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Business

Lufthansa Wins Pay-Restraint Pledge from Unions

Germany's national carrier has forged an agreement with unions that will enable it to save at least 210 million euro and clear the way for ordering 15 Airbus super-jumbos.

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Wage agreement keeps planes in flight

Germany's national carrier, Deutsche Lufthansa AG, has forged a pay agreement with the trade unions that will enable it to make savings of at least 210 million euro.

The unions – Verdi (services) and Cockpit (pilots) – have agreed to exercise pay restraint. In return, the airline has promised to refrain from instituting compulsory lay-offs until the end of 2002 at least.

For Lufthansa, Chief Personnel Officer Stefan Lauer thanked the trade unions for the understanding they had shown. He said the agreement would help the airline to stem the effects of the crisis that has beset the aviation industry since September 11.

Lufthansa has said its daily sales revenue is down 25% from the pre-attack level of 40 million euro. The deal is a key step towards the airline's goal of cutting personnel costs. Under the package originally proposed, the airline would have been able to make savings of around 350 million euro.

Ground and cabin personnel have agreed to extend existing wage agreements, rather than negotiate new ones when they come up for review next year, and to pass up on the thirteen month of salary, traditionally paid in the summer. Cabin staff have already been working short time since the end of November.

Additionally, pilots have agreed to delay by seven months the introduction of a pay rise already agreed for 2002. Pilots account for 25% of Lufthansa's total personnel costs.

Airbus orders

Thursday's agreement is clearly one of the factors that have enabled Lufthansa to go ahead with an order for fifteen A380-800s super-jumbo jets from Airbus Industrie.

The decision to make the order was announced by Lufthansa on Thursday morning, before news of the pay accord, and it was immediately hailed by traders as signaling an improved outlook for the airline. Lufthansa said that the order had now been approved by its supervisory board.

It described the move as a "future-oriented investment" that would strengthen its long-term competitive position in international markets. Delivery of the aircraft is expected to start in the second half of 2007.

Lufthansa chief Jürgen Weber said in a statement the size of the aircraft would make it possible to cut per-seat costs by 15–20%.

Lufthansa said its long-standing relations with Airbus had made it possible for the two sides to agree sufficiently favorable terms for an order to be placed now, despite the current aviation industry crisis set off by the September 11 terrorist attacks on the United States.

And although traders welcomed the news of the Airbus order, Lufthansa shares lost ground in Frankfurt on a generally flat market.

The factor weighing on the share was Lufthansa's announcement, also made Thursday, that it plans to issue a ten-year convertible bond to finance its acquisition of US catering firm Sky Chef.

The airline said the convertibles issue is to be carried out instead of a planned seven-year straight bond, which it decided to cancel because the market conditions are unfavorable for this kind of debt.

Lufthansa gave the volume for the convertibles issue as 500 million euro, but lead manager Morgan Stanley later said that it would be increased to 650 million euro.

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