Continental has hit out at plans to improve industry finances

Washington revealed last November that it was looking at ways of boosting foreign investment in the industry, which has suffered huge losses.

Foreign firms could be given input into route selection and marketing to encourage them to invest capital.

But Continental Airlines said the proposals were unworkable.

Legal threat

"We intend to challenge it in court," Jeff Smisek, Continental's president told aviation analysts on Thursday.

Current regulations limit the degree of influence which foreign investors can have over US airlines.

The 49% cap on foreign ownership of US carriers or the 25% limit on voting rights are not up for discussion.

The US air industry has made huge losses

However, the US government is seeking ways to allow foreign firms a more active role in the decision making of US airlines.

The proposed changes would only apply to investors in countries with existing aviation agreements with the US and which permit US investment in their own domestic airlines.

Mr Smisek said he was not opposed to US carriers being given greater scope to raise money from foreign investors.

However, he said the US government was trying to reinterpret legislation on control of airlines without reference to Congress as part of its efforts to negotiate an aviation agreement with Europe.

Talks on an "Open Skies" agreement between the US and Europe resumed late last year after stalling for several years.

Financial crisis

The US aviation industry has been in financial crisis since the 11 September terrorist attacks, its problems compounded by soaring oil prices, fluctuating demand and huge labour costs.

United Airlines, Delta Airlines, US Airways and Northwest have all been forced into bankruptcy protection as they try to sort out their finances.

Despite the industry's financial problems, Washington has baulked at relaxing the ownership rules governing the industry, citing safety and national security concerns.