Earlier efforts to privatise Olympic have failed

The new carrier - to be called Olympic Airlines - will employ only 1,800 people, with the rest of the present 6,100-strong work force having to work in ground services under the Olympic Airways name.

The government - which hopes to relaunch the carrier before next year's Olympic Games to be held in Athens - says the move is the only way to save the airline from bankruptcy.

Some 40 flight attendants called in sick on Thursday in protest at the proposals after a strike was declared illegal, leading Olympic to charter planes and crews from other carriers.

The disruption continued into Friday with the cancellation of two flights from Athens to Copenhagen and Brussels and delays to many Olympic services.

"Around 200 passengers have been affected - we've been able to change their dates of departure," said Olympic spokesman Nicolas Saroukos.

Action to continue

Union officials say more industrial action is planned.

"The board laid off 25 people yesterday (from those participating in the action), and when there are lay-offs, there's no way we sit tight," said union official Vassilis Mourikis.

Olympic, which has debts of about half a billion euros, was seen as Europe's most vulnerable airline even before the slump in global passenger numbers triggered by the 11 September attacks.

Two previous attempts at privatising the carrier have fallen through in the past two years after key bidders pulled out.