QANTAS has boasted that a strategic alliance between its budget offshoot, Jetstar, and the rival AirAsia aimed at slashing costs will eventually lead to even closer ties. Announcing the worst-kept secret in aviation yesterday, the airlines said the deal would include working together to gain better deals on the next generation of aircraft, sharing parts and ground handling services, and joint procurement of engineering and maintenance supplies.

Qantas's chief executive, Alan Joyce, said he expected the initial arrangements to be the first step towards closer ties between Jetstar and Asia's largest no-frills airline. 'This could develop very fast into revenue synergies [and] into code-sharing,'' he said. ''It's the foundation for bigger things … and makes Asia the big focus of the group.'' But Mr Joyce, who has shied away from the deal-making of his predecessor, emphasised that the airlines did not have any plans for an equity arrangement because ''they get a lot more complex and … this is cost and revenue focused''.

Qantas's attempts to form ties with AirAsia go back to 2003, when the Malaysian airline's Irish co-founder, Conor McCarthy, initiated talks between the two. The prospect of even closer ties poses the biggest threat to the Singapore Airlines-backed Tiger Airways, which continues to suffer large losses in Singapore and Australia, and last month announced plans to raise $200 million in an initial public offering.

AirAsia also showed interest in setting up an ''ultra low-cost'' domestic carrier in Australia in partnership with Virgin Blue two years ago, but the talks came to nothing.

AirAsia's boss, Tony Fernandes, said cost savings from the deal could reach $200 million to $300 million within two years, roughly split between the airlines. But Qantas and Jetstar were more ambiguous about the savings, estimating them to be in the ''hundreds of millions of dollars'' in the longer term.

Disputing the significance of the deal, industry insiders said such ties were common between airlines and they doubted that Jetstar and AirAsia could wield much influence over Boeing and Airbus.

''We have been doing these deals for 30 years in this business,'' an insider said. ''This just seems to be a little game that is being played to disrupt [Tiger's public float].''

The president of the Australian and International Pilots Association, Barry Jackson, said staff feared the deal would lead to Qantas and Jetstar sending jobs offshore in an effort to slash labour costs.

''It's a stepping stone to offshoring both maintenance and pilots. It's just softening us up for what happens next,'' he said. ''The lust for cheaper air fares has to have a cost somewhere and that has to be jobs in more expensive economies.'' Qantas denied the tie-up would lead to job cuts and said aircraft engineering would remain in the country.