Lufthansa shelves planned stake sale in maintenance division

Deutsche Lufthansa AG shelved a planned sale of a minority stake in its maintenance and repair subsidiary, the world’s biggest business of its kind that had attracted interest from several private-equity bidders. 

The German carrier said that instead of selling a part of Lufthansa Technik, the company will implement its growth plans “independently,” according to a stock-exchange filing. The company said it’s seeing opportunities particularly from the increasing number of engines that are coming in for maintenance. 

“In view of the ongoing manufacturer problems — especially with engines — the strategic value of our Lufthansa Technik as an integral part of the Lufthansa Group has again increased significantly in recent months,” Lufthansa Technik said in a separate release. 

Lufthansa had considered selling as much as 20% of Technik, valuing the entire subsidiary at about €8 billion ($8.7 billion), people familiar with the talks said. The plan to retain the asset is a surprise reversal for Europe’s largest airline group, which has been selling assets while seeking to expand its airline operation with a bid for Italy’s ITA Airways, formerly Alitalia. 

Lufthansa rose as much as 1.3% in Frankfurt trading, after dropping briefly following the announcement. The stock has gained 3.6% in value this year, outperforming the Bloomberg World Airlines Index of 28 members, which has dropped 2.4% so far in 2023.

Talks Progressing

The airline group had hired JP Morgan Chase & Co. to advise it on plans to sell a stake in Technik to help pay down debt it took on to survive the pandemic and grow the business, Bloomberg News reported in 2021. 

In March, Bloomberg News reported that Advent International, CVC Capital Partners, Bain Capital and Blackstone Inc. were among private equity firms weighing a bid for the unit. In June, Handelsblatt reported that Bain and Advent were the final two bidders for the unit, after CVC withdrew its interest.

A sale “could have helped unlock hidden value within the group,” said Neil Glynn, an analyst aviation research firm Air Control Tower. “However, it may also have injected additional governance complexity.”

The move caught Bain — the last remaining party negotiating with Lufthansa — off guard, according to some of the people, who asked not to be identified discussing confidential talks. Confidence had grown at the suitor that a deal might be struck before the end of the year, the people said. Lufthansa didn’t say in its release why talks with possible suitors broke down. Bain wasn’t immediately available to comment.

Technik maintains, repairs, modifies and overhauls civil aircraft used in everything from commercial to VIP jets. Earlier this year, Technik took over industry software developer Swiss AviationSoftware and integrated Lufthansa Industry Solutions as part of efforts to digitize operations. The division is heading for a second record year in 2023, Lufthansa Technik said on Thursday.