Opposition treasury spokesman Joe Hockey says Qantas Airways' survival will not hinge on Etihad Airways' investment in rival carrier Virgin Australia.
Fairfax Media reported on Friday Qantas had come to Canberra to lobby government and opposition politicians about Etihad's desire to invest in Virgin, warning that the Abu Dhabi-based carrier would "cross-subsidise Virgin's domestic business with the specific aim of weakening Qantas".
"Virgin/Etihad will be able to flood the market with capacity until its competition is forced to significantly reduce its own operations or worse," Fairfax Media quoted a Qantas briefing paper as saying.
However, Mr Hockey said Qantas had nothing to fear from any Etihad investment.
"I don't think it's going to go under if Etihad increases their stake holding," Mr Hockey told the Seven Network.
Earlier in June, Etihad Airways purchased 4.99 per cent of Virgin Australia.
The airline's chief executive James Hogan told reporters on the sidelines of the International Air Transport Association annual general meeting in Beijing in June that Etihad had sought Foreign Investment Review Board approval to move to a 10 per cent stake.
However, Mr Hogan said Etihad had no intention to move to a full takeover of Virgin Australia, nor was there any desire to take control of the airline.
Virgin and Etihad have an existing 10-year partnership, which involves extensive codesharing, reciprocal frequent flyer benefits and joint-bidding for corporate contracts, among other things.
Etihad is not the only foreign entity with a large chunk of Virgin Australia shares - Sir Richard Branson's UK-based Virgin Group has a 26 per cent stake, while Air New Zealand owns 19.9 per cent of Australia's second-largest carrier.
Mr Hogan said the investment in Virgin Australia was about strengthening the existing alliance.
"The positive sign is that (Virgin Australia chief executive) John Borghetti has welcomed it, Air New Zealand has welcomed it so there certainly isn't a problem with the shareholders," Mr Hogan said in an interview in Beijing on June 12.
In a bid to open up the share register to foreign investors, Virgin Australia earlier this year split its international operations into a separate, unlisted entity.
As a result, the listed company became a wholly domestic airline and was freed from government regulations requiring all Australian flag carriers operating international services to be no more than 49 per cent foreign owned.
Meanwhile, in addition to being majority Australian owned, the Qantas Sale Act prohibits foreign airlines from owning more than 35 per cent of Qantas stock, while individual foreign shareholdings could not exceed 25 per cent.
Qantas has previously called for changes to the Qantas sale Act.
At 1150 AEST, Qantas was down 1.5 cents at $1.125, while Virgin had fallen half a cent to 38.5 cents.