* Aer Lingus fears U.S. retaliation over Dublin Airport

passenger cap

* Irish government working on new law to lift limit

* Cap dates back almost two decades

DUBLIN, March 25 (Reuters) - Aer Lingus sees a "serious

risk" that the U.S. government could retaliate and restrict its

number of transatlantic flights if a passenger cap at Dublin

Airport is not quickly scrapped, the Irish airline's chief

executive said on Wednesday.

The Irish government has pledged to enact a new law by the early

summer to lift the 32 million passenger-per-year cap that is

currently suspended pending a European Court ruling. The airport

overshot the limit by 4 million passengers last year.

U.S. industry trade group Airlines for America (A4A) filed a

complaint with the U.S. Department of Transportation in January,

accusing Ireland of breaching the EU-U.S. "Open Skies" agreement

granting airlines the right to operate in each jurisdiction and

asking it to curtail Irish carriers' access to the U.S. if the

cap is not swiftly scrapped.

"I think there is a serious risk of retaliation,

absolutely," Lynne Embleton, CEO of IAG-owned Aer

Lingus, told a parliamentary committee scrutinising the proposed

law.

The head of the International Air Transport Association and

former Aer Lingus CEO Willie Walsh told the committee that there

was "no question" that the threat of retaliation was real.

A4A CEO Chris Sununu said he discussed the issue at the

White House and Department of Transportation in the last week

and that the U.S. is watching the next steps very closely.

"If you think this administration is going to have one of

their bilateral agreements violated, and they're just going to

take it? In case you haven't read the headlines, that's not what

these guys do," he said.

Sununu added at the end of the meeting that he would bring

"some good news" back to Washington that lawmakers were prepared

to move quickly.

The cap was introduced as part of planning permission

granted in 2007 for the construction of a second terminal, in

part to avoid local road congestion. It only became an issue in

2024 when passenger numbers started to reach the limit.

Airlines are pushing ministers to speed up the legislative

process after an advisor to the court last month backed the

basis for the cap. They warn that the airport may be forced to

sharply cut capacity if the new law is not in place before the

imposition of a full EU court ruling.