More intense competition and careful airline aftermarket spending helped Lufthansa Technik’s year-over-year sales fall in the second quarter, breaking a one-year streak of quarterly growth.
"Disproportionate growth in MRO capacities and airlines’ persistently tight financial situations are leading to consistently high pricing pressure in the MRO business," LHT explained in analyzing its second-quarter results. "Moreover, the market stays affected by consolidation activities of both customers and competitors."
LHT’s second quarter saw year-over-year revenues dip 1.1% to €1.03 billion ($1.37 billion) – the first quarterly decline since five quarters of either no or negative growth that ended in the second quarter of 2013.
A solid first quarter meant LHT boosted total revenues 2.4% in the first half of the year, to €2.1 billion ($2.8 billion), which was 9.2% of total group revenue. Third-party growth was just under 1% to €1.3 billion. Third-party work generated 62% of LHT’s first-half revenue.
LHT logged an operating profit of €206 million in the first half, down 6% from €219 million in last year’s first half.
"Although its revenue should go up in line with the market, Lufthansa Technik will in 2014 not match the exceptionally high operating result achieved last year," when the company posted €4.2 billion in revenues, Lufthansa Group reported July 31.
Meanwhile, the German MRO company is looking to the few markets where significant opportunity remains. LHT now boasts 32 operations worldwide and has stakes in 55 ventures. Its newest is LHT Puerto Rico, which is slated to start operations next spring, with JetBlue Airways as its first publicly announced customer.
China, where LHT already has a solid presence, could prove opportunistic as well. LHT says increasing cooperation between Lufthansa Group and Air China Ltd. will include a 2015 joint venture that will focus on aftermarket opportunities.
Lufthansa and Air China announced a memorandum of understanding (MoU) on July 7 that paves the way for tighter integration of schedules between the two Star Alliance members, starting as soon as this fall. The agreement included a separate MoU for aftermarket work, which LHT says will become a reality next year.
"Lufthansa Technik will expand the scope of its existing collaboration in the MRO segment as part of the negotiations between Deutsche Lufthansa AG and Air China," LHT reported as part of its second-quarter earnings release. "A new joint venture is to be established for this purpose early next year, which will support Lufthansa Technik’s growth strategy in the Asian market."
LHT, in a joint venture with Air China, has a 40% stake in Ameco Beijing. The Chinese carrier is said to be pushing for integration of its in-house MRO operation with Ameco (Aviation Daily, July 22).
While China’s commercial aviation potential is no secret, it is especially significant for large companies like LHT that have few untapped markets.
Because of its deep roots in most markets, LHT must lean on growing existing business and tapping the few remaining opportunities if it wants to remain in growth mode. Examples of the former include last month’s expansion of a deal with SAS that adds 150 C-checks on Boeing 737NGs and Airbus A320-family aircraft through 2018. The work will take place in Shannon and Sofia, LHT says.