UPDATE 2-UK's easyJet sets up new airline in Austria to protect flights post-Brexit

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LONDON, July 14 (Reuters) - British budget airline easyJet said on Friday it would establish a new airline in Austria to protect its flying rights in the European Union once Britain leaves the bloc.

The new airline, easyJet Europe, will be headquartered in Vienna. The budget airline must have a licence and an air operator’s certificate (AOC) in an EU member to allow it to continue flying between and within EU countries after Brexit.

The new airline licence in Austria will protect these flights regardless of what happens in negotiations over the status of flights between Britain and the EU after Britain leaves the bloc in March 2019.

EasyJet said it will re-register 110 planes to fly under the new AOC and it planned to complete this process before Britain leaves the EU. It has said the process will cost 10 million pounds ($13 million), mainly for the re-registering of aircraft.

“The accreditation process is now well advanced and easyJet hopes to receive the AOC and licence in the near future,” easyJet said in a statement. The airline reports third-quarter results next Thursday.

EasyJet is headquartered in Luton, 30 miles north of London, and said jobs there would be unaffected. The airline already has a Swiss licence and AOC.

Lufthansa also selected an Austrian operating licence for its budget unit Eurowings. Lufthansa management drew criticism from German unions for the move which they viewed as a way of avoiding more expensive German labour contracts.

EasyJet said it had selected Austria because of its strict implementation of European safety regulations and the fact that it should be able to handle large numbers of planes thanks to its experience with other major airlines.

The move will create jobs in Vienna, easyJet said, though most of the roles at the new airline would go to people based in EU countries already. Austria welcomed the airline’s decision.

“The quality of the country won in competition with 27 other European countries, not tax dumping. The better one won, not the cheaper one,” Austrian Chancellor Christian Kern said in a statement.

“This is a victory that was heavily fought for, but which is all the more beautiful for Austria.”

Brexit poses many challenges for the aviation industry, with owner Dart Group on Thursday saying it would alter its articles of incorporation to ensure shareholder rules on ownership of airlines were met post-Brexit.

EasyJet said it was “confident that it will remain majority EU owned post Brexit.” Founder Stelios Haji-Ioannou and his family, who account for 33 percent of easyJet’s shares, hold Cypriot passports.

The airline reiterated that it would continue to push for a deal between Britain and EU to enable flights to continue and keep the aviation market as open as possible.

A spokeswoman for Theresa May said the decision was a commercial one for easyJet, and reiterated that the government would aim to get the best Brexit deal for business.

$1 = 0.7714 pounds Reporting by Alistair Smout in London, Shadia Nasralla in Vienna and Victoria Bryan in Berlin; editing by Kate Holton and David Evans