ALBUQUERQUE, N.M. – A federal appeals court Friday reversed a judge’s decision that prevented US Airways from serving alcohol on its New Mexico flights after a passenger killed five people in a drunken-driving crash.

The state had denied US Airways’ liquor license application after regulators accused the airline of overserving passengers, including the man who caused the 2006 crash that also killed himself.

The airline sued, and in October 2009, a federal judge in Albuquerque ruled in favor of the New Mexico Regulation and Licensing Department.

However, the 10th U.S. Circuit Court of Appeals in Denver reversed that decision Friday, saying U.S. District Judge M. Christina Armijo failed to balance state and federal interests. The appeals court sent the case back to the district court.

In rejecting the airline’s application, state regulators said US Airways “cannot reasonably find that approval of application will protect the public health and safety or that it is in the public interest.”

US Airways had argued that the U.S. Department of Transportation has exclusive authority to regulate all aspects of airline safety. The airline also argued it wasn’t subject to New Mexico liquor laws because alcohol is loaded onto aircraft in Arizona, is served only during flights, and cannot be removed from the airplanes.

New Mexico had twice cited US Airways for overserving passengers. The most visible case involved Dana Papst, who was drinking on a US Airways flight into Albuquerque in November 2006.

Papst later caused a wrong-way crash on Interstate 25 near Santa Fe, killing himself and five members of a family from Las Vegas, N.M.

Passengers told investigators he had been served two drinks on the flight despite already appearing intoxicated.