HONG KONG and Australia look set for a damaging tit-for-tat air rights war following the breakdown of bilateral negotiations that have left flights between the two points in jeopardy. The Canberra discussions, which ended on Tuesday after three days of often 'nasty talk', a source close to the dispute said, were expected to have been the last before operating permits for Cathay Pacific Airways and Qantas Airways expired on April 29. Instead of a full stop on Qantas flights to Hong Kong after the permit expires, the territory is tipped to impose its own 35 per cent limit on the number of passengers the airline is allowed to pick up from the territory on its lucrative 'fifth freedom' routes to Bangkok and Singapore. The anticipated limit, which Australian negotiators have already rejected, almost certainly would lead to retaliatory moves by Australia. Ansett Australia is not affected, as its services to Hong Kong have been approved through a separate agreement that expires later this year. A fifth freedom is an airline's right to pick up passengers and mail from one country and deliver them to another foreign country. It is one of the most important revenue earners for airlines and is the subject of many aviation disputes. The argument has centred on Cathay's accusation that Qantas was uploading 85 per cent of its Bangkok and Singapore-bound passengers and cargo from Hong Kong - far above industry norms. Sources said it worked out to 100 per cent on the Bangkok route and 75 per cent to Singapore. Qantas, however, claims it picks up only between 50 and 60 per cent on the two, in line with industry practice. Paul Brown, a spokesman for the Economic Services Branch, which negotiates air services agreements on behalf of territory airlines, said yesterday: 'There is no question that this has had an impact on Cathay Pacific, going as far as threatening Cathay's viability of operation on these two routes.' A Cathay spokesman would not comment. The Australian Transport Ministry said it was hoped that there would be 'some negotiations in the future', but a source said talks before the April 29 deadline were 'highly unlikely'. The source said talks broke off after only an hour on the last day of meetings.