US President George W Bush's administration has proposed an $8 billion (€8.6 billion) emergency lifeline to save tottering US airlines from collapse after the September 11th terrorist attacks.

The proposal to Congress yesterday comprised $5 billion to compensate for the impact of the attacks and $3 billion for the costs of heightened security, said Bush's spokesman, Mr Ari Fleischer.

"This is an initial reaction," Mr Fleischer said. "This does not preclude additional actions but this is the immediate reaction to what the administration thinks is necessary."

US airlines, which have shed more than 60,000 jobs since the attacks as they warn of devastation in the industry, had asked Congress for a total $17.5 billion - $5 billion in state cash assistance and $12.5 billion in loan guarantees.

Airline stocks slumped in early afternoon trade.

The White House made no proposal for loan guarantees but the matter would be discussed with Congress as the details of the package were drawn up, Mr Fleischer said.

Airlines are suffering as the attacks frighten away passengers and force the carriers to undertake burdensome security measures, which reduce the maximum number of flights.

The airline industry's troubles were aggravated by the unprecedented complete shutdown of US airspace after the attacks were launched.

The ban was lifted two days later but operations resumed only slowly.

The two top US carriers, American Airlines and United Airlines, laid off a combined 40,000 people on Wednesday, bringing the total for US airlines to about 65,000 since the disaster.

Plane manufacturer Boeing has warned it will axe another 20,000 to 30,000 jobs.

And the pain is quickly spreading internationally.

President Bush also asked Congress to amend legislation on the war-risk insurance programme provided by the Department of Transport so as to cover domestic US flights.

This would eliminate the risk of carriers being unable to find insurance and offsetting rate increases, Mr Fleischer said.

"This will eliminate the risk that carriers cannot obtain insurance and offset insurance rate hikes associated with the September 11th attacks," he said.

Delta Air Lines chairman Mr Leo Mullin, speaking on behalf of all the airlines, warned Congress on Wednesday that the expected cash position for US airlines for June 30th, 2002, had changed from having a surplus of $8.5 billion dollars to a deficit of $15.5 billion.

On the stock markets, the AMR parent of American Airlines, the world's biggest carrier, dropped $1.25, or 6.25 percent, to $18.75 in early afternoon trade.

United Airlines slumped $1.74, or 9.28 percent, to $17.02 and Delta dropped $1.59, or 6.72 percent, to $22.07.

US Airways slipped 77 cents, or 13.63 percent, to $4.88 and Northwest retreated $1.74, or 14.42 percent, to $10.33.

Continental Airlines crashed $4.62 dollars, or 24.40 percent, to $13.20 dollars.