Brussels - The European Union's competition commissioner on Friday paved the way for Lufthansa to become Europe's largest carrier by conditionally approving the German company's takeover of financially troubled Austrian Airlines.

The conditional clearance decision must be submitted to a council representing all 27 EU member states, with plans for a final proposal to be presented to the representative commissioners "as soon as possible," read a statement from the office of EU Competition

Commissioner Neelie Kroes.

The approval comes after Deutsche Lufthansa AG agreed to take steps to minimize competition concerns raised by the potential merger. The Lufthansa group already includes Swiss International Air Lines AG and Belgian carrier Brussels Airlines.

Lufthansa chief executive Wolfgang Mayrhuber welcomed the EU's decision. The European Commission "underpins its strategy of giving Europe's aviation a chance to stand its ground in the long term," he said.

Austrian Airlines AG was brought to the brink of bankruptcy as it failed to streamline sufficiently in recent years to combat competition from low-budget carriers.

"This is good news for our customers and our company," Austrian Airline chief executives Andreas Bierwirth and Peter Malanik said. As a member of the Lufthansa Group, their company's finances would improve, they said.

The ailing Austrian flagship carrier has started to implement a cost-cutting package, including slashing 1,000 of its staff of 8,000, in an effort to make the company profitable again.

"Lufthansa is a big opportunity for us," Bierwirth and Malanik said. "But it will be up to us to throw the lever so we can translate this thrust into speed and altitude. We have to do our homework."

The deal would create Europe's biggest airline group in terms of passenger numbers. In 2008, Austrian Airlines and the Lufthansa group transported a combined 81.3 million passengers. The French-Dutch carrier Air France KLM counted 75.4 million guests in the same period.

Lufthansa has said it would keep Austrian Airline's brand. Vienna is to retain its importance as a hub.

Lufthansa is taking over the Austrian state's 42-per-cent stake as well as privately held shares for a maximum total of 382 million euros (545 million dollars), depending on Austrian Airline's future business performance.

The Austrian government agreed to take over 500 million euros of Austrian Airline's debt, which totalled nearly 2 billion euros at the end of March.

The Frankfurt-based airline is around 10 times larger than the Austrian flag carrier, in terms of Lufthansa's headcount of 108,000 and its 2008 sales of 24.9 billion euros.

The German airline made a profit of 599 million euros last year, compared to Austrian Airline's loss of 430 million euros.(dpa)