But Lufthansa deal expected soon
Austrian Airlines has blamed a €166.6m net loss in the first half of the year on "extremely weak demand" made worse by a €74.3m loss on aircraft values.
The airline, which has struggled with mounting debts and falling traffic, has seen its revenue slip almost 22% in the six months to June 30.
Revenues fell to €934.6m from €1,194.7m in the same period last year resulting in a drastic 65.5% decline in pre-tax earnings from €141.3m to €48.8m.
But Austrian said it had received "clear signals" that its proposed takeover by Lufthansa will go ahead by September at the latest.
The deal has undergone a month-long investigation by the European Commission (EC) after concerns were raised over competition aspects of the deal.
The agreement includes €500m to be paid to Lufthansa by the Austrian government as a "capital increase" to lessen the airline's debt burden.
The EC has begun a separate investigation into this proposed payment under EC Treaty state aid rules.
In a statement Austrian said it expected a "positive decision" on the EC's financial probe, paving the way for a formal announcement of the deal later this month.
Austrian board members Peter Malanik and Andreas Bierwirth said the way was now clear for a successful end to the deal by September at the latest.
EC competition commission Neelie Kroes yesterday said an agreement with Lufthansa had been reached addressing separate competition concerns on routes out of Vienna.
Lufthansa is understood to have offered to give up daily slots on routes between Vienna and Cologne, Munich and Brussels.
The decision now rests with the EC's Advisory Committee of the Member States which is expected to approve the deal within the next two weeks.
Lufthansa has said it would walk away from the deal if it became "uneconomical".
But recent cost cuts by Austrian appear to have improved the airline's finances enough for the deal to go through.
Austrian has admitted that savings were made this year in the hope that the EC would approve the merger.
Austrian said it had "sufficient liquidity" beyond 2009 to weather the economic downturn.
But it recently warned it would need a €1bn cash boost should the deal with Lufthansa fall through, twice the €500m grant promised by the Austrian Government.
The airline expects to save €28.9m though job cuts in the first half of the year.
A recently announced workforce reduction of around 1,000 by mid-2010 could help make savings of €200m by 2012, Austrian said.
Last month the EC began a second investigation into the takeover, citing concerns that competition could be reduced on routes between Vienna other European cities.
Under the proposed deal Lufthansa agreed to pay the Austrian government €366,268 for its 41.6% stake in its national airline.
The second part of the agreement was that the Austrian state received a "debtor warrant" from Lufthansa which might lead to additional payments.
The last element was that the Austrian government paid Lufthansa €500m for a "capital increase" in Austrian Airlines.
Lufthansa's share offer for Austrian was approved by 85% of the shareholders, above the 75% threshold needed under the takeover terms.
www.austrian.com www.lufthansa.com http://ec.europa.eu/index_en.htm