Lufthansa weighs partial sale or IPO of MRO unit

Lufthansa (LH, Frankfurt Int’l) is considering a partial sale of its MRO unit Lufthansa Technik or an initial public offering (IPO) for the subsidiary, anonymous sources have told Bloomberg News.

According to the report, it has hired American investment bank JPMorgan Chase to advise on and calculate both the possibility of a sale of a minority stake to an investor and an IPO. In both cases, the German flag carrier would retain majority control of the maintenance business.

In any deal – no firm decisions about which have yet been made – Lufthansa Technik could be valued at between EUR3.5 billion and EUR5 billion euros (USD4.1-5.9 billion), the insiders claimed. Lufthansa may appoint more advisers to work on any transaction, they added.

Lufthansa is continuing to deliberate on ways it can repay the EUR9 billion (USD10.6 billion) in public funds it received in aid last year that helped it survive the coronavirus pandemic, and a possible partial sale of Lufthansa Technik would contribute proceeds to this cause.

CEO Carsten Spohr admitted earlier this month that his previous deadline of repaying the remainder of the bailout before Germany’s elections on September 26 had slipped. But with talks likely to drag on for months to set up a new coalition government, which could prove less sympathetic towards Lufthansa than the current one, Spohr said at a media event in Frankfurt that he hoped to agree on the state’s exit from its 20% stake before Chancellor Angela Merkel leaves office.

Merkel’s conservative Christian Democratic Union has recently lost ground to Olaf Scholz’s Social Democrats, a party that said it would like the state to hold on to its Lufthansa stake for longer.

“We want to leave this topic behind us a quickly as we can,” Spohr said, as quoted by Bloomberg. “We’d rather owe our debt to the financial markets than to the taxpayer.”

Reports that the airline was mulling an IPO of Lufthansa Technik initially emerged in January 2020, before the Covid-driven aviation crisis struck, as a means of funding future expansion at the unit and helping to boost Lufthansa’s market value. After demand for air travel fell off a cliff in March that year and Lufthansa posted a loss of EUR1.2 billion (USD1.35 billion at the time) for the first quarter, it began to consider selling non-core units to raise funds. In June 2020, chief financial officer Ulrik Svensson said in an earnings call that a Lufthansa Technik IPO had been discussed, and in August 2020 Spohr reiterated that Lufthansa was considering a partnership or public offering of a minority stake for the unit.

Contacted by ch-aviation, Lufthansa declined to comment on the matter.