Qatar Airways plans to buy a 25% stake in Virgin Australia from its private equity owner, in a deal designed to shake up the local aviation market by creating a stronger competitor to Qantas.

The proposed sale will allow Virgin to start offering long-haul flights for the first time since 2020 and compete more vigorously in the lucrative domestic market. It also bolsters the airline’s loyalty program against Qantas’s rival points offering.

The Virgin Australia chief executive, Jayne Hrdlicka, on Tuesday said the deal represented the “missing piece” in the airline’s strategy.

“Importantly, it will further strengthen Virgin Australia’s ability to compete over the long term, which will inevitably translate into more choice and even better value air fares for consumers as well as additional Australian aviation jobs,” Hrdlicka said.

“This proposed investment is subject to regulatory approval. We do not take this for granted and have made submissions outlining the benefits of the transaction for Australian aviation, Australian travellers and the Australian economy.”

Virgin Australia fell into administration in April 2020, weighed down by billions of dollars of debt, in the biggest upheaval of the local aviation sector since the collapse of Ansett almost two decades earlier.

The airline was subsequently sold to the US private equity group Bain Capital, which has been looking to cash in on its investment via a company float or trade sale.

The tie-up will allow Virgin to operate international flights on Qatar planes under an arrangement called wet leasing.

From mid next year, the airline plans to launch flights from Brisbane, Melbourne, Perth and Sydney to Doha, and then connect into international routes.

The announcement comes a year after the Albanese government rejected Qatar’s request to almost double its flight operations to Australia, sparking accusations that the government was “running a protection racket” for Qantas.

The public sentiment has turned sharply against Qantas since that decision was made, with the airline’s dominance partly blamed for high air fares, poor service and arrogant business practices.

Qantas struck a deal with the competition regulator earlier this year to pay a $100m penalty and pay $20m to customers in compensation, after conceding it misled consumers by selling tickets for thousands of flights it had already cancelled.

The Transport Workers’ Union said the proposed deal “provides an opportunity for the airline to expand and take on the aggressive competition of Qantas”.

“It’s crucial that the workers who made sacrifices to get Virgin Australia flying again are those to benefit from the opportunities this deal provides in an industry dominated by aggressive competition,” said Michael Kaine, the TWU national secretary.

The treasurer, Jim Chalmers, said it “wouldn’t be appropriate” to preempt the competition watchdog’s scrutiny of the proposed deal.

“We expect that components of the deal related to international flights will also be subject to ACCC merger authorisation consideration,” he told reporters in Canberra.

“I will say, more broadly, we do want to see a strong, competitive airline industry that delivers for consumers.”