Lufthansa Technik Sees Staffing, Supply-chain Bottlenecks through 2024

 - March 7, 2023, 2:42 PM

The head of Lufthansa Technik is the latest executive in the aircraft and engine aftermarket to identify the continuing shortage of skilled personnel as the greatest current challenge in coping with customer demand. “At the beginning of the financial year [2022], we did not have enough work for all our employees, and at its end, not enough employees for all the work that needed to be done,” Lufthansa Technik CEO Soeren Stark told reporters during the company’s annual press briefing on Tuesday.

The maintenance, repair, and overhaul (MRO) unit of Lufthansa Group laid off thousands of employees during the Covid-19 pandemic as work came to a standstill and bankruptcy loomed. In hindsight, letting these workers go might not have been the right decision, Stark acknowledged. “You have to think twice before you lay off people because in our sector it takes a long time to qualify employees and even more time to gain experience. This is my biggest learning from the Covid crisis, and I hope I still bear that in mind when we face the next big crisis,” he said.

Lufthansa Technik succeeded in filling more than 2,100 vacancies in Germany last year and still plans to hire around 4,000 employees worldwide, of which about half would be in Germany. To help meet demand, the company opened a €7.5 million training center for engine mechanics in Hamburg last month.

Stark expects supply-chain issues to remain a bottleneck throughout 2023 and “at least” into next year. Lufthansa Technik has approached suppliers and offered to take on more parts repair services. This requires giving Lufthansa Technik access to their intellectual property “and this is unfortunately rather more the exception than the rule,” he conceded.

He sees used serviceable material (USM) from parted-out aircraft as one of the “rare alternatives” to counteract the current material supply problem. “I would assume we make much more use of USM than we did in the past years,” Stark remarked.  

Despite the personnel and supply-chain challenges, Stark expressed confidence that Lufthansa Technik will return to pre-Covid-19 activity levels this year as air traffic continues to recover and flight hours—and thus demand for MRO services—continue to rise.  Last year, the Hamburg-based company acquired 28 new customers and signed 706 new contracts worth €9.6 billion, of which €3.6 billion was with companies in the Lufthansa Group.

New agreements include component repair contracts with three ultra-low-cost carriers in the Indigo Partners group, under which Lufthansa Technik will service some 1,000 Airbus A320 family aircraft over the next decade. 

Revenues remained below the €6.6 billion achieved in 2019 but rose year-over-year by 39 percent, to €5.6 billion.

Conversely, profitability reached a new record. Adjusted earnings before interest and taxes (EBIT) came in at €511 million in 2022, a 41 percent increase over the prior year. As such, Lufthansa Technik contributed one-third of Lufthansa Group’s €1.5 billion adjusted operating profit, while the group’s passenger airlines jointly accounted for €300 million in losses.

“While we have not quite returned to our former dimensions, we will continue to grow from a position of strength,” Stark commented. He anticipates Lufthansa Technik will service about 5,000 aircraft this year. It serviced more than 4,200 on long-term contracts for some 800 customers in 2022, even though EU sanctions on Russia forced it to remove 450 Russian aircraft from its order books. The loss of MRO work on the Russian aircraft accounted for a €240 million dip in Lufthansa Technik’s 2022 revenue.

Europe, Middle East, and Africa (EMEA) accounted for 50 percent of the MRO giant’s revenue last year, and EMEA will remain the company's core market. Still, Stark is eyeing a sharp expansion in its other two markets. “There's no reason why we shouldn't have the same presence in the Americas and Asia-Pacific as we do in EMEA,” he remarked.

Meanwhile, Lufthansa Technik is readying the divestiture of a minority stake after the pandemic put the planned sale of a 20 percent share on hold. Negotiations with potential investors are ongoing “and I would assume that by midyear or the latest the end of the third quarter, we have a decision,” said Stark.

He declined to elaborate on the type of investment partner the company might find, commenting only that “we have always said that the financial proceeds that Lufthansa Group can gain from the partial sale is not the main object. Lufthansa Technik and Lufthansa Group are looking for a second shareholder with complementary capabilities that has the potential to make us even stronger.”