In yet another twist in the ongoing GE-Honeywell merger saga, Honeywell International Inc. on Friday proposed reducing the price of General Electric Co.'s takeover offer in a bid to salvage a deal on shaky ground because of European Union antitrust concerns.

In a statement, Honeywell said it made the offer because EU regulators wanted GE to make divestitures that GE viewed as financially unattractive.

The company offered to reduce the amount of stock GE would pay for Honeywell, effectively decreasing the value of the deal from $41.7 billion to $39.5 billion.

In return, under the Honeywell proposal, GE would make $2.1 billion of divestitures it originally offered to satisfy regulators but reduced to $1.1 billion after coming up with a plan to spin off part of GE's powerful aircraft-financing and leasing unit.

The new proposal to EU regulators would include both the $2.1 billion in divestitures and the partial spinoff of the aircraft-financing and leasing unit.

If GE accepts the offer, it would have to be approved by Honeywell shareholders.

"Honeywell's proposal satisfies all of the competition concerns and serves the best interests of all stakeholders," said Michael Bonsignore, Honeywell's chairman and chief executive. "It provides GE with better economics for the deal, and it satisfies the European Commission's divestiture requirements."

GE officials did not immediately return telephone messages seeking comment.

European Union antitrust regulators wanted a better offer from GE, sources said Friday.

Before Honeywell made its offer, EU Competition Commissioner Mario Monti turned down GE's latest proposal regarding the aircraft-financing and leasing arm, GE Capital Aviation Services, late Thursday, according to sources close to the deal who spoke on condition of anonymity.

GE's offer to sell a minority stake in GECAS fell short because it didn't change the structure of its control of GECAS' purchasing policy, said one source in the EU Commission.

Monti's office fears GECAS, one of the world's top purchasers of aircraft, would promote GE-Honeywell equipment to the detriment of competitors, leading eventually to higher prices.

Despite the rejection, EU officials said it was still possible that GE could try again before the next meeting of the full Commission on Tuesday.

Monti has said the Commission would likely vote on the deal at that meeting, although his spokeswoman, Amelia Torres, stressed Friday that the final agenda had not yet been adopted.

The deal won conditional antitrust clearance in Washington in May, but its tortured path in Europe has raised concern among Bush administration officials. Some in Congress have even accused the EU of protectionism and threatened retaliation.

If the merger were to be officially rejected Tuesday, GE could either challenge the decision in court or file a new application and start the process all over again, Torres said.

The 15-nation European Union must approve the deal between the U.S. companies, just as regulators in the United States regularly have to approve mergers between European companies.

-- The Associated Press contributed to this report.