Lufthansa has decided not to take over Finnair's catering business as planned, and will instead focus on efforts by its own LSG Sky Chefs division to evaluate restructuring measures that include potential job cuts.
Both airlines revealed in March that Lufthansa was going to acquire Finnair's catering unit and absorb it into LSG Sky Chefs.
Although this came after Lufthansa had already presented its 'Score' cost-cutting and sales improvement programme - which aims to raise the group's annual results by at least €1.5 billion ($1.86 billion) from 2014 - its executive board has now stopped the deal due to an "investment freeze", according to Finnair.
The takeover had been due to be completed before the end of June.
LSG Sky Chefs is now considering various restructuring measures for its German operations, which could involve nearly 1,000 job cuts across the country, including 600 at the company's main base in Frankfurt.
The Verdi union leaked the figures to German media after negotiations with LSG Sky Chef broke down on 25 May. Verdi tells Flightglobal that the catering company plans "unacceptable" salary cuts, closing some regional facilities - such as in Nuremberg - reducing operations at other sites, and following a "new concept" in Frankfurt.
LSG Sky Chefs declined to comment on the specific measures, but a spokeswoman tells Flightglobal that the restructuring strategies are designed for different scenarios and that no concrete decisions have yet been taken.
She says that some judgements will be made this year while others could be deferred for one or two years. The spokeswoman does not rule out redundancies, but adds that these will be handled as fluidly as possible - by not extending temporary employment contracts and by introducing part-time work for older employees.
Job redundancies have been ruled out until January 2013 in the current bargaining agreement with Verdi. The Union wants to extend this period.
LSG Sky Chefs had previously restructured its German operations into individual, regional standalone units in July 2011.
Meanwhile, Finnair says it is targeting measures to improve productivity at its catering business. Anssi Komulainen, senior vice-president of customer service, sees "a lot" of opportunity for "better profitability and [to] improve the customer experience". At the same, however, he says the company will continue to look for "alternatives" to the failed Lufthansa deal.
The division generated net sales of approximately €80 million last year, but Finnair wants to reduce its annual costs by €140 million by 2014.
The carrier's existing customer contracts with LSG Sky Chef at "many airports" will not be affected by the collapse of the deal, Finnair adds.