Ryanair has agreed to acquire 75% of Laudamotion for €50 million ($62 million).
The budget carrier says it will initially buy 24.9% of the Austrian regional carrier and plans to increase the stake to 75% subject to EU competition approval.
Ryanair will provide another €50 million for "year one start-up and operating costs", along with "financial and management support", and will wet-lease six aircraft to Laudamotion to allow it to "complete an extensive 21 aircraft flying programme".
Under the agreement, Laudamotion owner Niki Lauda will chair the airline's board and oversee the implementation of his strategy to "build a successful Austrian low-fares airline", says Ryanair.
Vienna-based Laudamotion will begin services from Austria, Germany and Switzerland to leisure destinations in Italy, Greece and Spain this summer, using assets acquired from the administrators of Niki earlier this year.
Ryanair estimates that Laudamotion can reach profitability by its third year of operations and grow its fleet to at least 30 Airbus aircraft "if successful".
"We look forward to working in partnership with Niki Lauda to successfully develop his vision for a successful Austrian low-fares airline to service the schedule and charter markets," states Ryanair chief executive Michael O'Leary.
"The Laudamotion air operator's certificate will support a fleet of Airbus aircraft, which is something we have hoped to develop within the Ryanair group for some years."
Niki Lauda states: "I have always stood up for competition and have opposed monopolies. Therefore I am thrilled that in the partnership with Ryanair, Laudamotion will be able to establish itself as a strong competitor and to grow quickly and sustainably.
"A new player in the aviation market is born and I am looking forward to offering our passengers an extensive route portfolio at competitive airfares."