Bloomberg News

Lufthansa Technik Looks at Expanding Maintenance Ventures

March 19, 2013

Deutsche Lufthansa AG (LHA)’s aircraft- maintenance, repair and overhaul unit, the world’s biggest independent provider of the services, may set up more ventures as planemakers add models and to confront new competitors.

Ventures are a means to avoid losses in overhaul operations when a new plane enters the market, and can help win repair licenses from engine makers reluctant to provide them to third parties, August Wilhelm Henningsen, who heads the Lufthansa Technik unit, said in an interview in Hamburg.

“It’s a question of opportunities,” Henningsen said today. “You need to make sure you are big enough to generate economies of scale.”

Philippine Airlines Inc. and Air China Ltd. are among Lufthansa Technik’s partners in the airline industry, and the unit works with London-based engine manufacturer Rolls-Royce Holdings Plc (RR/) in Arnstadt, Germany, servicing the manufacturer’s Trent models that power Airbus SAS (EAD) wide-body airliners. The Rolls-Royce venture may also work on engines supplied to Airbus’s planned A350 model, Henningsen said.

Prices for maintenance and repairs are falling as equipment makers extend offerings in the lucrative after-sales market and new airlines in emerging economies are pushing into the business, Henningsen said at a Hamburg press conference. The industry may eventually consolidate as carriers shed businesses they don’t see as essential to survive, he said.

‘Stronger Competitors’

“The market will have fewer competitors in the future, but stronger ones,‘‘ Henningsen said. ‘‘Turkish Airlines (THYAO) is expanding its MRO operations, and new rivals are arising in China.’’

Sales at the Hamburg-based division fell 2 percent last year to 4.01 billion euros ($5.2 billion) as declining work for its main customer and parent more than offset work outside Lufthansa. Operating profit jumped 24 percent to a record 317.5 million euros, and the number of planes serviced rose 5.8 percent. Spending was also reduced under Lufthansa’s Score profit-improvement program.

Lufthansa Technik is seeking to offer spare parts and engine services for Bombardier Inc. (BBD/B)’s planned CSeries, Henningsen said. Lufthansa’s decision to order the airliner isn’t a prerequisite for the MRO arm to service it, he said.

‘‘We have planes like the new-generation Boeing Co. (BA:US) 737 that we’ve been servicing for 20 years, while Lufthansa has never bought one,” Henningsen said. “Now the situation is similar with Boeing 787. So far, we’ve doing components supply only, while some customers may also be interested in getting line maintenance from us.”

For Airbus’s double-decker A380, the unit has a joint venture with Air France-KLM Group to supply components, a setup that may serve as a model for future deals, he said. The unit is also fixing wing cracks suffered by A380s in Lufthansa’s Frankfurt-based fleet, and in Manila and Beijing for other customers, Henningsen said, declining to identify the clients.

To contact the reporter on this story: Richard Weiss in Hamburg via rweiss5@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net


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