October 22, 2014 / 6:33 AM / in 3 years

Lufthansa close to deal with IBM for IT infrastructure unit

A barrier tape of German airline Lufthansa is seen at Munich airport October 20, 2014. REUTERS/Michaela Rehle

BERLIN/FRANKFURT (Reuters) - German airline Lufthansa (LHAG.DE) is close to a deal to sell its IT infrastructure unit to IBM (IBM.N), including an outsourcing agreement for the services, as part of a shake-up of its technology activities, it said on Wednesday.

Europe’s largest airline by revenue is undergoing restructuring and cost-cutting efforts to better position itself to compete with low-cost carriers and Gulf rivals.

It earlier this year said it was seeking a buyer for the unit, which provides data centers, networks and telephony, because it requires a high level of investment and economies of scale, which the airline could not provide.

Under the planned deal, Lufthansa will outsource all of its IT infrastructure services to IBM under a seven-year deal and the U.S. firm will take over the airline’s IT infrastructure division, currently part of Lufthansa Systems.

The partnership announcement comes two days after IBM, a company undergoing a stark transition of its own, shocked the markets with lower quarterly results and by suspending its full-year forecasts.

IBM, now largely a computer services supplier, said it suffered a marked slowdown in September as many customers stopped buying new services due in part to macroeconomic concerns but also the rapid pace of changing client demand for the latest technologies delivered as Internet-based services.

Lufthansa shares rose 2.6 percent in early trading, the top gainer among German blue-chips .GDAXI, as analysts welcomed the progress in the restructuring of the division,

The deal will result in a one-off pre-tax charge of 240 million euros for Lufthansa, which will not impact its operating result for 2014. It will allow Lufthansa to reduce its annual IT costs by around 70 million euros a year.

A final price for the sale is still being negotiated, a spokeswoman told Reuters.

The sale is part of plans to reorganize the Lufthansa Systems business into three parts - Infrastructure, Airline Solutions and Industry Solutions, with the latter two to be kept within the Lufthansa group as independent companies.

The infrastructure business, which employs 1,400 people, accounted for 40 percent of Systems’ total turnover of 640 million euros ($883.45 million) in 2013 but it made up only 25 percent of the unit’s profit.

The Lufthansa Systems restructuring is expected to be complete in the first quarter of 2015, with the deal to sell the IT infrastructure unit due to complete by March 31, 2015.

Other parties reportedly interested in the unit were Hewlett-Packard (HPQ.N) and France’s Atos (ATOS.PA).

Reporting by Victoria Bryan, Harro ten Wolde and Eric Auchard; Editing by Thomas Atkins

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