Lufthansa Technik expects reduced profits for 2011

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German maintenance provider Lufthansa Technik (LHT) anticipates lower profits for 2011 than last year even though total revenues have so far slightly increased.

The company's operating result between January and September declined 6.2% to €198 million ($277 million) compared with the same period last year, said the parent airline group.

This was largely due to the political unrest in the Middle East and North Africa - two central regions for LHT - as well as cautious airlines and growing competition from Asian and Eastern European maintenance companies.

While demand for maintenance, repair and overhaul (MRO) services increased demand in "many regions", the overall business grew "less than expected", said Lufthansa.

There was a "distinct reluctance to sign new contracts", the company added.

Total revenue for the first nine months of 2011 grew 2.2% to €3 billion. This was largely due to more high-margin component MRO work, which offset the lower number of North African customers and the low US dollar exchange rate.

The maintenance company also registered 9.7% higher income from carriers within the parent group, such as the cabin refurbishment programme for Lufthansa's Boeing 737 and Airbus A320-family fleet, to €1.3 billion, approximately 44% of total revenues.

However, sales with external customers fell by 2.9% to €1.7 billion.

The MRO company has introduced a number of cost reduction measures throughout this year, such as the earnings safeguard programme (ESP@LHT), which have shown some "initial successes".

The number of employees has been reduced by 1.8% to nearly 19,900. This includes restructuring programmes especially at Hawker Pacific, Lufthansa Technik Switzerland and Shannon Aerospace.

The group management strategy is to "expand the best sites and restructure the critical ones", the company said.

The narrowbody base maintenance facility in Sofia is currently being doubled in size to comprise four main bays and a single light maintenance hangar by autumn 2012.

LHT's capital expenditure nearly doubled from €40 million between January and September 2010 to €78 million during the same period this year. This was largely due to the purchase of spare engines for Lufthansa Technik Airmotive Ireland and a Pratt & Whitney licence for the company's regional engine overhaul shop in Alzey, Germany.