As Australians queued at airports for the great Christmas getaway, their national airline, Qantas - or the Flying Kangaroo, as it is known Down Under - was facing a controversial foreign takeover.

Qantas is the latest in a series of iconic Australian firms to find itself in the sights of foreign predators. The mining company BHP Billiton, and biscuit maker Arnott's are now either partially or fully foreign-owned. Coles Myer, Australia's equivalent of Tesco, only recently escaped a bid led by US private-equity house Kohlberg Kravis Roberts.

The arrival of the "barbarians" - as one columnist dubbed the foreign buyout firms - has provoked much soul-searching among politicians as well as an angry union backlash. The furore is reminiscent of the controversy in Germany earlier this year when a similar wave of private-equity deals led to them being condemned as "locusts".

But there is one big difference in the Qantas case. The Qantas management, led by abrasive chief executive Geoff Dixon, has embraced the A$11.1 billion bid with open arms, saying it offers the best way forward for the flagship airline. And Dixon is putting his money where his mouth his - rather than cashing out immediately, he has pledged to stay with the company for at least three years.

"The Qantas management believe they have taken it about as far as they can under the current ownership structure. If they want to make the really difficult decisions to make the company more efficient, they need a change," said one senior Australian businessman close to the Qantas board.

For Australians, Qantas equals trust. The airline has never had a major crash and most Aussies know the legend of Qantas's beginnings in the dusty town of Longreach in Queensland. Now there are fears that Qantas will be sold off and Australia will be left without an airline - not an ideal situation for a country 12,000 miles from the rest of the developed world.

The consortium bidding for Qantas includes the Australian investment houses Allco Equity Partners, Allco Finance Group and Macquarie - the bank known in Europe for its blockbusting bids for infrastructure firms, including its abortive attempt to buy the London Stock Exchange this year. Their foreign partners are a group of North American private-equity houses led by Texas Pacific and Onex of Canada. Most of the debt raised for the buyout has come from America. It is understood Texas Pacific founder David Bonderman got wind of the idea at the Melbourne Cup horseracing event in early November.

Despite the backing of the Qantas board, it is not a done deal. First, the transaction must comply with the Qantas Sale Act - a special piece of legislation that means it must retain majority Australian ownership. The company must also keep its Australian domicile and two-thirds of the board of directors must be Australian citizens.

Before the consortium can take control, the deal must also be approved by Australia's Foreign Investment Review Board. Under Firb's rules, an individual who is not an Australian citizen may not hold more than 15% of an Australian-domiciled company. A group of foreign owners also may not account for more than 40% of the shareholder base of an Australian company.

Although the deal appears to comply with Australian legislation from a structural perspective, Cassandra Meagher, analyst with the Australian stockbroker Comm Sec, said the Firb would "look very closely at the definition of 'associates' under the act".

The Firb may not approve the deal if the parties involved are found to be associates - parties acting in concert. "And what's more important is that airports, airlines and other transport infrastructure are classified as 'sensitive' sectors under the US-Australia bilateral free-trade agreement," she said. Approval needs to be granted by the Firb if there is foreign investment in a sensitive sector in excess of A$50m.

The takeover must also be approved by the Australian Competition and Consumer Commission, the regulatory body that oversees competition in Australia. The ACCC has said it has begun inquiries into the consortium's proposed takeover and is due to deliver its findings on February 22.

"One concern is Macquarie Bank's ownership of Macquarie Airports, which owns part of Sydney airport, and their relationship with Qantas," Meagher said.

Gordon Renouf at Choice, Australia's consumer watchdog, said: "There are real concerns Qantas and the airport could collude at the expense of consumers if Qantas has favourable slots at the airport and other airlines can't compete."

Aside from ACCC approval, the bid must also be approved by Australia's treasurer, Peter Costello. He will make his decision after considering the Firb and ACCC reports, and taking public opinion into account. Costello has said he will support the sale if the deal complies with existing regulations.

"It's possible Costello will impose conditions on the bid, as he did when Air New Zealand acquired Ansett, said Meagher, referring to the now-defunct domestic carrier. One of the main conditions of this deal was no significant loss of Australian jobs.

