Lufthansa Technik risks losing quarter-billion revenues in Russia |

The sanctions on Russia not only affect Russian airlines, but also MRO companies in Europe and across the world. For example, Lufthansa Technik risks losing €240 to 250 million in annual revenues if the Russian market disappears, it said on March 9 during its 2021 results presentation. Lufthansa Technik risks losing quarter-billion revenues in Russia. According to Chairman and CEO Johannes Bussman, Lufthansa Technik has contracts with twelve airlines in Russia and former CIS states - including Redwings and Smartavia - for component and engine services for some 400 aircraft. Some of these aircraft might have been confiscated when outside Russia and are to be returned to leasing companies, which have placed some 550 aircraft in the country. Following the EU and US sanctions, lessors from across the world have requested the return of their aircraft. LH Technik also has a large warehouse and spares position near Moscow in a partnership called Lufthansa Technik Vostok Services. The value of these spares isn’t known. “It remains to be seen how the Russian government intends to deal with the ownership of these aircraft. There are media reports about plans the nationalize these assets, but I have no further information about that”, said Bussman. “But have to take into account that after a nationalization, we will lose these assets. We have to wait and see how we deal with this situation if a decision has actually been made.” There are currently no Russian airlines in maintenance but some are engines are currently being overhauled. These are owned by lessors and returned to them in line with the EU sanctions. Russian could decide to continue flying Western aircraft inside the country and cannibalize some for spares if these are needed: “All Russian airlines are cut off from our daily support. This would mean that within a few weeks, an aircraft would be operable anymore, although they will always have the option to use parts from other aircraft. It’s difficult to say how long they can continue flying, that depends on how often they will fly.” LH Technik has also cut off its logistical support to an Italian subsidiary of the Sukhoi SuperJet program, notably the support of the engines that are made by a joint-venture company between NPO Saturn and Safran. Positive Adjusted EBIT after tough restructuring Lufthansa Technik reported an Adjusted EBIT of €210 million in 2021 compared to €-383 million in 2020. Revenues increased to €4.003 billion from €3.747 billion, of which €2.409 billion on its key market in Europe, the Middle East, and Africa, €1.058 billion in the Americas, and €536 million in Asia. Although there were signs of recovery, 2021 was another difficult year for the company, as it continued a drastic restructuring from eight business units to just five segments. LH Technik reduced its workforce by 2.176 to 20.569 but has started recruiting again as the industry recovers. Bussman said that LH Technik plans to recruit 1.500 new staff, of which 700 will be based in Germany, 600 in the Americas, and 200 in Asia. He hopes to welcome back employees that were laid off in the past two years but also is keen to attract a new generation of technicians and engineers that ideally fit the company’s digital approach, notably the Aviatar project. Aviatar is LH Technik’s manufacturer-independent services program that offers predictive health analysis for an airline’s fleet. Some 3.000 aircraft are now supported, including the entire Boeing 737/MAX fleet of United Airlines but soon its Airbus A320s and Boeing 777s as well. Other customers are Etihad, Sichuan Airlines, and TAP Portugal. In close cooperation between engineers and data scientists, Aviatar offers solutions to reduce operational disruptions and hence costs and increase the sustainability of technical operations. In 2021, LH Technik secured contracts with 42 new customers like Greater Bay in Hong Kong, Flyr in Norway, Flair in Canada, and Wizz Air Abu Dhabi and signed 621 contracts valued at $4.7 billion. It has now a customer base of 800 with 4.200 aircraft. The new clients further diversified the company’s customer base, which is now eighty percent outside the Lufthansa Group compared to 65 percent two years ago. Partial divestiture planned for 2023 As Lufthansa CEO Carsten Spohr and CFO Remco Steenbergen confirmed last week during the 2021 results presentation of Lufthansa Group, the airline plans a partial divestiture or public offering of Lufthansa Technik in 2023 to make it more profitable. Last year, the company already sold maintenance bases in Shannon, Frankfurt, and Brussels to external companies. Bussman, who will retire in July, said he welcomed this decision "because only then, the potential of Lufthansa Technik can be fully exploited and the company is developed further." He was unable to share details but part of the plan is to enter the defense market in Germany and Europe.

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