

''We will fight to keep Qantas jobs in Australia,'' he said, adding that ''once those jobs are gone we will never get them back''.

Labor's transport spokesman, Anthony Albanese, said getting rid of Part 3 of the Act would scrap provisions ensuring maintenance, housing of aircraft, catering, flight operations and training stayed in Australia.

''It means that Qantas doesn't have to have a head office in Australia,'' he told ABC radio on Tuesday. ''It really gets rid of everything that makes Qantas an Australian airline.''

The move opens up the possibility Qantas will engage in an internal restructure to separate its domestic and international arms to meet Air Navigation Act requirements. This act effectively limits foreign ownership of Australian international airlines to 49 per cent if the carrier is to qualify for preferential landing rights and access to lucrative flying routes given to designated Australian carriers.

The move means foreign investors, including other government-owned airlines, would be able to take a majority stake in the domestic arm of the company for the first time.

Qantas would still be subject to the national interest tests applied by the Foreign Investment Review Board.

In a statement on the government's move, Qantas said that if the changes to the Sale Act were not passed by Parliament, it would ''expect the Government and the Parliament to consider alternative measures to balance the unlevel playing field in Australian aviation''.

''We need immediate action to address the imbalance that has been allowed to persist for almost two years – namely Virgin’s unlimited ability to access foreign capital from government-owned airlines to fund a loss-making strategy against Qantas,'' the statement said.

The decision meant that Qantas' international arm would ''would remain in every sense an Australian airline. Qantas domestic, should there be a distinction, would remain a substantially Australian airline'', Mr Abbott said.

Declaring that government should not be in the business of running airlines or underwriting their debts, Mr Abbott said: ''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 unpropped up by government, I hasten to add.

''The point I make to Bill Shorten and his colleagues is you sold Qantas, now you must free them to maximise their chances of being able to successfully compete and maximise Australian employment for the long-term.

''If you look at the history of Qantas over the last decade or so it was hugely profitable for most of that time. That demonstrates to me that a well-managed Qantas is more than capable of competing, and not just surviving, but of flourishing. I think this decision that we've made today also says something significant about this government. We do not believe in government by chequebook.''

Mr Abbott argued that Virgin Australia was as Australian as Qantas, as it employed Australians, and the government wanted both airlines on a level playing field.

On Tuesday Treasurer Joe Hockey hardened his stance against a government debt guarantee.

''We are not writing out blank cheques,'' he told ABC radio. ''There are a lot of companies in Australia that would love to have a multibillion-dollar unsecured loan from the federal government. We are not doing that for an individual company. We are not going to guarantee billions of dollars of debt as every small business in Australia would probably want as well.''

Mr Hockey criticised Qantas for claiming yesterday that the carbon price was not a major factor in its financial woes. ''If a $106 million carbon tax bill is immaterial, well, that is certainly not going to help with the justification for a multi-billion dollar loan facility.''

Mr Hockey said the Foreign Investment Review Board would reject foreign takeover of Qantas – particularly by a foreign, state-owned airline – if it was against the national interest.

''We will prevent a foreign takeover of an Australian company where the takeover would be contrary to the national interest.''

Part three of the act also puts in places barriers that limit foreign airline ownership of Qantas to 35 per cent and a single foreign shareholder to 25 per cent.

The legislation to make changes to the act will be introduced as soon as the end of this week.

On Tuesday, Mr Abbott said he believed Labor and the crossbenchers would back his plan for Qantas, saying the alternative is to ''sit there and watch Qantas bleed''.

''I don't think these other people in the long run are going to twiddle their thumbs while Qantas bleeds,'' he told the Seven Network.

''They don't need a subsidy, they need their freedom,'' Mr Abbott said, adding that he believed that ''under good management'' Qantas could be profitable again.

Shadow treasurer Chris Bowen said on Tuesday that Labor was prepared to work with the government on scrapping restrictions such as rules preventing foreign airlines from buying more than 35 per cent of Qantas or any one foreign person owning more than 25 per cent, but said removing the Qantas Sale Act altogether ''goes too far''.

''We're not going to allow the important 51-49 per cent threshold [on foreign ownership] to go,'' Mr Bowen told ABC radio. ''Qantas' status as the national carrier is very important. It is a different case, a special case.

''This is policy on the run. Qantas have the right to be very angry with the government today. This is a government that doesn't know how to do business with business – sending mixed signals, backgrounding, thought bubbles, speculation, leaks.''

Earlier on Monday, Mr Shorten accused the government of policy paralysis on the airline.

What's at stake?

Part 3 of the Qantas Sale Act:

- Limits foreign ownership of Qantas to 49 per cent

- Requires that Qantas’ head office remains in Australia

- Requires Australia to be ‘‘principal operational centre’’ for maintenance, catering, training, administration

- Requires that chairman and two-thirds of directors must be Australian citizens

- Prevents foreign airlines buying more than 35 per cent of Qantas

- Prevents any one foreign person owning more than 25 per cent of Qantas

with Matthew Knott

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