Lufthansa in for Austrian

A statement released after a board meeting said the German carrier initially planned to buy a 41.56 percent stake in the airline from Austrian state holding OeIAG.

This would be increased to 100 per cent at a later stage with Lufthansa paying 377 million euros ($475 million) to take full control, the announcement said. OeIAG is to decide on the offer Friday.

Lufthansa said the amount Lufthansa would pay OeIAG depended on Lufthansa share developments as well as economic developments surrounding Austrian Airlines.

One condition for the sale was that the EU approve a 500-million- euro cash injection for restructuring from the Austrian government, Lufthansa said.

Holding company welcomes Lufthansa approach

OeIAG welcomed the decision by Lufthansa to buy its stake in Austrian Airlines AG, as the deal would protect jobs and maintain the country's attractiveness as a business location.

"Independently, Austrian Airlines would not have been able to maintain its business model," OeIAG chief executive Peter Michaelis said in a statement.

OeIAG's governing board is scheduled to take its own decision on selling its 42.75-per-cent stake to Lufthansa. If the board approves, the signing of the deal will take place on the same day, an OeIAG spokeswoman said.

Austrian Airlines shares rose by 39.6 per cent on the news of the decision, closing at 3.70 euros per share on the Vienna stock market.

Lufthansa has offered to buy out shareholders at 4.44 euros per share, but Wilhelm Rasinger, the influential head of the Austrian Shareholders Association, told the DPA news agency that the offer did not overly impress him.

"The price is not yet at a point where I would advise to accept it," Rasinger said.

Ailing national carrier in need of help

Austrian Airlines said in late November that its losses for 2008 would amount to up to 415 million euros as high fuel prices, lower demand and aircraft write-offs have been weighing down on results.

Its current debt stands at around 900 million euros, while the company's revenue amounted to 2.5 billion euros in 2007, around 10 per cent of Lufthansa's sales.

With 100 aircraft and around 8,000 employees, Austrian Airlines has a strong focus on Eastern European and Middle Eastern destinations.

The airline was founded in 1957 as a state-owned company. Between 1988 and 2007, the state's share decreased to 42.75 per cent through a series of privatization steps.

The move is the latest step in consolidation in the airline industry.

Earlier Wednesday, Australia's Qantas Airways Ltd confirmed it was in talks with British Airways plc (BA) on a possible merger.