Key Points:

  • Lufthansa suspends the proposed sale of a minority stake in its subsidiary, Lufthansa Technik, focusing instead on independent growth due to increasing maintenance demands.

  • Initially considering selling up to 20% of Technik, valued at approximately €8 billion, Lufthansa reverses course, influenced by the strategic value of the maintenance unit in the face of industry engine issues.

  • Despite interest from major private equity firms, Lufthansa opts to maintain complete ownership of Technik, which is experiencing robust business growth and digital integration.

Lufthansa's Strategic Pivot: Maintaining Lufthansa Technik

German airline group Lufthansa has decided to retain its maintenance and repair subsidiary, Lufthansa Technik, abandoning earlier plans to sell a part of the company. In a recent statement, Lufthansa emphasized its intention to pursue Technik's growth plans independently, citing a surge in demand for engine maintenance services. This decision marks a significant shift in strategy for the airline, which had previously contemplated divesting up to 20% of Technik, implying a valuation of around €8 billion for the subsidiary.

The reversal in Lufthansa's approach underscores the heightened strategic importance of Lufthansa Technik. The subsidiary, renowned as the largest business of its kind globally, has gained significant value due to ongoing challenges faced by manufacturers, particularly in engine production. This development reaffirms Technik's integral role within the Lufthansa Group.

Lufthansa's Financial Maneuvers and Market Response

Lufthansa's decision to retain full ownership of Technik comes amidst the airline's asset sales and expansion efforts, including a bid to acquire Italy's ITA Airways. Despite an initial dip following the announcement, Lufthansa's shares experienced a 1.3% rise in Frankfurt trading. The airline's stock performance this year has notably outpaced the Bloomberg World Airlines Index, reflecting investor confidence in Lufthansa's strategic choices.

The group had engaged JP Morgan Chase & Co. for advisory services on the Technik stake sale, intended to reduce pandemic-induced debts and facilitate business growth. This move attracted significant interest from private equity firms, including Advent International, CVC Capital Partners, Bain Capital, and Blackstone Inc. Reports suggested that Bain and Advent had emerged as the final contenders for the stake, following CVC's withdrawal.

Sale Cancellation Surprises Potential Buyers

The unexpected cessation of the sale process, particularly after advanced negotiations with Bain, has surprised many involved parties. Sources indicate that discussions with Bain had progressed, fostering an expectation of a potential agreement by year's end. However, Lufthansa's statement did not clarify the reasons behind the breakdown of talks, and Bain has not commented on the development.

Lufthansa Technik's operations span a wide range of services, including maintenance, repair, modification, and overhaul of civil aircraft, catering to various sectors from commercial to VIP jets. The division has made significant strides in digitalization this year, acquiring Swiss AviationSoftware and integrating Lufthansa Industry Solutions. Lufthansa Technik anticipates another record year in 2023, reinforcing the company's decision to maintain its complete ownership and leverage its growth trajectory.