German maintenance company strengthens to fight increased competition from OEMs

Lufthansa Technik (LHT)is bringing spare parts joint venture AirLiance closer to its own third-party customers as it tries to reduce the Chicago-based company's reliance on its other owners. From an original ownership split of 41% for LHT, 41% for United Airlines and 18% for Air Canada, the new investment gives Lufthansa Technik 50.2%, with United reduced to 33.5% and Air Canada to 16.3%.

LHT refuses to say how much additional capital it has put into AirLiance, an investment which AirLiance chief executive David Sisson says will allow the spares management company "to further increase our market share and expand our revenue stream".

AirLiance has been hit hard by the entry of Air Canada and United into bankruptcy protection last year. Neither have so far emerged, although United says it plans to leave Chapter 11 in the first half of this year, after cutting net losses from $3.2 billion in 2002 to $2.8 billion in 2003. Around 60% of AirLiance's sales come from its three owners, although the company hopes to reduce this to less than 50% in the near future.

The problems of two of its chief customers, and the grounding of the older aircraft that represented much of its revenue stream, has made life difficult for AirLiance. The new plan is to bring AirLiance closer to LHT, which itself gets 42% of its sales from outside Lufthansa. LHT should now be able to fight increasing competition in the maintenance, repair and overhaul market from original equipment manufacturers (OEM) by offering spares management services from AirLiance. "We will bring AirLiance together with Lufthansa Technikif the customers also need spare-parts supply and management, "LHT says.

AirLiance may have to adapt to LHT's requirements: "We don't know how much their portfolio needs to be adjusted to match our needs - they may be getting new lines of parts or more of existing lines," LHT says. It adds, however, that AirLiance will still have to be largely self-reliant: "We are not going to tell customers that they should be doing business with AirLiance. They will do their own sales and marketing effort."

Source: Flight International