Lufthansa Technik Group Growth Outpaces Market

As one of the world leaders in the provision of technical services for the aviation industry, Lufthansa Technik benefited from continued growth in the global maintenance, repair and overhaul (MRO) market in 2006, and once again improved its year-on-year results. While revenues generated with the Lufthansa Group rose slightly, external revenues increased by an above average level of 12.5 percent and thus outpaced growth in market demand in general. With a rise in revenues of 9.4 percent to 3.4 billion euros, the annual report 2006 of Lufthansa Technik AG and the 18 companies consolidated in the Group revealed pre-tax earnings of 242 million euros. This represents an increase of 8 percent.

"In view of rising passenger numbers and growing fleets, but also with regard to continuing price pressure from the airlines, Lufthansa Technik was very successful in 2006,? said August Wilhelm Henningsen, Chairman of the Executive Board of Lufthansa Technik AG on 9 March 2007 in Hamburg.

"Lufthansa Technik was able to grow more rapidly than the international market and we have further consolidated our position in the MRO business.? He attributed this to a modern product range, an international presence and successful cost management.

The Group was able to increase its worldwide customer base by 8.6 percent to 583 in 2006. With 406 new contracts worth 1.9 billion euros - 447 million euros in the past fiscal year alone - Lufthansa Technik once again improved its year-on-year figures, in terms of both revenue and acquisitions. In 2006, 60 percent of total revenues were therefore accounted for by business with external customers. "We are in a very good position globally because of our innovative products and their availability worldwide. And today we can respond more flexibly to fluctuations in demand," explained Henningsen. A broad product range, especially for start-ups and low cost carriers, together with the development of new repair processes and increased support for customers in their technical operations through Internet-based IT systems, all contribute to the company's success.

Accompanying its strong position in Germany, Lufthansa Technik also sees its international network as crucial towards ensuring its leading position in the MRO market. This network comprises 27 production facilities and a workforce of more than 25,000 in the most important aviation markets worldwide.

The engine joint venture with Rolls-Royce, N3 Engine Overhaul Services in Arnstadt, Thuringia, is due to begin servicing Trent engines for Airbus long-haul aircraft in the second quarter 2007. The official opening ceremony is planned for September. A firm decision has been made to increase capacity at the C-check facility Lufthansa Technik Malta, to provide technical services for the Airbus A330 and A340. Until now, operations there have specialised in checks for the Boeing 737 and the A320 family. In the heart of Europe, building work has begun on the new maintenance hangar for the A380 in Frankfurt. When the entire construction is completed, it will accommodate up to four widebody aircraft, including the A380.

Foundations were also laid for a new A380 hangar in Asia, which is set to open before the Olympic Games in 2008, at Ameco Beijing, a joint venture with Air China. Building work has also begun there on a new overhaul and painting hangar. Lufthansa Technik Philippines in Manila is also planning to expand its capacity. And at Airfoil Services, a joint venture with MTU Aero Engines for the repair of engine blades in Malaysia, a planned extension of the product range is set to create 250 new jobs. A completely new production facility is expected to open there this summer.

"We have also made good progress with the integration of our worldwide companies into the Group's sales and production," said Henningsen. "Our sales successes last year prove that international cooperation helps us to win new customers and, as a result, bring additional business to Germany."

In order to maintain a leading position in the sector, it is important to optimize economies of scale through partnerships and collaborations. These must be accompanied by innovative products, while keeping a firm grip on what has been achieved through cost management programs. Germany has achieved a great deal by increasing the flexibility of working schedules. "Being better able to compensate for fluctuations in demand, reduces our costs and secures jobs." Henningsen added that further steps to increase flexibility should follow. Potential for savings was also identified in the area of purchasing. With its cost-reduction and efficiency programme Perspektiven Technik, Lufthansa Technik slightly exceeded its own target, achieving savings of 243 million euros. This program has been launched in 2004.

In view of the current stable growth in the MRO market, Lufthansa Technik remains optimistic in its expectation of further improvements in revenue and earnings in 2007.