Delta Air Lines Inc. (DAL) and Virgin Blue Holdings Ltd. (VBA) won tentative U.S. approval to collaborate on U.S.-Australia flights, a reversal of an earlier decision, after they adjusted their proposal to include more passengers.

“The expansion and optimization of their joint network will make the alliance more competitive and allow it to deliver substantial benefits,” Susan Kurland, the Transportation Department’s assistant secretary for aviation and international affairs, wrote in an order today in Washington.

Delta, the world’s second-largest airline, and Virgin Blue first sought approval in July 2009 to collaborate on routes, share flight bookings and provide reciprocal lounge access to customers. The venture aims to boost earnings at both carriers, which compete with Qantas Airways Ltd. and United Continental Holdings Inc. on flights across the Pacific Ocean.

The Transportation Department said in its September decision rejecting the alliance that the stated benefits of the venture, including lower fares and efficient service, were “in doubt” and that the carriers had not shown the arrangement would bring “substantially more public benefits.”

In today’s decision, Kurland wrote that the carriers had made “substantial changes” to their plan. The airlines clarified that the Virgin Blue Group will operate with one management structure and unified reservation system compatible with Delta’s, according to the order.

The carriers also expanded the scope of their joint venture to include more destinations, Kurland wrote. The agency will review comments over the next 21 days before issuing a final decision.

Qantas, Australia’s largest carrier, on Jan. 14 announced plans for a similar tie-up with AMR Corp.’s American Airlines.

Virgin Blue, Australia’s second-largest airline, this year began an alliance with Etihad Airways for services to the Middle East and Europe, as Chief Executive Officer John Borghetti focuses on more profitable routes.

To contact the reporter on this story: John Hughes in Washington at [email protected]. Robert Fenner in Melbourne [email protected]

To contact the editor responsible for this story: Bernard Kohn at [email protected] Neil Denslow at [email protected]