The national carrier, Swiss, and the former Crossair pilots union have agreed to end their ongoing dispute.
The Swiss Pilots Association said it accepted the firing of 559 former Crossair pilots and would not insist on the application of a court ruling that threatened to derail the company.
Martin Gutknecht, a Swiss Pilots Association spokesman, told swissinfo that pilots who lose their jobs will receive between SFr85,000 and SFr140,000 in redundancy pay.
"The remaining pilots cannot be fired until the end of the general contract in October 2005," Gutknecht said.
Gutknecht said it was up to individual pilots to either accept the offer or seek further legal action against Swiss.
"We will recommend nothing. So every single pilot has to decide," he added.
Swiss also announced on Wednesday that it would abandon plans to set up its Swiss Express regional subsidiary as part of the deal struck with pilots' unions.
Lloyd Brown, a London-based aviation analyst with Ernst & Young, told swissinfo that the deal was "absolutely critical for Swiss".
"Without this they couldn't have gone on with the restructuring plan they announced, because the court of arbitration ruling would have made that impossible," Brown said.
Ready for recovery
The deal clears a major hurdle facing the airline's management, as the carrier battles to find around SFr500 million ($364 million) in cost savings.
Swiss is currently losing more than SFr2 million per day and is running dangerously close to becoming technically insolvent under Swiss corporate law.
The head of the company, André Dosé, last month appointed the British bank Barclays to find investors prepared to inject SFr500 million of fresh capital to keep the company running.
Last week Swiss announced plans to slash 25 per cent of its destinations this autumn - almost a month after declaring it would cut its fleet and staff by a third.
The announcement comes a month after Swiss said it was cutting one third of its fleet and a third of its staff.
Brown said Swiss was also under pressure to resolve the dispute from potential airline partners.
"A lot of airlines have already said to them without getting their finances and house in order they wouldn't be interested," he said.
He also predicted that by resolving the dispute with its pilots, Swiss was more likely to conclude deals with other unions.
"Now the pilots are on board and prepared to sign up to the restructuring plan, other unions are likely to follow."
The long-running dispute with the airline’s two pilot unions has been one of the biggest challenges facing the 15-month-old carrier.
Ever since Swiss was formed from the wreckage of the collapsed Swissair and the regional carrier Crossair, pilots from both former airlines have battled with management.
Last month Swiss was ordered by an arbitration court to immediately reinstate 169 sacked former Crossair pilots.
The court also ruled that Swiss would have to share future redundancies equally between former Crossair and Swissair pilots.
Dosé had said the decision threatened the airline’s survival and he called on unions to find a compromise by July 15 – or face the cancellation of all pilots' contracts.
He also said pilots would have to accept a ten per cent wage cut.
Clearing the decks
Swiss said that other talks with the cabin crew union were still ongoing, but should be concluded soon. Negotiations with ground staff have so far not led to an accord.
Analysts had warned that resolving the pilots dispute was vital for Swiss if it hoped to attract fresh investors and enable the carrier to find new partners.
Last weekend a Swiss Sunday newspaper reported that the German carrier, Lufthansa, had made a firm offer for Swiss - a claim that was dismissed by Lufthansa.
By resolving its pilots' dispute, Swiss may become more attractive as a potential partner.
swissinfo, Jacob Greber in Zurich
Swiss has settled a long-running dispute with its pilots' unions.
The Swiss Pilots Association has accepted the sacking of 559 former Crossair pilots.
The Association will also forgo its right to insist on a recent court ruling forcing Swiss to reinstate some of the sacked pilots.
In return, sacked captains will receive a one-off payment of SFr140,000. Co-pilots will receive SFr85,000. Foreign pilots will get SFr50,000.
The redundancies are expected to cost Swiss up to SFr60 million.
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