Lufthansa is terminating a long-standing cooperation agreement with its regional affiliate Augsburg Airways.

The decision is part of Lufthansa’s broader initiative to restructure its European direct services operation.

Augsburg has been flying for Lufthansa since 1996, having given up its own scheduled services. The airline is based at Munich Airport and has a fleet of 15 aircraft–six Embraer 190/195s and nine Bombardier Q400s--to feed the Lufthansa hub.

The current contract, which expires in October 2013, will not be extended, says Lufthansa. Augsburg says the decision is unexpected.

Augsburg’s future is now unclear. The carrier originally was founded by the Haindl Corporation in the city of Augsburg as an executive aircraft provider that grew into a scheduled airline.

The airline is owned by billionaire Lutz Helmig.

Augsburg is the second regional airline to be dropped by Lufthansa; Stuttgart-based Contact Air lost its contract flying this month, was subsequently bought by OLT Express and is now operating as an independent regional carrier under the OLT brand.