Lufthansa’s loss-making Austrian Airlines (AUA) will cut costs for pilots and flight attendants by shifting their contracts to a sister company offering less generous terms.
The step will help save EUR€45 million (USD$59 million) a year on annual staff costs, chief executive Jaan Albrecht told reporters after the AUA supervisory board sanctioned the move.
The disputed measure sets the stage for a legal battle with representatives of the 600 pilots and 1,500 flight attendants affected by the move, which would take place as early as July. Contracts for ground staff are not affected.
AUA’s board approved on Thursday moving the on-board staff contracts to regional carrier Tyrolean Airways, after negotiations failed to come up with an agreement on cost cuts.
“This decision formally lays the final building block in the EUR€220 million restructuring,” AUA, which has become a major drag on the German group, said in a statement.
Pilots had refused to give up packages – including annual pay rises of up to 7 percent and attractive pensions – that the company has said it could no longer afford.
Their pay has now been frozen rather than cut, but would no longer rise automatically at Tyrolean. Pilots will also fly more hours each month, helping to boost productivity, Albrecht said.
Forty pilots have already quit and more may follow, AUA said, but it expected no disruptions to the peak summer season.
Lufthansa will inject EUR€140 million of fresh equity into AUA as it seeks to restructure the unit, the group’s chief executive said last month, calling the situation “critical”.
AUA made a 2011 operating loss of EUR€62 million as it struggled with unrest in the Middle East, the Fukushima disaster in Japan, high fuel prices and the European debt crisis.
Lufthansa has said the unit’s results should improve this year but were unlikely to break even. Albrecht said how quickly AUA can make profits again depended on fuel prices, market developments and how quickly it can switch contracts.