Transatlantic air travellers face the threat of major disruptions after the European court of justice declared it illegal for airlines to hand over passengers' personal details to the US authorities.
British airlines immediately expressed alarm at the ruling which annuls a controversial deal on passenger details between Brussels and Washington.
Virgin Atlantic warned of "an extraordinary situation" in which airlines face the choice of breaking US law or breaching European law.
Virgin spoke out after the court ruled that there was no legal basis for a 2004 deal between Brussels and Washington under which European airlines hand over details of every passenger to authorities in the US. Airlines have to hand over 34 pieces of information on passengers flying into or over the US, including name, address, credit card details and telephone numbers.
The court said it was acceptable under EU law for airlines to gather this information for commercial reasons. But it was illegal to hand the information, known as passenger name records (PNR), to the US on security grounds as it breaches privacy rules.
The judges ruled that the current system should be left in place until September 30 "for reasons of legal certainty and in order to protect the persons concerned".
The US sounded a conciliatory note when it pledged to work with the European commission to find a solution. But the US will still insist that personal details must be handed over by airlines. "The onus is on the European institutions to sort out how they move forward," a US source said. This means the EU will have to draft a new law by the end of September or face the threat of transatlantic delays or even grounded flights. "The lawyers are in meltdown on this one," a commission source said.
It is understood the commission will look at drawing up a new directive by the end of September, which will be difficult because Brussels shuts down for six weeks over the summer.
This is the preferred option because failure to agree a new law will force the EU's 25 governments to negotiate separate national agreements with the US.
The uncertainty has irritated British airlines. British Airways said it was "disappointed" that the European court had thrown out the agreement, adding: "In flying to the USA, British Airways has a legal obligation to provide passenger information to US customs and border protection and we wish to meet the data protection laws of the UK."
Since the events of September 2001, airlines have complained vigorously about the onerous requirements upon them to gather information from passengers. Some have warned that passengers could be required to arrive as much as four hours before long-haul flights to complete formalities.
There has also been concern about the American authorities' use of passenger lists. On numerous occasions, European aircraft have had to turn back halfway across the Atlantic because the US homeland security department has "red flagged" a passenger on board after studying data provided by airlines.
In many instances, this has been a result of mistaken identity - in some cases caused by spelling or other errors on the US authorities' watchlists.
The Department for Transport said it needed to study the judgment carefully, although a spokesman pointed out that it did not come into effect until September: "We doubt it will have any immediate effect on British travellers."
The ruling was a victory for the European parliament which challenged the deal between the European commission and the US authorities which was approved by the council of ministers.
Graham Watson, the leader of the Liberal group in the parliament, said: "The response to 9/11 has been costly, both to the taxpayer and to individual freedom. It has made us little, if any, safer."
