The US has scrapped proposals to offer foreign investors a greater say in its airlines, in a move which throws an 'open skies' deal with Europe into doubt.
The US government said, however, that it remained committed to an agreement with the EU to liberalise transatlantic air traffic.
Transportation Secretary Mary Peters said the decision to withdraw plans for a greater foreign role in the business operations of US airlines was taken after protests from the industry and from Congress.
The EU has insisted that limits on foreign stakes in US airlines must go if a comprehensive deal to deregulate transatlantic air traffic is to be achieved.
The two sides began negotiations in October 2003 and last November hammered out an agreement to allow unrestricted competition by US and EU airlines, opening the prospect of cheaper tickets and more choice for passengers.
As part of the pact, the US government offered to allow foreign investors a bigger role in the marketing, routing and fleet structures of US airlines. But in a lingering sore point for the EU, the US made clear its intention to limit foreign voting rights in its airlines to 25% of the capital. The EU has a higher ceiling of 49%.
Peters said the investment proposal was not 'directly linked' to an Open Skies agreement, but acknowledged that 'some involved with the European negotiations had aligned the two'.