There are mixed precedents for the success of foreign firms making bids for Australian companies.

In 2001 Costello rejected a bid by the Anglo-Dutch oil giant Shell for Australia's Woodside Petroleum, which is part of a consortium that has access to large gas reserves on Australia's North West Shelf. But in 2005 the Australian treasurer approved the takeover of Western Mining Corporation by the global mining company Xstrata. Public opinion will be influenced by Australian trade-union lobbying through the media.

The country's unions are already calling for a full inquiry into the sale of Qantas because of the threat that a change in ownership poses to the airline's 37,000-strong, largely domestic workforce. The worry is that domestic jobs will be moved to jurisdictions that have lower labour rates than those in Australia. "The government must look closely at this deal. We are calling for a full investigation," said Sharan Burrow, president of the Australian Council of Trade Unions (ACTU).

If the Qantas bid secures regulatory approval, shareholders must also rubber-stamp the transaction. A decision to sell would deliver them a hefty premium to today's Qantas share price. On November 6, the day the consortium made the offer, Qantas shares were trading at A$3.48, or 60% lower than the consortium's offer price of A$5.60.

"The offer is twice the low price for the year. It sounds like a good deal on the face of it," said John Curry, chairman of the Australian Shareholders' Association, which represents retail shareholders.

Many professional investors also support the deal. Comm Sec's Meagher said: "I can see how [the consortium] can extract value."

For example, at the moment Allco and Macquarie lease aircraft to Qantas, providing opportunities for synergies between the consortium partners in aircraft leasing.

But as part of the deal, Qantas would need to take on substantial debt. Whether Qantas will earn enough to maintain interest payments on its debt should the takeover go ahead depends on interest-rate rises, as well as global events.

Ian Woods, president of the Australian and International Pilots Association, said the deal could "take's debt from A$3 billion to A$8 billion". Woods argues this degree of leverage could threaten the long-term viability of the airline, which operates in a volatile industry at the mercy of rapidly changing fuel prices and geopolitical events. He wants the deal to include a provision that would give Qantas - and its staff - protection in the event of a collapse. "For this deal to be acceptable, the government has to acknowledge it will be the lender of last resort," he said.

If the Qantas deal does come off, the consortium has indicated it will follow the management's existing strategy to move to a low-cost business model. But not everybody has confidence in Qantas's plans.

"The real issue is the viability of the low-cost model. Whether or not it will work internationally is the bet Qantas is taking," said Woods.

The airline's strategy is to offer two options: full-service Qantas flights and budget flights under the Jetstar brand. There are concerns this strategy could lead to Qantas cannibalising its market.

The trade unions are also concerned about the possible break-up of the national carrier. "Private-equity houses are known for moving in and selling off profitable arms and refloating the business at a reduced value," said the ACTU's Burrows.

But Bob Mansfield, deputy chairman of Allco Finance Group and a director of the consortium, said in a statement that under the new ownership structure "Qantas would retain the current Australian management and their growth strategy, a strategy that does not involve the break-up of the airline".

Given the regulatory restrictions surrounding Qantas's proposed takeover, shareholders should not expect an early completion for the transaction. Costello took six months to consider Shell's bid for Woodside before rejecting it.

In Woods's words: "I'm sure this has a long way to go."

BA Puts Itself on Bid Alert

The Qantas bid has revived speculation whether British Airways might face a takeover. In the past, talk of a bid for BA, now run by chief executive Willie Walsh, has been pooh-poohed; airline deals are notoriously difficult because of ownership laws.

But Qantas has shown that ways round that hurdle can be found. And seven years ago Sir Gerry Robinson, then running Granada, had BA on his takeover wish list, although an approach was never made.

The other great barrier to a bid for BA, the company's pension deficit, may also be about to be demolished. The company's management is in the final rounds of talks with unions over a joint solution.

Martin Broughton, the airline's chairman, hinted in a recent speech that it was alive to the prospect of a private-equity bid when he warned that airline management should be wary of 'opportunistic' takeovers.