UPDATE 1-DHL to pay $260 mln for worker severance

(Adds detail on DHL's U.S. operations)

NEW YORK, Sept 9 (Reuters) - Express cargo carrier DHL [DHL.UL], a unit of Deutsche Post AG (DPWGn.DE), said on Tuesday it will pay $260 million in severance and benefits for employees affected by a restructuring of its loss-making U.S. operations.

A pending agreement with United Parcel Service Inc (UPS.N), under which UPS would haul DHL packages within the United States and between the U.S., Canada and Mexico, would allow DHL to reorganize its ground network and shift activity from two current providers, contractors ABX Air Inc, a unit of Air Transport Services Group Inc (ATSG.O), and ASTAR Air Cargo Inc.

Air express volumes have declined in recent years and conditions in the overnight air sector are "generally deteriorating," while costs have soared, DHL said. Its U.S. operations are losing $5 million a day.

DHL has invested some $5 billion in the U.S. operations since 2003 to compete with UPS and rival FedEx Corp (FDX.N). The proposed agreement with UPS would not involve a merger or any transfer of assets and would not violate U.S. antitrust laws, DHL Express Global CEO John Mullen told a U.S. House of Representatives committee on Tuesday.

Deutsche Post, a mail and logistics group, said last week it was making progress in talks with UPS. (Reporting by Nick Zieminski, editing by Gerald E. McCormick)