The deal, which began with the signing of an accord in July 2014, will see the companies share revenue by allowing them to sell each other's tickets on some routes. It represents the closest agreement such carriers can enter short of a full-scale merger.
The German airline has sought closer ties with Air China to improve its position in the Chinese aviation market as European traffic slows and to stem competition from fast-growing Persian Gulf carriers on lucrative long-haul routes.
"It complements the group of joint ventures Lufthansa has around the world, and it was always our strategic goal to have a joint venture partner in the top five intercontinental markets, and today's joint venture completes that set," Lufthansa chief executive Carsten Spohr told reporters.
The deal, which will also include Lufthansa's units Austrian Airlines and Swiss Air, will initially cover routes from China to cities including Frankfurt, Vienna and Zurich and be eventually expanded to all routes between China and Europe operated by the two carriers.
It will start in the summer of 2017 and no cash investment was committed to the deal.
Lufthansa has in recent years built up a network of revenue-sharing agreements around the globe by striking similar deals with Singapore Airlines, United Airlines and Japan's ANA Holdings.
"There is infrastructure restrictions in China, especially when it comes to slots at the big, important airports in Shanghai and in Beijing and also when it comes to entry points on the Chinese border," Spohr said.
"Joining forces between Air China and Lufthansa will help us to optimize our schedules and, therefore, reduce those infrastructure restrictions which exist without disadvantaging the passengers."
The deal furthers cooperation between the two firms, which have been operating passenger flights under codeshare agreements since 2000 and are partners in the world's biggest airline alliance, Star Alliance. They also have an aircraft maintenance joint venture Ameco Beijing.
Air China's Chairman Cai Jianjiang said that the two firms would share revenues and risks and would endeavor to cooperate in other areas without elaborating.
Air China's domestic rivals have also been forging alliances with overseas peers. Last year, China Eastern Airlines Corp Ltd agreed to sell a 3.55 percent stake to Delta Air Lines Inc.
(Source: Reuters; Reporting by Paul Carsten; Brenda Goh in SHANGHAI; Editing by Jacqueline Wong)
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