The US Transportation Department says it has granted tentative approval to American Airlines Group and Qantas Airways to operate a joint venture, after a prior effort was rejected by the US government in 2016.
The department issued an order on Monday tentatively approving the joint business agreement and tentatively granting antitrust immunity to the airlines covering international service.
An application for a joint venture covering the United States, Australia and New Zealand was rejected by former president Barack Obama's administration.
The deal would allow the airlines to co-ordinate their planning, pricing, sales and frequent flyer programs, with new options and customer service improvements. The department said the airlines planned up to three new routes within the first two years and increased capacity on existing routes.
American Airlines said a final decision is expected in the coming weeks.
"The joint business will also create additional jobs at our respective companies and in the industries we serve," said American chairman and chief executive officer Doug Parker.
The department will require the airlines perform a self-assessment of the joint venture's impact on competition seven years after it takes effect and report their findings to the government, which could subsequently take action.
Regulators in Australia and New Zealand approved the first application for the joint venture before it was initially rejected by the US Transportation Department.
American and Qantas in February 2018 made a second attempt to gain US regulatory permission under President Donald Trump's administration. They threatened to cancel services if it was rejected and argued it could "unlock" up to $US310 million annually in consumer benefits.
The revised application made significant changes, including removing a provision that would have barred either carrier from code-sharing with other carriers. Code-sharing is an arrangement between airlines in which two or more carriers publish and advertise a single flight under their own flight number.
The airlines argued in their 2018 application that the venture would lead to a reduction in fares and higher capacity as a "more viable third competitor" and require other carriers to respond with improvements in quality, schedules and prices.
Qantas said last year the joint venture would allow the two airlines to "significantly improve service" and "stimulate demand". The airlines said the agreement could generate up to 180,000 new trips between the US and Australia and New Zealand annually.
US regulators in 2001 approved similar joint venture agreements for United and Air New Zealand and in 2011 for Delta Air Lines and Virgin Australia.
