United Airlines is suspending a marketing agreement with Jet Airways (India) Ltd. after U.S. regulators cut the Asian nation’s aviation-safety ranking for the first time.

The downgrade by the Federal Aviation Administration bars Indian carriers from starting new service to the U.S. and opens up their planes for additional inspections in the U.S. Officials acted because India hasn’t fixed safety deficiencies found in earlier assessments, the FAA said yesterday in a statement.

United said hours after the FAA announcement that it had halted the use of its booking codes on Jet Airways flights, a practice that lets fliers arrange a seamless trip on jets from both carriers. The move takes effect today, and passengers are being rebooked, Chicago-based parent United Continental Holdings Inc. said in an e-mailed statement.

United’s action marked some of the first fallout from the FAA designating India as Category 2 from Category 1, the same standing as Zimbabwe, Paraguay and Indonesia. That was a blow to India’s bid to boost the aviation industry after Prime Minister Manmohan Singh’s government eased investment rules and spent billions of dollars to upgrade more than a dozen airports.

“U.S. and Indian aviation officials have developed an important working relationship as our countries work to meet the challenges of ensuring international aviation safety,” FAA Administrator Michael Huerta said in the statement. “The FAA is available to work with the Directorate General of Civil Aviation to help India regain its Category 1 rating.”

FAA Limits

American Airlines Group Inc. also withdrew its booking code from Jet Airways, covering one domestic route flown by the Indian airline. Passengers already have been reaccommodated, said Andrea Huguely, a spokeswoman for Fort Worth, Texas-based American.

Reciprocal code-share arrangements between Category 2 nations and U.S. carriers aren’t supported by the FAA, according to the agency’s website. State-owned Air India Ltd. and Jet Airways are the only two Indian carriers serving the U.S.

India’s civil aviation minister, Ajit Singh, said in New Delhi yesterday that he was disappointed with the downgrade. Only two of 31 aviation issues raised by the FAA remain unresolved, Singh told reporters.

Indian carriers have ordered hundreds of aircraft from Boeing Co. and Airbus Group NV as they expand in one of the fastest-growing aviation markets in the world. Singh’s decision in September 2012 to ease investment rules attracted AirAsia Bhd. and Singapore Airlines Ltd. to start new ventures in the nation of 1.2 billion people.

India Consultations

Under the International Convention on Civil Aviation (Chicago Convention), each country is responsible for the safety oversight of its own carriers, according to the FAA website. The FAA assesses the civil aviation authority of each country that has airlines operating to the U.S.

A December 2012 audit of India by the United Nations International Civil Aviation Organization identified “deficiencies,” the FAA said in its release. Afterward, the FAA began its own assessment of India’s DGCA, according to the release.

“The FAA has consulted extensively with the DGCA and other relevant Indian government ministries during its evaluation, including consultations in India in September and early December, and meetings this week in Delhi,” the FAA said in the release.

The Indian government “has made significant progress” in addressing the shortfalls identified by the FAA, the agency said in the release. It didn’t identify specific issues uncovered in the audits.

EU Interest

The FAA’s downgrade “is of significant interest” to the European Union, Dale Kidd, a spokesman for the European Commission in Brussels, said in an e-mail. While the EU Safety List and FAA’s rankings aren’t directly linked, the Europeans will study the U.S. findings, Kidd said. The EU Air Safety Committee will study the issue at its next meeting in March, he said.

An International Aviation Safety Assessment by the FAA determines whether a foreign authority’s oversight of its carriers providing service to the U.S. conforms to international standards.

Before lowering a nation’s ranking, the FAA typically spends months working with regulators to improve oversight, Steve Wallace, a retired FAA official, said in an interview. Wallace helped oversee the program in Europe and the Middle East during the 1990s.

The FAA looks at whether a country has adequate regulations and qualified inspectors, he said.

The FAA’s assessments of foreign nations grew out of the 1990 crash of an Avianca Holdings SA flight from Medellin, Colombia, to New York. The plane ran out of fuel before reaching John F. Kennedy International Airport, raising questions about the airline’s safety procedures. The crash killed 73.

With assistance from Vipin V. Nair in Mumbai. Editors: Elizabeth Wasserman, Steve Geimann. To contact the reporters on this story: Anurag Kotoky in New Delhi at akotoky@bloomberg.net; Alan Levin in Washington at alevin24@bloomberg.net; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net. To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net

Photo Credit: Jet Airways passenger aircraft prepares to land at the airport in the western Indian city of Ahmedabad. Amit Dave / Reuters