The U.S. withdrew a proposal on Tuesday to ease restrictions on overseas investment in U.S. airlines, potentially jeopardizing a deal with Europe to broaden trans-Atlantic competition.
U.S. Transportation Secretary Mary Peters said in a statement that her department needs to work harder to convince Congress and labor groups that allowing greater participation by foreign investors would produce dividends for U.S. carriers and commercial aviation services.
"We need a stronger national consensus about the best means of achieving that objective," Ms. Peters said.
Lawmakers put enormous pressure on policy makers to withdraw the proposal. It was the second time Congress has thwarted Bush administration plans to change the ownership law.
International investors in U.S. airlines are bound by a World War Two-era rule that gives them virtually no say in the day-to-day or strategic operating decisions of any carrier they take a stake in. Overseas interests are limited to 25% voting stock in U.S. airlines.
Opponents of changing the rule say that giving foreigners more decision-making powers could compromise security and cost jobs.
The investment plan was central to Europe's approval of a draft "Open Skies" agreement to further liberalize trans-Atlantic aviation, including giving U.S. carriers more access to London's Heathrow Airport.
Only United Airlines, a unit of UAL Corp. and American Airlines, a unit of AMR Corp., have direct access to Heathrow, a lucrative route that services premium business travelers. British Airways and Virgin Atlantic are the only two British airlines permitted to fly directly from Heathrow to U.S. cities.
Ms. Peters said the Bush administration was still committed to "Open Skies" with the European Union, which is under legal pressure to restructure its global aviation agreements.
In a statement, European Transport Commissioner Jacques Barrot expressed disappointment and "regretted this decision." A spokesman for Mr. Barrot said the Europeans would have to analyze the decision carefully, but did not close the door on a possible air services deal.
The Transportation Department initially hoped to have European approval of the ownership plan and the "Open Skies" accord this fall. The two sides plan to review the situation at a meeting in early 2007 in Brussels, officials said.
Transportation planners in November 2005 proposed giving overseas airlines and other foreign interests more input in marketing, routing and decisions on fleet composition in return for their capital investment.
The agency tried to assure nervous unions that domestic ownership control and labor protections would have been preserved. Proponents of a more friendly investment climate have said that greater foreign participation would have presented U.S. carriers more options for raising cash to fund their operations, helping to stabilize companies with shaky finances.
However, the financial health of the U.S. industry has improved dramatically in the past year despite two of the biggest airlines, Delta Air Lines and Northwest Airlines, still in bankruptcy. Domestic cash and other financing for mergers and other deals is plentiful at the moment.