German maintenance, repair and overhaul (MRO) specialist Lufthansa Technik (LHT) is expected to sign a long-term component overhaul deal with LOT Polish Airlines, marking its entry into the Embraer regional jet market. The deal comes as the company plans to concentrate on new aircraft and engine types to stem last year's fall in profits.
LHT retained its position last year as the world's largest MRO supplier, recording sales of €2.85 billion ($3.47 billion), up 1.5% on 2002. However, operating earnings for the 16-company group fell by 11% to €158 million, largely as a result of the weak dollar and cost-cutting measures from airlines, says August-Wilhelm Henningsen, LHT group chairman. LHT's rise in sales came as the global MRO market shrank by 5%, he adds. LHT's net profits last year were €38.1 million, down by almost two-thirds on 2002's figure of €96.2 million.
LHT says a big threat to its profits comes from a declining average order value. LHT companies signed 201 new contracts last year, but the total value was only €284 million. "Sales are for smaller quantities and for shorter periods, so it takes more effort to generate the same value because value per contract is much less. Where we used to sign engine contracts for three, five or even 10 years, we now strike individual engine deals," says Henningsen.
As airlines shy away from long-term master deals, LHT is hoping instead to broker a series of partnership agreements with airlines, especially where new types are involved. Under the co-operation deal with the Polish flag carrier, LHT is to provide all Embraer component repair in Hamburg, while Embraer 170 launch customer Lot will provide the logistic support.
LHT is also set to announce the European location of its N3 Engine Overhaul Services joint venture with Rolls-Royce to service Trent family turbofans.
The company is to continue with its economy drives in a bid to reduce costs in two 10% tranches by 2006. Despite this, the company is predicting only a static position for this year's earnings, due to overcapacity in the global MRO market.
JUSTIN WASTNAGE / HAMBURG
Source: Flight International
