British Airways dropped plans to set up a new, lower-cost unit at London Gatwick airport, setting up a high-stakes showdown with its pilots union, which balked at new contract terms.

The airline has insisted on setting up a separate division for the short-haul business even though it would remain branded as BA, the flagship of the IAG SA carrier group. The new unit, announced in August, was set to bring back operations terminated at the start of the coronavirus pandemic, but the airline said it would only move forward with less expensive contracts.

“After many years of losing money on European flights from the airport, we were clear that coming out of the pandemic, we needed a plan to make Gatwick profitable and competitive,” BA said in a statement Thursday. The company said it would find alternative uses for its takeoff and landing slots.

BA’s stance puts pressure on the union while leaving room for compromise ahead of the Sept. 30 end of the U.K.’s Coronavirus Job Retention Scheme, which has helped pay for furloughed staff. The Balpa pilots union said it remains open to negotiations, suggesting a deal was still possible.

“Balpa was unable to reach an agreement with British Airways on revised terms and conditions for London Gatwick short-haul that was acceptable to our members,” Martin Chalk, the union’s acting secretary, said in an email.

Gatwick Pullback?

For now, BA said it will suspend most of its short-haul operations from Gatwick, and offer only a handful of domestic flights that feed longer journeys from the hub. Since the start of the pandemic, the carrier has been focused on its main base at London Heathrow, while it also offers regional flights from London City.

Proceeding with a plan to pull out of Gatwick would cause a major shakeup at the airport. BA had the second-largest presence behind discounter EasyJet Plc, and its exit would leave the hub with no flights to Algiers, Cologne/Bonn in Germany, Genoa in Italy, and Manchester, according to Cirium data.

Rival low-cost carrier Wizz Air Holdings Plc has been eager to snap up Gatwick slots, and made a recent proposal to merge with EasyJet that was rejected, Bloomberg reported this month.