Qantas has been linked to a plan to buy the Fox family-owned road, rail and logistics business Linfox/FCL for $1.3 billion.

Suggestions of the looming purchase of billionaire Lindsay Fox's transport empire were raised yesterday by leading investment broker Merrill Lynch.

Analyst Olivia Burgess advised in an investor letter that the airline was looking to expand its domestic air cargo and land-based freight operations to off-set the huge slide in its 2005-06 profit.

She named Linfox and three other likely targets, Queensland Rail, K&S Transport and the privately owned east-west rail operator SCT.

According to Ms Burgess's note, buying Queensland Rail would cost the airline $2 billion, while Mount Gambier-based K&S and Melbourne owned SCT could change hands for around $250 million each.

Neither Qantas nor Linfox would comment last night.

Last month Mr Fox dismissed rumours that Linfox would exit Australia's rapidly evolving transport market.

He said Linfox was positioned to be a player in the long term.

"We were never moving out of the game at any time," he said.

According to the Merrill Lynch study, the most likely scenario that would allow Qantas to expand its domestic air cargo and land freight operations would be to structure a deal where Linfox accepted Qantas scrip.

The deal could be restructured in a number of ways, Ms Burgess noted.

She said Qantas could simply buy the logistics business operated by Linfox or simply expand its existing freight partnership arrangement with Australia Post.

A Linfox takeover would make Qantas the number two player to Toll in the Australian freight and logistics market.

It would also give Qantas a number of blue chip transport contracts, including Coles Myer and Coca-Cola Amatil.

Qantas would also have access to high tech IT systems and management expertise.

"Qantas could seek to fast track its domestic freight capability through brokering a deal with the newly formed Linfox/FCL or by forming a partnership with one of three other players, " Ms Burgess wrote.

Senior Qantas executives are known to be deeply concerned that the newly merged Toll Holdings and Patrick group could seriously undermine profits.

Qantas and Australia Post compete directly against Toll.The airline and the postal authority are equal partners in the domestic air freight business Australian Express and in Star Track, a land-based freight operation.

Last month Qantas chief financial officer Peter Gregg acknowledged that Qantas was "evaluating opportunities to build on these businesses".

The airline's chief executive Geoff Dixon disclosed during last month's annual results announcement that the airline was looking to expand its freight business to help arrest a slump in second half earnings which has caused its share price to tumble. (Australian dollar is the currency used in this article)