Lufthansa has initiated its bid for the ailing Austrian Airlines with the carrier"s board approving a plan to make it Europe"s biggest carrier.

The Frankfurt-based airline said it would be willing to pay around EUR377 million euros (USD$476 million) in a deal based on performance. The carrier conveyed its interest in Austrian in August, the pair have been holding exclusive talks on this deal since November.

The German carrier said it would pay an initial EUR366,000 to buy the 42 percent stake held by the Austrian government, assuring a further EUR162 million for it eventually, provided Austrian"s future performance and Lufthansa share price facilitated it.

The carrier said the outstanding shares not owned by the Austrian government would then cost Lufthansa EUR215 million in addition estimated at 4.44 euros per share.

Shares in AUA rose up by 40 percent on the news to 3.70 euros.

Lufthansa added that despite the tough challenges facing the industry, the outlook for the combined company remained good.

A statement by the firm read, "The consequences of the financial markets crisis and its effects on the real economy have a major impact on the aviation industry. Structural changes increase the likelihood of Lufthansa and Austrian Airlines sharing a brighter future."