Lufthansa Technik Reports Record Result after Pandemic Tribulations

Lufthansa Technik AG significantly increased both revenue and earnings in the financial year 2022 despite a challenging environment. Adjusted EBIT even set a new record at 511* million euros (previous year: 362 million euros, plus 41%). Revenue grew to 5.6 billion euros (previous year: 4.0 billion euros, up 39%), the third-best figure in the company’s history. The clear recovery of the aviation industry as a whole drove demand for maintenance, repair and overhaul (MRO) of commercial aircraft sharply upward. The continued systematic pursuit of restructuring, an advantageous US dollar exchange rate and the company’s excellent market positioning also contributed significantly to the financial success.

The record result was achieved in part thanks to the systematic implementation of the development program RISE. Its measures helped Lufthansa Technik to organize itself more efficiently, simplify processes and reduce expenses in the long term. Despite numerous operational challenges, for example in personnel and supply chains, Lufthansa Technik has succeeded in significantly ramping up operations again.

Soeren Stark, Chief Executive Officer of Lufthansa Technik.

“The strong dynamics of the aviation industry also shaped Lufthansa Technik’s financial year. This has been another year that has demanded everything of us. While we have not quite returned to our former dimensions, we will continue to grow from a position of strength,” says Soeren Stark, CEO of Lufthansa Technik. “I would like to thank all our employees for their special commitment and their willingness to constantly change and improve our company.”

Close partnership in times of crisis is reflected in sales success

The signs are still pointing to growth: New contracts with a volume of 9.6 billion euros were signed last year. Lufthansa Technik signed a total of 706 new contracts and gained 28 new customers in the process. As with revenue, the EMEA region (Europe, Middle East and Africa) accounted for almost two-thirds of this new business, more than twice as much as the Americas region and around five times as much as the APAC region (Asia Pacific), where the company nevertheless sees major opportunities for future growth.

“Our success remains founded on the partnership with our customers. And these customers, who we often accommodated in partnership during the Corona crisis despite our own challenges, are now returning the favor with new business and contract renewals,” Stark explains. “We are the partner of choice for airlines around the world. As a result, we were not only servicing more than 800 customers by the end of 2022, but also again more than 4,200 aircraft, even though we had previously removed hundreds from our order books due to the discontinued business in Russia.”

A notable example from the past financial year is the component contracts signed with three ultra-low-cost carriers in the Indigo Partners group, under which Lufthansa Technik will service some 1,000 aircraft of the Airbus A320 family over the next ten years alone. Contracts with the Lufthansa Group’s airlines accounted for roughly one-third of new business last year; two-thirds came from customers outside the Group.

Despite record results: personnel and supply chain challenges still in view

In addition to the still strained global supply chains in some areas, Lufthansa Technik has identified the continuing shortage of skilled personnel as the greatest current challenge in coping with the enormous customer demand. However, the recruitment offensive launched in the second half of last year has already gone some way toward countering the personnel shortage. In Germany alone, for example, Lufthansa Technik

2022 has succeeded in filling more than 2,100 vacancies both internally and externally. The company plans to hire around 2,000 new employees in Germany this year, and a total of around 4,000 worldwide.

Support will be provided by the new employer brand “Aviationeers” (a combination of “Aviation” and “Pioneers”), which will be positioned across a wide range of channels and will also support the increasingly international recruitment of specialists. Another important role is played by the strengthening of employer attractiveness, for example through the resumption of compensation increases and profit-sharing schemes after the crisis. Innovative solutions for work-life balance such as converting bonus payments into time off are also part of the large-scale package of measures.

Sustainability: Fuel-saving solutions go into series production, hydrogen lab into research service

The year 2022 was again marked by digitization and sustainability: Lufthansa Technik is the only MRO company to offer its customers its own solutions for reducing their ecological footprint. AeroSHARK, developed jointly with BASF, is one example. In December, the European Union Aviation Safety Agency (EASA) issued a Supplemental Type Certificate for the sharkskin modification, which will enable Lufthansa Technik to make every Boeing 777-300ER and 777F about one percent more fuel-efficient and lower in emissions. The 777 fleets of the launch customers SWISS and Lufthansa Cargo are currently being converted at full speed, so that eight freighters and passenger aircraft fitted with AeroSHARK are already in service.

The Hydrogen Aviation Lab in Hamburg is looking into a more distant future. This field laboratory based on an Airbus A320, funded by the Hanseatic City of Hamburg, was presented in October for the first time. It is currently being fitted with various technical installations that will allow research into a wide range of maintenance and ground processes for future commercial aircraft powered by hydrogen. These activities are set to start this summer.

