Austrian to cut 1,000 jobs

EC urges Lufthansa to deliver concessions

Austrian Airlines announced it was cutting 1,000 jobs by mid-2010 to help make savings of €200m by 2012.

The airline, which is hoping to merge with Lufthansa, has already implemented cuts to make savings of €225m this year.

As the airline announced its new plans, the European Commission said that if Lufthansa came up with "satisfactory remedies (to concerns over competition on several routes) within the next few days," the merger could go ahead.

But EC spokesman Jonathan Todd said that if no acceptable plans were put forward by the German carrier, the new prove launched this week by the Commission into the takeover would not report until November 6.

Under the term of the proposed deal, Lufthansa is able to walk away if the deal is not signed by July 31.

The statement by Austrian said the jobs would come in stages through "mutually agreed solutions, outplacements and by not refilling vacancies."

But it warned that there would be lay offs.

In a joint statement, Dr. Andreas Bierwirth and Dr. Peter Malanik, Austrian's chief commercial officer and chief operations officer respectively, said the airline had to achieve an EBIT margin of 6-7%.

This objective was being hampered by the economic conditions which had also shown how important it was for the airline to re-structure.

"This is why consistent measures are so urgently necessary to improve the cost structure of the Austrian Airlines Group in the long term," the directors said.

Austrian has said that the cuts made this year have also been in the hope that the EC would approve its merger with Lufthansa.

Under the proposed deal Lufthansa agreed to pay the Austrian government €366,268 for its 41.6% stake in its national airline.

The second part of the agreement was that the Austrian state received a "debtor warrant" from Lufthansa which might lead to additional payments.

The last element was that the Austrian government paid Lufthansa €500m for a "capital increase" in Austrian Airlines.

Lufthansa's share offer for Austrian was approved last month by 85% of the shareholders, above the 75% threshold needed under the takeover terms.

But the EC launched an investigation into the planned deal citing a lack of competition on routes from Vienna to Frankfurt, Munich, Stuttgart, Cologne, Zurich, Geneva and Brussels.

Earlier this week the Commission decided to extend its probe into the deal.

It said that Lufthansa had proposed remedies but while they reduced the problems, they were not enough to clear the merger.

The Commission said it was also still considering "state support for Austrian Airlines in the framework of a separate investigation under EC Treaty state aid rules."

The EC said its initial investigation, which started in February, "indicated that the proposed acquisition could, on certain routes, give rise to reduced choice of airline services for passengers and the likelihood of higher fares."

It added: "There are therefore serious doubts as to the proposed takeover's compatibility with the Single Market in the absence of appropriate remedies."

Neelie Kroes, the EC's competition commissioner, said: "It is essential that airline consolidation does not deprive consumers of a choice of airlines, competitive prices and other benefits of liberalisation of air transport in the EU.

"I hope that, in a spirit of mutual cooperation, we will be able to work closely with Lufthansa in the coming weeks to find timely solutions to these concerns."

Lufthansa said the decision to extend the probe was "surprising" but both it and Austrian said they were confident the deal would go through.

www.austrian.com   www.lufthansa.com   http://ec.europa.eu/index_en.htm