Lufthansa Technik ‘ends tough year with confidence’. Image: Lufthansa Technik
Yet despite a 43% drop in revenue, the global MRO provider believes its broad portfolio, global network and the emergency measures it has taken will give it the strength to emerge from the crisis successfully. Writes Chuck Grieve.
“Under the circumstances, we made the best of this year,” said Dr Johannes Bussmann, chief executive of Lufthansa Technik (LHT), commenting on the MRO’s annual report for 2020.
Not only did the Hamburg-based company keep most of its customers, including those in the Middle East and Africa, it won 16 new ones and concluded more than 500 new contracts with a total volume of €2.3bn for 2021 and the following years.
As air traffic ground to a near-halt in 2020, the demand for maintenance, repair and overhaul (MRO) services for aircraft, engines and components slumped. LHT felt the impact in the under-utilisation of its workshops; in some divisions, such as Engines and Component Services, at its worst utilisation was down by well over half.
In fiscal year 2020, revenue plummeted by 43% year-on-year to €3.7bn. Adjusted EBIT dropped well into the red to €383 million.
The crisis forced staff layoffs worldwide, an impact reflected in both temporary and permanent employee numbers. Numerous investments also had to be stopped or postponed.
"The year 2020 was the toughest in our company's history to date. And yet we can end it with some confidence,” said Dr Bussmann.
“We have managed to retain almost all of our customers. Our partnerships, some of which go back many years, have proven to be stable, enabling us to win numerous new orders despite the situation.
"Our broad product portfolio and global network have saved us from an even worse fate.”
When demand came to an almost complete standstill in some regional markets, business in other regions was already beginning to stabilise. Although the broad product portfolio was not enough to offset the considerable economic consequences of the pandemic, it did mitigate them considerably.
The VIP and Special Mission Aircraft Services division, for example, enjoyed very good capacity utilisation throughout the year. Notable projects include the cabin completion of the first Airbus A350 for the Special Air Mission Wing of the German Ministry of Defense as well as the support provided for SOFIA, the flying telescope operated by NASA and the German Aerospace Center (DLR) – both projects that underscored LHT’s leading position in this field.
Many of the contracts signed in 2020 were for specially developed crisis products, showing that Lufthansa Technik was able to respond quickly and flexibly to changes in demand. Examples include solutions to temporarily convert passenger aircraft into auxiliary freighters as well as parking and storage services for decommissioned aircraft, engines or components. The global network for smart, on-demand engine repairs (Mobile Engine Services) was further expanded, including the addition of a new location in Dublin.
Moreover, the coronavirus pandemic led to increased demand for digital MRO services. For example, in December alone, more than 600 United Airlines aircraft were signed up for Aviatar, the independent platform for digital products and services, which is now being used to collect additional data and develop further predictive maintenance solutions.
"The order from United Airlines was a real milestone for our Aviatar platform. Winning so many aircraft all at once is a great success in times like these," said Dr Bussmann. "And I'm optimistic that more will follow, because many airlines used the past year to take a close look at the digital future of technical fleet management. Our leading position in this market is thus another reason for me to look to the future with confidence."
In addition to the measures taken in spring 2020 to safeguard liquidity – such as short-time work, hiring freezes and reductions in material costs – LHT launched the RISE programme in the second half of 2020 to help secure its leading position in the MRO market.
The company aims to use RISE to improve its competitiveness, for example by introducing a leaner and more efficient corporate structure adapted to the new challenges arising from the coronavirus crisis and able to accommodate the permanent changes in the MRO market. Instead of the previous eight product divisions, there will be only five in the future: Aircraft Component Services, Aircraft Maintenance Services, Digital Fleet Services, Engine Services and Original Equipment and Special Aircraft Services.
"Until the coronavirus crisis is under medical control, I can't make a reliable assessment of when the aviation and MRO industries will recover their strength," Dr Bussmann said. "I also know that in taking the necessary measures, we're asking a lot of our employees in these difficult times. But I'm firmly convinced that these measures will help us find the strength we need to emerge from the crisis successfully in the end."
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