Acquisitions of Swiss-AS and LHIND lead to Digital Tech Ops Ecosystem

In digitalizing the MRO industry, Lufthansa Technik has taken an important step forward: The acquisition of SWISS Aviation Software (Swiss-AS) and its widely used MRO software AMOS as well as the takeover of Lufthansa Industry Solutions (LHIND) will allow the company to further expand the existing digital offer. The gained capabilities supplement AVIATAR, an independent digital solution for technical fleet support, and will be expanded into a Digital Tech Ops Ecosystem. The entire value chain of aircraft technical support can thus be mapped digitally in the future.

A further building block is the digitization of internal production and administrative processes throughout the Lufthansa Technik Group. Under the program “Digitize the Core,” a triple-digit number of transformation projects have already been initiated. One of the many technological building blocks for this is the company’s own 5G mobile network, which continues to grow: Following the connection of several production shops in engine maintenance, one of the projects currently underway is the coverage of the dozens of hectares of apron areas at the Hamburg base with 5G connectivity.

Investing specifically in new, digital workshops and a strong product portfolio

The company is significantly expanding its investment activities in support of its growth strategy. While the past fiscal year saw only a slight increase of four percent in total investment of 99 million euros, a much higher level of capital expenditure is planned for the coming years. A total of 65 million euros alone is earmarked for the continued construction of a hydraulics workshop at the Hamburg site, which was suspended during the pandemic and is now scheduled for completion by 2025. Until then, new VIP interior workshops with adjoining paint center will also be built at the same location, which will likewise involve an investment in the high-double-digit million euro range.

There will be further investments of this magnitude in the expansion of overhaul capacities for the CFM LEAP engine type and in demand-driven smart repair solutions (Mobile Engine Services, or MES for short) by 2026. After last year’s inauguration of a new, much larger repair station outside Dublin for these services, which have recently seen ever increasing demand, the MES network will soon be expanded to include a sixth international location.

Investments are also being made in aircraft maintenance. Preparations are underway at Lufthansa Technik Philippines for a third overhaul line for the Airbus A380. It responds to a recent sharp increase in demand for MRO services on the superjumbo, which various airlines are now reactivating. The third line is planned to be operational in the second half of 2023.

Comprehensive digitization measures will continue to account for an enormous share of investments in the future. A high-double-digit million euro figure alone has been earmarked for the above-mentioned “Digitize the Core” program up to the end of 2026.

Outlook: Pre-crisis market level to be exceeded in 2023

A look at the development of the MRO market paints a perspective for these investments. The ongoing steep upward trend in air travel will also continue to fuel the demand for maintenance services. Lufthansa Technik therefore expects the global MRO market not only to reach but to surpass its pre-Corona level as early as this year, with a total volume of around 96 billion euros. The forecast market volume will be distributed evenly across the three sales regions Americas, EMEA and APAC. EMEA will remain the company’s core market. Still, the declared goal is to expand its presence in the other two regions. “There’s no reason why we shouldn’t have the same presence in the Americas and APAC as we do in EMEA,” Stark says. “Regardless of regions, I’m happy to say: We are well prepared for a market that is as attractive again now as it was before the crisis.”

Over the next few years, Lufthansa Technik’s “classic” MRO business fields will be subject to various industry-cyclical developments, with mainly positive effects. The Aircraft Component Services division is expected to continue its recovery. A positive trend in demand is also expected in the Aircraft Maintenance Services division, which will also be accompanied by rising prices due to the global shortage of hangar capacities for major checks. In the Engine Services division, Lufthansa Technik anticipates significant catch- up effects from the crisis period in 2023 and 2024. In addition, many new engines will then be due for their first major check.

Lufthansa Technik continues to experience high demand for cabin completions and maintenance for VIP, government and special mission aircraft. The company is looking to further increase its share of the defense market in particular. After having successfully entered the military programs CH-47 Chinook (heavy transport helicopter) and P-8A Poseidon (maritime patrol aircraft) through letters of intent with strategic partners in the past fiscal year, Lufthansa Technik hopes for further positive developments in this area. Central to this remains the close cooperation with the Special Air Mission Wing of the German Federal Ministry of Defense. Here, upcoming milestones for example encompass the additional MedEvac conversion (medical evacuation) of two Airbus A321LR troop transports handed over last year.