How Lufthansa’s maintenance crews profit from low-cost airline competitors

Deutsche Lufthansa AG’s maintenance arm said it’s increasingly targeting contracts with low-cost carriers as collapses and consolidation erode its traditional customer base.

Lufthansa Technik is “very eager” for more discount clients to add to Budapest-based Wizz Air Ltd., Norwegian Air Shuttle ASA and Ryanair Holdings Plc, Europe’s top no-frills operator, Chief Executive Officer August Wilhelm Henningsen said.

“The structure of the market is changing,” Henningsen said at a press briefing in Hamburg, where Lufthansa Technik is based. “In the past we made a living on many small and medium- sized airlines, but the Malevs and Spanairs are vanishing.”

Europe’s sovereign-debt crisis is hurting network airlines still struggling after the global recession, with casualties including Technik clients Spanair of Barcelona and Malev Zrt., the Hungarian flag carrier, which collapsed in the first quarter last year. LOT Polish Airlines SA is currently for sale, while Scandinavian governments may seek bids for tri-national SAS AB.

Lufthansa Technik also serves discount carriers including Bangkok-based Nok Airlines, Peach Aviation Ltd of Japan, Go Airlines India Pvt. Ltd. and Mexico’s Volaris Airlines.

The business competes mainly with SR Technics Switzerland AG, once part of the defunct Swissair and now owned by Abu Dhabi’s Mubadala Development Co., together with the maintenance arms of Air France-KLM Group, Europe’s biggest airline, and Israel Aerospace Industries Ltd.

EasyJet loss

While Lufthansa Technik provides engine-wash services for Luton, England-based EasyJet Plc, Europe’s second-biggest low- cost carrier last year terminated a maintenance contract in Switzerland, prompting the closure of a site in Basel.

The bulk of EasyJet’s fleet is serviced by SR Technics, while the contract with Ryanair currently covers only Charleroi in Belgium, with the Dublin-based company meeting most of its maintenance requirements at in-house hangars.

Lufthansa Technik is a more stable earnings contributor than the group’s airline operations, where demand varies with the European economy, contributing an operating profit of 81 million euros ($108 million) in the first quarter, the most among five major units. Henningsen expects annual earnings to remain stable following a record 12-month result in 2012.

The division isn’t being spared in an ongoing efficiency drive at Europe’s second-biggest carrier, having being set a contribution of 110 million euros toward a targeted 1.5 billion euro profit-gain by 2015.

Editors: Chris Jasper, Benedikt Kammel. To contact the reporters on this story: Richard Weiss in Frankfurt at rweiss5@bloomberg.net; Nicholas Brautlecht in Hamburg at nbrautlecht@bloomberg.net. To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net.