Lufthansa is taking over SWISS, Switzerland's troubled national airline, for what could be as little as 45m.
The deal was approved by the two airline's boards and the Swiss Government which is a shareholder in SWISS.
It follows last year's merger of Air France and KLM last year and is another major step in the long expected consolidation of Europe's scattered airline industry.
Under the deal, Lufthansa will pay between 45m and 310m for the carrier, the price depending on the level of the Garman carrier's shares in the 30 days before the deal was struck.
SWISS which was owned by a diversity of shareholders who included the government, two cantons, two banks, several major Swiss companies and a collection of smaller shareholders will continue as a separate brand.
Christoph Franz, president and ceo of SWISS said: “The Integration Agreement ensures fair development of the Zurich hub, the size of our long-haul fleet, the quality brand SWISS, and the continued existence of SWISS as an operating airline based in Switzerland.”
The airline will also continue its re-structuring programme, announced in January, which involves the loss of up to 1000 jobs, cuts in its fleets an downgrading its hubs at Geneva and Basel.
But it will be managed as a “profit centre” in Switzerland by Lufthansa.
The takeover will be achieved in stages, starting with the acquisition of majority shareholding this month and followed by a 49% stake by the third quarter of 2005, providing the deal gets EC approval as expected.
The two airlines say they will start the integration of their operations and timetable from this winter and the take over should be complete by 2006-7.
Lufthansa's chairman and ceo Wolfgang Mayrhuber said the take over would bring “clear benefits for our customers.”
He added: “The merger is not only good for Switzerland and Germany; it is also beneficial for our Star Alliance partners and strengthens the European aviation sector.”