ANALYSIS: Lufthansa changes must continue as CEO preps to depart

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Lufthansa Group chief executive Christoph Franz is firm on the future of the German aviation group – change is critical.

“Now we are in the phase where we have to transform this programme into some kind of a permanent modus operandi of the company,” he says on the company’s Score restructuring programme during an interview with Flightglobal in New York. “There is no other way forward.”

The comments, the tune of which he has made before, come as he prepares to leave Lufthansa to become chairman of Swiss pharmaceutical company Roche when his contract expires in May 2014.

Whoever his successor is must continue the Score programme, he says. However, that decision will ultimately be up to them, he notes.

“It’s continuing to execute, continuing also to develop new ideas because the ones we are implementing are the ones we’ve already decided,” says Franz.

He continues: “When you have a programme, which is running for two or three years, and then after the third years there are no more efforts then this kind of R&D pipeline will dry up. And that is exactly the danger of many of those projects. I feel Score can be only the first milestone in a process of permanent change, which a very leading – but also legacy – carrier is going to adapt to a changing competitive environment.”

Lufthansa aims to increase operational profits to at least €2.3 billion ($3.1 billion) by 2015 from €820 million in 2011 through Score, which includes both cost cutting and efficiency improvements.

Most recently the group announced that it will outsource a third of the workforce at Lufthansa Systems, about 1,300 employees, to a third party as part of the programme.

Score reduced expenses by €171 million in the third quarter not including one-time expenses and fuel costs, the airline reported.

DEPARTURE COUNTDOWN

The announcement that Franz would leave Lufthansa came as a surprise to many when it was made public in September. His short tenure at the helm of the group as well as his departure before the completion of Score are both atypical of the company.

“The opportunity I have to take up this challenge and at the same time combined with the feeling that I have been able to contribute to the future success of Lufthansa in making sure that this will stay the leading European aviation group,” he says on his decision to leave.

The location of his family in Zurich as well as the attractiveness of the offer all contributed to the decision, he adds. He has been on the board of Roche since 2011.

Franz will continue to work on various goals and strategic initiatives that are ongoing at Lufthansa during his remaining six months with the company, he says. These include the phasing out of 70-seat aircraft from its fleet and the introduction of a new passenger service system in the middle of 2014.

One thing that has remained elusive for him is a new agreement with Lufthansa’s pilots.

“I had hoped of striking a deal already this year but so far we have not seen a positive outcome but let’s hope that it is possible to close a deal before I leave,” says Franz. “I would like to do so.”

Compromise with the pilots union Vereinigung Cockpit (VC) may be tough. It has claimed that Lufthansa’s management has created a false picture of the airline’s financial situation and cited its improving financial performance in recent years.

The group reported a 12.4% drop in operating profit to €589 million on stable operating revenues of €8.7 billion in the third quarter compared to 2012. Net profit fell more than 30% to €451 million.

Lufthansa’s passenger airline arm and low-cost subsidiary Germanwings saw operating profit increase 3.2% to €391 million during the period.

Acknowledging the surprise among many of Lufthansa’s employees at his seemingly sudden departure, he says that he could not hold both positions at once despite the rank and files’ preference for him to “stay a little bit longer”.

“This is a good Lufthansa transition,” says Franz, adding that he will help ramp-up his successor “independent of the point of departure”.

He is mum on who Lufthansa is considering as his replacement, saying only that its advisory board is considering both “valuable internal” and external candidates.

Departure or not, after more than 15 years in the airline industry with Lufthansa and its subsidiary Swiss, aviation will remain a part of Franz.

“You can imagine that an airliner leaving the airline industry is always a difficult decision,” he says. “Probably there always will be a little bit of kerosene in my blood.”