Lufthansa put an end to a potentially crippling strike by ground and engineering staff on Friday by increasing a pay offer that will set the salaries of more than a third of its workers until early 2010.

The German airline’s willingness to reach a deal had grown as lack of even simple maintenance grounded an increasing number of aircraft – the number of cancelled flights rose from 70 on Tuesday to 130 yesterday.

A quick resolution to the standoff should help Europe’s second-largest airline shift its focus back to industry woes, although it is dealing with high oil prices and a slowing economy better than rivals.

But labour relations could come back onto Lufthansa’s agenda towards the end of the year as 14,000 cabin crew negotiate pay. They signalled that they would not accept the package agreed with 34,000 ground workers.

In a compromise on Friday, the fifth day of the strike, Lufthansa raised its pay offer to 7.4 per cent over 21 months from 6.7 per cent, and ground staff dropped their demands for 9.8 per cent over 12 months.

Stefan Lauer, Lufthansa personnel director, said the agreement with the Verdi services union “wasn’t painless for the parties involved” and would add about €100m ($155.6m) in costs from the middle of next year.

Erhard Ott, Verdi’s chief negotiator, said workers would resume work today. However, both sides expected cancellations to last over the weekend and flight services to return to normal only in a week or two.

Mr Lauer said the strike would cost the carrier “a double-digit euro sum” although he gave no hint that this would impinge on the carrier’s goal of matching the €1.4bn in operating profit seen in 2007.

Investors reacted positively to the deal. Lufthansa stock was trading 2.2 per cent higher at €15.10 early afternoon, before the entire market slipped on worries about the US economy.

Indeed, by Lufthansa’s own reckoning, the pay deal is equivalent to two successive annual pay rises of 4.2 per cent, and only fractionally higher than the annualised rise of 3.8 per cent it last offered.

This is a long way off the 9.8 per cent annual pay increase initially demanded by Verdi, and even further off the 15 per cent pay demand that the cabin-staff union Ufo is considering as of January 1.

“We want a bigger pay rise for cabin crew” than ground staff achieved, Joachim Muller, Ufo chief negotiator, said. Lufthansa would be forced to renegotiate its deal with Verdi should he succeed.

Shares in Lufthansa closed down 0.4 per cent at €14.71.

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