As was widely expected, Austrian Airlines’ board today announced plans to reorganize Austrian Airlines and has forced pilots and flight attendants to have their contracts shifted to Tyrolean Airways (Austrian Subsidiary). The decision to make this change was due to the fact that Tyrolean has a far more efficient structure as far as employee contracts are concerned. Under this change, Austrian expects a savings of 45 million Euros annually.

I suspect the 2100 Austrian Pilots and Flight Attendants affected by this will not take this sitting down. As part of the new agreements, pay raises will no longer be automatic and other benefits will cut that the airline can no longer afford.

I suspect we’ll hear a loud and clear response from the unions representing the pilots and flight attendants shortly. I hope they understand and appreciate that they still have a job and need to adapt to a structure that should help ensure future success. Lufthansa could have very easily pulled the plug on Austrian. Instead, it has committed to injecting 140 million Euros to help the Airline revamp its operations and become profitable.

The Reuters Article:

* Shifting contracts to help save 45 mln euros/year

* Supervisory board approves shift as “Plan B”

* Around 2,100 staff contracts to move to Tyrolean Airways (Adds statement from AUA supervisory board)

VIENNA, April 19 (Reuters) – Deutsche Lufthansa’s loss-making Austrian Airlines (AUA) will slash costs for pilots and flight attendants by shifting their contracts to a sister company offering less generous terms.

The step will help save 45 million euros ($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 with labour failed to come up with an agreement on cost cuts.

“This decision formally lays the final building block in the 220 million euro restructuring programme,” 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 as much as 140 million euros 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 62 million euros as it struggled with unrest in the Middle East, the Fukushima disaster in Japan, soaring 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. ($1 = 0.7621 euros) (Reporting by Angelika Gruber; Writing by Michael Shields; Editing by Elaine Hardcastle)