GERMANY – German airline Lufthansa has announced plans to terminate its existing bargaining agreement with employees – including its defined benefit (DB) pension fund – by the end of this year.

In Frankfurt, chief executive Peter Gerber said the costs for retirement provision for its domestic employees alone had increased from €210m to €250m since 2011.

One of the main cost drivers was the guaranteed minimum interest rate of 6-7% for employees set down in the current contract.

Lufthansa said it would replace the agreement with a defined contribution scheme linking returns more closely with capital markets.

In total, DB obligations at the Lufthansa Group amount to €11bn.

The company said another €2.4bn would be set aside for pilots retiring early.

According to a survey by Morgan Stanley, Lufthansa is straddled with one of the largest net pension liabilities as a percentage of market capitalisation in Europe.

The airline offloaded its loss-making subsidiary bmi in 2011 but had to pay £84m (€103m) into the bmi pension fund to provide additional benefits to employees and allow the scheme to enter the UK’s Pension Protection Fund.