Air Berlin agrees on cross-shareholding with TUIfly

FRANKFURT, March 27 (Reuters) - Air Berlin (AB1.DE) said it had agreed to take a stake of up to 20 percent in TUI Travel's (TT.L) German airline TUIfly, and TUIfly will take up to 20 percent in Air Berlin.

The companies had previously announced the proposed deal, under which Air Berlin would take over TUIfly's city route sector. The charter sector, with 21 airplanes, would remain with TUIfly, Air Berlin said late on Friday.

Air Berlin had already said on March 17 it had agreed on a cross-shareholding with TUIfly, which would help consolidate the German airline industry.

TUIfly has 41 aircraft flying to destinations across Europe as well as to beach vacation spots such as the Canary Islands.

The agreement was pending regulatory approval, Air Berlin said.

TUI Travel had been seeking a partner for TUIfly to lower costs for ground facilities, maintenance and catering.

Over the past year talks over possible combinations of different airlines in Germany have collapsed.

A year ago, TUI Travel neared a deal to merge TUIfly with Lufthansa's (LHAG.DE) Germanwings, while Air Berlin had proposed a marriage to Thomas Cook Group's (TCG.L) Condor airline.

Then Air Berlin left Condor at the altar as the regulatory approval process for the deal dragged on, and Condor joined Germanwings and TUIfly in three-way aviation talks.

In September, the talks started falling apart and a deal was never completed.

Now, Air Berlin and TUIfly plan to take stakes in each other to test a new pairing that would give Air Berlin access to routes to Italy, Cologne and Stuttgart. (Reporting by Maria Sheahan; editing by Carol Bishopric)