Austrian Air Forces Lower-Cost Tyrolean Contracts on Pilots

Deutsche Lufthansa AG (LHA)’s Austrian Airlines unit said it will implement plans to transfer air-crew contracts to regional operator Tyrolean Airways in order to deliver a 220 million-euro ($289 million) cost-savings program.

Austrian Air’s supervisory board, chaired by Lufthansa’s Stefan Lauer, voted to shift 600 pilots and 1,500 cabin crew to less-lucrative contracts from July 1 after no agreement could be reached with their union, the Vienna-based company said today.

“We’ve taken a decision today which frees Austrian Airlines from inherited structural burdens,” Chief Executive Officer Jaan Albrecht said at a briefing, adding that crew wages are now frozen, putting the company “on a more competitive footing.”

The Vida union, which represents flight crew, withdrew from a labor agreement in March as it sought to hinder a transfer of contracts, which are 25 percent less costly at Innsbruck-based Tyrolean. Austrian Airlines has been seeking to improve profitability after posting a 62 million-euro loss in 2011.

The Tyrolean contracts will not immediately result in lower wages for air crew, with the savings to be achieved through limited future salary increases, according to a statement.

Training Costs

Karl Minhard, Austrian Air’s works council head, said yesterday that talks had failed to make progress and that the airline plan will fail to deliver the savings sought because of extra spending in areas such as pilot training as the fleet shifts toward Airbus SAS A320 planes from Boeing Co. 737s.

Austrian Air is relaxed about any legal challenge from its unions, Chief Operating Officer Peter Malanik said in Vienna, with the company targeting a 223 million-euro saving this year.

Even then, tax and fuel-price burdens will weigh on earnings through 2012, CEO Albrecht said. Some 40 pilots have left Austrian so far during the dispute and the company is “prepared” should more seek to leave, he added.

“This measure is essential for the long-term survival of Austrian Airlines,” he said.

Cost reductions through the transfer of staff to Tyrolean parallel developments at the former Swissair, where workers moved to local regional carrier Crossair following the flag carrier’s collapse in 2002. The business was renamed Swiss International Air Lines and acquired by Lufthansa in 2005, and posted a 259 million-euro operating profit in 2011.

Belgium’s Brussels Airlines was similarly founded after assets of failed national carrier Sabena were used to form SN Brussels in 2002. The current name was coined following a merger with discount operator Virgin Express, with Lufthansa adding the company to its portfolio in 2009 by taking a 45 percent stake.

Tyrolean, an operator of Fokker jets and Bombardier Inc. Q400 turboprops acquired by Austrian in 1998, will be integrated into its parent’s flight operations by the end of the year to eliminate route duplication, according to today’s statement.

To contact the reporter on this story: Alex Webb in Frankfurt at awebb25@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

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