British and American negotiators have resumed decade-long talks on an "open skies" agreement aimed at liberalising transatlantic air services.

The informal talks, which took place in Washington on Thursday, are eventually aimed at producing a wide ranging deal, but British officials were expected to initially put forward limited proposals to open up the market.

The talks were relaunched on the day that the second biggest US carrier, United Airlines, warned that it could follow US Airways in filing for bankruptcy protection.

And ministers were warned that the EU, rather than the British government, might now be best placed to negotiate with the Americans.

The on-off talks, first begun when George Bush Snr was in the White House, are focusing on opening up the restricted US-UK routes to more competition.

But the talks have been complicated by attempts by British and American companies to form alliances, with approval of the deals being made dependent on an overall liberalisation agreement.

At present, flights between the two countries are regulated under the 1977 Bermuda II agreement which allows just two airlines from each country to operate lucrative flights from Heathrow.

On the British side these are British Airways and Virgin Atlantic, which compete with American Airlines and United Airlines from the US.

Since 1996 BA has wanted to coordinate ticket pricing and flight schedules, and share revenues and profits, with Dallas-based American, while United wants to form an alliance with UK carrier BMI.

Both deals had been given tentative approval by the US Department of Transportation, subject to an open skies deal being reached and other requirements.

The administration of George W Bush has committed itself to continuing the work begun by George Bush Senior in 1992.

America's transportation secretary, Norman Mineta, has spoken of his commitment to free trade in aviation, and in June 2001 informal discussions between the two sides were held in London, with both sides agreeing on the need for a deal.

And in autumn 2001 the talks continued, spurred on by the downturn in the aviation industry following the September 11 terrorist attacks.

However, in January this year the administration decided that the BA-AA link would only be granted antitrust immunity if the airlines surrendered 224 Heathrow landing slots to US carriers.

The restriction came after fierce criticism from rival airlines who argued that, if given the go-ahead, the BA-AA alliance would control 60 per cent of UK-US traffic.

The requirement was rejected as "dumbfounding" by American chief Don Carty and the two airlines subsequently withdrew their request for link-up approval. The row led to the inter-governmental talks being postponed yet again.

The British government accepts that it has a difficult negotiating task, protecting the interests of passengers while ensuring "balance" between companies from both sides of the Atlantic.

"We believe that more competition is required in the interests of passengers," a spokesman for the transport department said.

But the one-day talks are not likely produce substantial agreement. "We'll have to wait and see," said the spokesman.

However, any deal between the UK and the US could yet be open to legal challenge.

The European Commission has launched a legal case against seven EU member states that have already negotiated bi-lateral agreements with the US, arguing that they discriminate against airlines from EU countries without a deal. The Commission says that by negotiating as one bloc Europe would also get a better deal.

The advocate general of the European Court of Justice has already backed the Commission, ruling the existing deals illegal. The full ECJ verdict is also expected to uphold the Commission's rights to negotiate open skies deals - though the government points out that in 20 per cent of decisions this is not the case.

And British Airways said it believed backing an EU-US agreement on full liberalisation was the path the government should be taking.

"We are not opposed to a UK/US mini-deal so long as it is a balanced deal and does not disadvantage British Airways," the company said in a statement.

"Following the collapse of the last initiative - trading open skies for our antitrust immunity filing with AA - we believe that the next logical step is to pursue full liberalisation through Brussels led EU-US negotiations, with input from the UK government."

However the talks will also be discussing issues wider than just any BA deal - and the transport department spokesman said the government had already listened to the position of the airlines.

"We know what their views are," he said.

Sticking points for the British side include the US's "fly America" policy, which obligates federal civil servants and armed forces personnel to fly only on US-based airlines.

The UK is also critical of US laws preventing foreign airlines owning more than 25 per cent of American air companies. In contrast, the EU allows non-European companies to own up to 49 per cent of its airlines.

The government will also be concerned that the American strategy to "surround Heathrow" with open skies agreements with other countries could undermine Britain's position as Europe's key air transport hub.

The US has already backed the Northwest-KLM Wings alliance, the United-Lufthansa-SAS Star alliance and the Delta Air Lines-Air France SkyTeam. But the BA-AA One World Alliance has been left grounded as a key bargaining chip in the talks.

The first bilateral agreement between the two countries was signed in 1946 following a conference in Bermuda.

That deal remained in place until 1977, when deregulation of the American domestic airline industry helped to prompt a new agreement, Bermuda II.

Critics of the current system say that by restricting transatlantic routs to just two US and two British companies it pushes up prices for consumers, resulting in transatlantic prices being much higher than they might otherwise be.

Business groups have backed an open skies agreement and approval of the BA-AA deal, arguing it will promote competition between the major alliances now emerging in the struggling industry.