UPDATE 1-U.S. court rejects airline passengers rights law

(Adds details on law, background on airline delays, quotes, byline)

By Martha Graybow

NEW YORK, March 25 (Reuters) - A New York state law seeking better treatment of passengers stuck on grounded airplanes was thrown out on Tuesday by an appeals court, which said air travel is already regulated by the federal government.

While the state's so-called Passenger Bill of Rights was laudable, "only the federal government has the authority to enact such a law," the U.S. 2nd Circuit Court of Appeals said in a written ruling.

New York passed the country's first state law on air passenger rights last year, amid rising passenger anger at shoddy treatment by airlines. The law was adopted after JetBlue Airways Corp (JBLU.O) mishandled an ice storm in New York in February 2007 that left passengers stranded on the runway at John F. Kennedy International Airport for up to 10 hours.

The new law required airlines to provide passengers who are confined to a grounded airliner for more than three hours with basic necessities, including food, drinking water and clean bathrooms. It went into effect Jan. 1.

The Air Transport Association of America, which represents major U.S. airlines, had challenged the law, saying it is preempted by federal regulations. A U.S. District court in Albany had rejected the group's lawsuit, but the 2nd Circuit overturned that ruling.

"If New York's view regarding the scope of its regulatory authority carried the day, another state could be free to enact a law prohibiting the service of soda on flights departing from its airports, while another could require allergen-free food options on its outbound flights, unraveling the centralized federal framework for air travel," the appeals court ruled.

The decision "vindicates the position of ATA and the airlines -- that airline services are regulated by the federal government and that a patchwork of laws by states and localities would be impractical and harmful to consumer interests," the Air Transport Association said in a statement.

The law's lead sponsor, Democratic Assemblyman Michael Gianaris of Queens, said he was disappointed with the decision. He said his office, along with the state attorney general, would review the ruling and decide how to proceed.

"This decision strips the public of even the barest protections against a very wealthy and powerful industry," he said.

Other state legislatures, including California, have also considered passing passengers' rights measures.

Congress, which has been heavily lobbied by airlines, so far has not passed any passenger rights legislation. The industry beat back a similar push for legislation in 1999 after agreeing to adopt a voluntary customer service initiative.

Major U.S. airlines racked up a record 7.4 million flights last year, but also set a record with 1.8 million late arrivals.

The U.S. Transportation Department is looking at caps and extra charges on peak time flights, in an effort to relieve congestion at some airports. The problem may recede slightly this summer even without caps, as several major carriers have announced plans to cut flights in the face of soaring fuel prices. (Additional reporting by Bill Rigby) (Reporting by Martha Graybow; Editing by Andre Grenon and Dave Zimmerman)