Lufthansa Technik - Growth of Technik Defies Market Trend

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By John Morris

Few companies in aerospace have managed to increase their business in the face of a declining market, but Lufthansa Technik is one of them.

The world’s largest provider to the airlines of MRO and maintenance services is just completing a two-year, EUR 310 million expansion. One might expect huge excess capacity as air travel declines and airlines defer maintenance.

But that’s not really the case, says August Henningsen, who has just won another five-year term as CEO of the Hamburg-based company.

“Sure we will see an impact from the downturn. It has been relatively mild from our customers, but it will severely impact other MROs,” he told Show News. “Now we have to drive slowly and navigate through this crisis.”

Lufthansa Technik’s expansion has been both global and cautious. Investment in new facilities has been based on their viability over the long term, not in reaction to a boom. And at the same time Henningsen has directed that the company achieve global economies of scale that mean it can price its services competitively, still win new business, and turn a good profit.

What is more remarkable is that the firm has not just gone for low-cost labor. It has expanded its footprint significantly in Germany, where costs are very high.

The secret, Henningsen says, is to use low-cost labor for labor intensive work such as airframe maintenance. Investment in Germany has focused on industrializing highly technical work, particularly on engines, to increase productivity and drive costs out of their overhaul through economies of scale.

“We also learned from the airline crises following 9/11, from SARS, and from bird flu,” he said. “We have created some flexibility in our structure so that we can react to a downturn.” For example, the workers’ council in Germany has agreed to work fewer hours to match lower demand after reaping the benefits of overtime during boom times.

Lufthansa Technik is also working with customers to help them through the crunch while safeguarding its own future. Its size and financial strength allow it to do more than smaller competitors, engendering loyalty which in turn will result in more business down the road.

Many customers, especially new ones, says Henningsen, sign up with Lufthansa Technik for small initial contracts, like what they experience and then become larger customers. And even in the downturn there are startup airlines or those facing increasing pressure that turn to Lufthansa Technik for help.

“We still see a lot of scope to keep improving our products and closer cooperation with our customers, so there is still a lot to do,” said Henningsen. “I am sure these will not be boring times.”

Landmarks Over the Last Year:

• Asia’s first Airbus A380 hangar opened at joint venture Ameco Beijing in China. A new widebody hangar will be added this summer

• Cooperation with Qantas in Melbourne on GE and CFM56 engines for Qantas and other customers

• Started basic maintenance for regional and large VIP aircraft at Lufthansa Technik Switzerland in Basle

• Opened an A320 and Boeing 737 overhaul center in Sofia, Bulgaria

• Added Airbus widebody capability at Lufthansa Technik Malta

• Opened a new engine overhaul center in Hamburg, increasing from 320 to more than 400 engines

• Built a new innovation center in Hamburg to focus on new concepts and technologies for VIP and airline customers

• Signed up to manage global logistics for the Sukhoi Superjet 100

Photo: Lufthansa Technik

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