The companies, which launched their Flybe Nordic joint venture last year, said on Tuesday Finnair would transfer 12 Embraer aircraft, along with around 200 cabin crew, to Flybe (FLYB.L). Flybe will take over the operations in October, although it is not yet decided which routes will be affected.

Finnair (FIA1S.HE) has been looking for ways to overhaul its business in Europe, where it faces fierce competition from discount airlines. The company wants to focus instead on profitable routes to Asian destinations such as Japan, China, and Singapore.

"This move is a part of our strategy to restore Finnair's profitability," Chief Executive Mika Vehvilainen said.

He also said the company would aim to boost the profitability of the remaining two thirds of its European flights through more deals or cost cuts.

Finnair shares were up more than three percent by 0855 GMT and Flybe's shares were up four percent.

In the past four years, Finnair has reported net losses totalling around 250 million euros. The economic downturn, low-cost competitors and high fuel prices have eroded profits of many national carriers around the world.

Finnair said it was on track to achieve annual cost savings of 140 million euros by 2014, although the latest deal would not mean any immediate job cuts.

Under this latest deal, Finnair will pay a fixed amount for Flybe Nordic to operate the aircraft on the routes, but will still take care of sales and marketing.

Flybe Nordic, owned 60 percent by Flybe and 40 percent by Finnair, agreed last July to buy Finnish Commuter Airlines for 25 million euros.

Finnair, 55.8 percent owned by the Finnish government, has faced an uproar this year over executives' pay, particularly over bonuses for top officials when the company was cutting jobs. The government has pushed the airline to overhaul its board after the executive pay row.

The government has previously said it might trim its stake.

(Reporting By Eero Vassinen; Editing by Mike Nesbit and Jane Merriman)

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