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A Crack Navigator And Lufthansa Is On Course


Transportation

A CRACK NAVIGATOR--AND LUFTHANSA IS ON COURSE

German travelers are delighted: Lufthansa is offering them a good deal. Passengers willing to meet certain restrictions can soon fly tourist class to Munich from Cologne or Hamburg for as little as $62 one way, down from $121 now. The new service, dubbed Euro Shuttle, will offer 20% discounts to the briefcase brigade of regular business travelers and eventually branch out elsewhere in Europe. Euro Shuttle will also feature faster ground service with self-service check-in.

It's an innovative plan from an airline long known for its stolid ways. But Chief Executive Jurgen Weber, a 53-year-old engineer and former head of technical services, has transformed the German national carrier. In less than three years, he has coaxed Lufthansa's unions into accepting deep staff cuts and paved the way for Lufthansa's liberation from government control. The reforms should soon restore profitability to Lufthansa after years of losses. And the rescue comes just in time: By 1997, all European Union airline markets will be fully deregulated. Already, British Airways PLC has an affiliate in Germany, Deut- sche BA, which flies domestic German routes and vows to match any fare cuts by Lufthansa.

"CREDIBLE, HONEST." As Lufthansa prepares for this new era, Weber has a bleakly simple formula for survival: "Our people," he says, "have to work more for less money." That idea was alien to the company culture when he assumed command in 1991. It posted a record $280 million loss that year and seemed destined to remain on permanent life support from the state. That was a future neither Weber nor the federal government wanted. The biggest challenge was to convince the unions that they did not want it, either.

So Weber presented Luf- thansa's plight as one of imminent bankruptcy without a radical makeover, says Manfred Martzke, a top negotiator for the Public Service & Transport Workers' Union and a Lufthansa supervisory board member. Weber's direct manner helped too. Says Martzke: "He is credible, honest, and a Lufthansa man to his fingertips." In August, 1992, Weber won a wage standstill of one year--"the first company in Germany" to do so, he points out. Then he cut a deal to slash his payroll by 8,400 people from 48,100. Later, in a key move for the turnaround, Weber set up Lufthansa Express, a forerunner of Euro Shuttle, with 20% lower pay for its crew and work rules that allowed greater flexibility.

After cutting operating costs by nearly $1 billion, Lufthansa should report a profit this year of some $140 million on sales of $11.5 billion. The Bonn government has also agreed to assume about $1.4 billion in pension obligations. With the airline basking in good news, Lufthansa shareholders meeting on July 6 were expected to approve a new stock issue to raise $1 billion for the airline. In a separate move, the federal government will slash its stake to about 38% this fall, from 51.4% now. The government eventually will sell all its shares.

CONTRACT PLAYERS. That's not to say Bonn will stop running interference. In a new air treaty with the U.S., it wangled a provision blocking carriers from adding new flights on key transatlantic routes through 1997. The same treaty clears the way for an alliance between Luf- thansa and United Airlines Inc. A key feature of the alliance: code-sharing, whereby Lufthansa passengers can transfer to UAL planes operating under the same flight number in the U.S.

With Lufthansa out of the hole, the challenge now, according to Chris Avery, aviation analyst at Paribas Capital Markets in London, is "to reduce costs not just once, but to keep on doing it." To achieve that goal, Weber is seeking to control costs better through stricter accounting procedures. If it turns out that in-house operations are too expensive, Weber would eventually like to invite outside contractors to run all of Lufthansa's services except the core airline operations.

Such a move could anger the unions, which insist that Weber pledged to find only "internal solutions" to Lufthansa's problems. Union trouble, coupled with some tough fare wars, could certainly unsettle the flight plan. But for now, Weber's Lufthansa is looking like one of the scrappiest competitors in Europe's new skies.

THE NEW LUFTHANSA

PRIVATIZED

A sell-off this year will reduce the government's 51.4% stake to 38%, which will be sold later

SLIMMER

Won labor union agreement to slash employment by 17% over two years

MORE COMPETITIVE

New no-frills shuttle service across Europe will offer cut-rate fares

PROFITABLE

Expected to earn $140 million this year, after losing $580 million since 1990

DATA: PARIBAS CAPITAL MARKETS, BUSINESS WEEKJohn Templeman


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