Qantas said the A$5,50 a share cash offer came from a consortium comprising Australia's biggest investment bank, Macquarie, US-based private equity firm Texas Pacific Group, Australia's Allco and Canadian group Onex.

It said the offer contained a number of complex conditions, including a "break fee", which Qantas would have to pay to the bidders if the deal fell through.

"The non-executive directors consider that the terms of the proposal are not acceptable," Qantas said in a statement to the Australian Stock Exchange.

The market had not expected the knockback, with reports early yesterday saying Qantas was poised to accept the offer.

Qantas shares plummetted six per cent when trading in the stock resumed after the announcement, falling 30 cents to A$4,93 before recovering to close down 14 cents or 2,67 per cent at A$5,09.

Shaw Stockbroking analyst Brent Mitchell said the A$5,50 price had been widely expected as an opening bid but the real sticking point appeared to be the conditions demanded by the consortium.

Nampa-AFP

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