Lufthansa To Focus On Cost Cuts Before Deals

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Published: May 16, 2012

Lufthansa said on Wednesday it had no plans to veer from its cost-cutting path to focus on acquisitions but would still look at assets up for sale, such as Portugal’s flag carrier TAP.

“Of course we look at opportunities,” a spokesman for Lufthansa said after its chief executive Christoph Franz told the Financial Times he would look at the case for buying TAP.

“But the focus is currently definitely on consolidation of the existing portfolio and not on acquisitions,” the spokesman said.

Portugal’s government has promised to sell off TAP, possibly this year, under the terms of a EUR€78 billion (USD$ 100 billion) European Union/International Monetary Fund bailout.

The carrier has attracted the interest of several international operators, including International Airlines Group (IAG), thanks to its fast-growing routes to South America and Africa.

Portugal’s Prime Minister Pedro Passos Coelho courted Lufthansa on a trip to Germany last year, saying TAP would be a “good investment” for a German company.

But Lufthansa is still grappling with the consequences of its last shopping spree, which added loss-making Austrian Airlines and bmi to its stable of carriers, among others.

It recently sold British carrier bmi to IAG, having failed to turn it around, is restructuring Austrian Airlines and has announced 3,500 job cuts as it tries to improve earnings in the face of competition from low-cost airlines and Middle Eastern carriers.

“I believe Lufthansa is consolidating (its existing businesses), so there is no desire to make takeovers,” Metzler analyst Juergen Pieper said.

Lufthansa CEO Franz said he would nonetheless not rule out acquisitions if there were valuable targets.

“(TAP) is one of the larger carriers who manage the gateway to Latin America, and that is clearly a good reason to at least listen if your colleagues (at TAP) are giving you a phone call,” the FT quoted Franz as saying.

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