A passenger walks in front of the tail of a Qantas plane at a terminal at Sydney airport.

Sydney - The Australian government Wednesday abandoned plans to allow struggling national carrier Qantas to be majority overseas owned but agreed to a compromise that will see foreign investment restrictions eased.

Qantas has been lobbying for help after a Aus$235 million (US$219 million) loss in the six months to December 31 and a decision to slash 5,000 jobs as it battles high fuel prices and fierce competition from subsidised rivals.

It wanted Canberra to relax the 1992 Qantas Sales Act which caps foreign ownership at 49 percent, which it said restricted its access to capital.

The act also stops foreign airlines from having more than a combined 35 percent stake, and prevents individual foreign shareholders from owning more than 25 percent.

The conservative government of Tony Abbott favoured watering down the legislation to allow majority foreign control but it faced opposition from Labor and other parties in the upper house Senate, where they vowed to block the change.

Instead, the government has agreed to keep Qantas in Australian hands by maintaining the 49 percent cap but also allowing a single foreign investor or foreign airline to boost their holding to a maximum 49 percent.

Treasurer Joe Hockey said it was clear the government would not succeed with its original plan.

“I think it is important to try and get Qantas onto the same playing field as its competitors,” he told ABC radio.

“An alternative was proposed by the Labor Party and we're prepared to accept that to give some stability to the rules governing the ownership of Qantas.”

Labor transport spokesman Anthony Albanese welcomed the move.

“We have stated from the very beginning that majority Australian ownership of Qantas is not negotiable,” he said.

Qantas, whose main domestic rival Virgin Australia is majority-owned by state-backed Singapore Airlines, Air New Zealand and Etihad, said it would still prefer to see the restrictions removed completely.

“It's positive that there's general agreement that Qantas is disadvantaged by the sale act and that change is needed,” it said in a statement.

“While removing all restrictions that apply only to Qantas remains our preference for levelling the playing field, changing the 25 and 35 percent limits would represent an improvement on the status quo.” - Sapa-AFP