Plans by Aer Lingus to open additional routes to the US have suffered a major setback with an "open-skies" deal between the US and the EU becoming increasingly unlikely.

Hopes for an open-skies aviation pact between the US and Europe suffered a severe setback yesterday when the US abandoned plans to allow overseas investors more say in its domestic airlines.

Bowing to pressure from Congress, labour unions and airlines, the US Department of Transportation withdrew a controversial proposal to reform investment rules governing US carriers.

Mary Peters, the transportation secretary, acknowledged that dropping the ownership changes could affect the preliminary deal agreed with the European Union but she also reaffirmed US commitment to securing an open-skies deal.

EU negotiators had made it clear that a revision of the investment rules was essential for their approval of the preliminary open-skies pact, which would have opened market access and led to co-operation in areas such as safety, security and competition policy.

Jacques Barrot, the European transport commissioner, said the legal situation was now fragile.