The Government hinted yesterday that it might be willing to compromise by accepting a “phased approach” to an open skies deal between Europe and America.

Douglas Alexander, the Transport Secretary, accepted some of the arguments put forward by British Airways against the provisional deal agreed by US and EU negotiators on Friday.

BA would face much tougher competition on its most profitable routes if the deal was approved and its shares fell 6 per cent on Monday.

But Mr Alexander told an airline industry conference in London that he agreed with Jacques Barrot, the European Transport Commissioner, that there would be significant economic benefits from liberalising transatlantic aviation services.

Mr Barrot said on Monday that if there was no deal Europe and America would lose €12 billion (£8 billion) in economic benefits and the opportunity to create 80,000 jobs.

Mr Alexander said that “with the political climate in the US, we are not likely to get a full, transatlantic, open aviation area in one step. That is why we are prepared to contemplate a phased approach.

“But to take [that] forward, we have to be satisfied that there is a clear mechanism in place, with real incentives on both sides, to reach the fully open market that we all judge to be the best way forward.”

He said the phased approach would be discussed at a meeting of EU transport ministers on March 22.

Britain is looking increasingly isolated within the EU as Germany, which resisted previous proposed deals, now appears keen to forge an agreement, even if it is largely on terms dictated by the US.

Mr Alexander, noting that 40 per cent of all flights between the EU and the US land or take off in Britain, said the deal proposed by Mr Barrot fell short of providing access to the US market which several EU airline leaders, including Sir Richard Branson, the Virgin chairman, have been seeking.

The minister accused US airlines of encouraging the US Department of Transportation to block Sir Richard from setting up a new, domestic US airline. “If a US carrier can operate from New York to London and on to Frankfurt, but an EU carrier can’t operate from London to New York and on to, say, San Francisco, then there remains work to be done,” Mr Alexander said.

The Government was willing to sign a multilateral deal, he said, if it could be sure that it would lead to long-term benefits for British airlines, passengers and the economy.

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