(Corrects spelling of 'agrees' in headline)
* Settles row over pay contracts dating back to May 2012
* Dispute had led to strikes
* New collective deal runs until 2022
* Pensions changes to boost Lufthansa profit this year
* Shares rise 1.6 pct, outperform German Dax
By Victoria Bryan
BERLIN, March 15 Lufthansa and its
pilots' union have reached a wide-ranging agreement on pay,
pensions and working practices, bringing an end to years of
wrangling and strikes and boosting shares in the German group.
The airline and its other full-service rivals have long been
seeking ways to bring pilot costs down as they vie with younger,
leaner Gulf carriers on long-haul routes and fast-growing
low-cost rivals on short-haul routes.
However, Lufthansa's efforts to overhaul its labour
agreement with the Vereinigung Cockpit union, which represents
about 5,400 pilots at its Lufthansa, Germanwings and Cargo
units, had led to repeated strikes.
The agreement announced by the two sides on Wednesday
includes a 10-year pay deal, a shift from defined benefit to
defined contribution pensions and more flexible working hours,
in exchange for giving pilots working for the main airline more
The pilots will receive a pay increase amounting to an 11.4
percent rise for the period between May 2012, when the last
collective contract expired, until June 2022, plus a one-off
payment equivalent to 1.8 times the monthly salary.
Lufthansa pilots are well paid by industry standards. A
pilot at Lufthansa earns on average 180,000 euros ($190,000) a
year before tax, though a captain on the highest pay level can
earn as much as 22,000 euros a month before tax.
The new deal promises to remove the risk of any pilot
strikes over pay until 2022 and the union said it would result
in an average 15 percent reduction in the airline's pilot costs.
Air France KLM is also trying to bring down pilot
costs at its French airline, with a scheme dubbed Boost also
aiming to reduce those costs by 15 percent, but only for a small
part of its fleet.
Lufthansa's share price, already up 16 percent this year,
rose a further 1.6 percent to 14.38 euros by 1255 GMT on
The deal means Lufthansa will follow rival IAG,
which owns British Airways, Iberia and Aer Lingus, in making
progress in bringing costs down at its main brand.
The company is due to provide more details and give a profit
forecast for 2017 when it reports annual results on Thursday.
It said on Wednesday the agreement on pensions and early
retirement payments would boost its profit in 2017 and reduce
pension liabilities by an amount in the high hundreds of
millions of euros.
Independent aviation consultant John Strickland said it
looked as though significant progress had been made, although
more details were needed.
"Lufthansa's pilots will still be amongst the most highly
remunerated, but given the developing global pilot shortage this
deal may turn out to be a valuable protection for the airline
against this problem," he told Reuters.
Before the announcement on Wednesday analysts had been
predicting the company's earnings before interest and tax would
fall this year to around 1.38 billion euros ($1.47 billion) from
an estimated 1.75 billion in 2016.
Lufthansa said at least 325 of its planes will be flown by
pilots under the new German collective agreement.
Management had previously raised the prospect of shifting 40
new planes to crew from other parts of the group or even setting
up a new subsidiary to keep costs down.
"This agreement on a wide-ranging solution offers a major
chance to settle the pay conflict that has been going on for
years," a spokesman for the Vereinigung Cockpit union said in a
The pilots agreed to join other key Lufthansa staff in
moving to a defined contribution pension scheme and to gradually
increase the age at which pilots can take early retirement to 60
years from 55 previously.
(Reporting by Victoria Bryan; Editing by Maria Sheahan, Greg