Turkish Airlines agreed with a union to cut pilot wages by half through 2021 and reduce salaries for other workers to help mitigate the impact of the coronavirus pandemic on its finances.

President Recep Tayyip Erdogan last week brokered the agreement between the national carrier and labour groups on condition that the state-run company review its finances every six months, according to Ali Kemal Tatlibal, head of the Hava-Is union, which represents around 75 per cent of the airline’s 30,000 employees.

Like carriers worldwide, Turkish Airlines has been hit by a combination of border closures and a slump in passenger demand as the virus surged across the globe. The airline reported a loss of 2.23 billion liras ($303 million) in the second quarter, while passenger numbers declined by 61 per cent in the January-July period from a year earlier. Unlike many peers, the carrier has refrained from job cuts and applying for a government bailout.

The deal should be seen as positive news for the airline, which is also known by its Turkish initials THY, VTB Capital said. It has a ‘buy’ recommendation for the shares with a 12-month target price of 17 liras, indicating a 70 per cent upside from Monday’s close.

The salary reduction could decrease the 2021 monthly cash burn by some 14 per cent, from $350 million currently, analysts including Elena Sakhnova said in an emailed note.

Virus woes

After the pact, THY will end the so-called short-term employment framework under which staff received a fraction of their salaries as planes remained grounded.

On Tuesday, Turkish Airlines confirmed the protocol with the union, saying that the wage-cut goes into effect this month.

Under the agreement, so-called seniority payments for all employees will be cut by 30 per cent, while pilots will receive a 50 per cent reduction in flight compensations. Cabin crew will see compensation cut by 35 per cent and ground employees by 30 per cent, THY said.

The stock rose more than 1 per cent on Tuesday to trade at 10.67 liras as of 10:58 a.m. in Istanbul, trimming this year’s losses to around 26 per cent.