Margin-hunting airlines may shed catering units

Tue Jun 26, 2012 9:36am EDT
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By Maria Sheahan and Philipp Halstrick

FRANKFURT (Reuters) - A plastic tray, a hard bread roll and cellophane-wrapped cutlery: airline food can be a joyless culinary experience for economy class flyers, and some carriers may now be about to shed their catering units to focus on the hunt for higher margins.

Steady cashflow produced by the catering operations is likely to attract buyers should the sales go ahead, and airlines may also hope that the food suppliers will produce inflight meals more cheaply if they are in independent hands.

Lufthansa, Air France-KLM and Finnair are all reported to be looking at sales of their food units, with broader catering companies and private equity the most likely buyers.

The largest, Lufthansa's LSG Sky Chefs, could go on sale in September or October, according to an investment banker familiar with the airline's thinking.

"Private equity already talked to Lufthansa about the deal," he said, adding that banks had not yet been instructed to arrange a sale and no deal was expected before the end of 2012.

LSG Sky Chefs made 2.3 billion euros in revenues last year and operating profit of 85 million but is trying to boost the margin with cost cuts and other restructuring moves.

Analysts value the group, which controls more than a quarter of the inflight catering market and serves airlines such as Australia's Qantas and United Airlines of the United States, at about 700 million euros.

German newspaper Financial Times Deutschland reported that Lufthansa could sell around half of LSG Sky Chefs by next year in a first step. Lufthansa has said the unit is not core but makes a valuable contribution to the group.   Continued...