Lufthansa accepts mediator's proposal in pilot pay dispute

FRANKFURT (Reuters) - Lufthansa said it had accepted the recommendations made by a mediator in a long-running row over pay with pilots' union Vereinigung Cockpit, which will add around 85 million euros ($90 million) to its annual costs.

The German flagship carrier said the recommendations included pay increases for 5,400 pilots by an overall 8.7 percent in several steps as well as one-time payments worth a total 30 million euros.

To make up for the added expenses, Lufthansa said 40 new aircraft due for delivery would be staffed not by crew on collective labour agreements at its core brand, but by crew from elsewhere within the group.

Lufthansa is trying to cut costs but pilots have walked out 15 times since early 2014 over disputes with management on topics including pay and early retirement, costing the carrier hundreds of millions of euros in lost profits.

Before the mediation process, the pilots had asked for an average annual pay increase of 3.7 percent over a five-year period back-dated to 2012, which is when their last collective bargaining contract with Lufthansa expired. The pilots had said altogether these increases would amount to a rise of nearly 20 percent on current pay.

Lufthansa had proposed an increase of 4.4 percent in two instalments in 2016 and 2017, plus a one-off payment worth 1.8 months' pay.

Mediator Gunter Pleuger, a former diplomat, presented his proposal behind closed doors on Friday.

The two sides had previously tried to negotiate a wide-ranging deal on a host of topics, including pay, early retirement, conditions and low-cost expansion, but last year decided to tackle each topic individually.

Lufthansa said on Wednesday that talks on the outstanding issues would continue.

($1 = 0.9479 euros)

(Reporting by Maria Sheahan; editing by Susan Thomas and Victoria Bryan)