Lufthansa Technik ventures into the world of armaments.
Lufthansa Technik is broadening its horizons. The company plans to delve deeper into the defence sector, prompted by the geopolitical tumult. Lufthansa Technik has collaborated closely with the German military before, particularly in maintaining the Luftwaffe's flight fleet and converting civilian aircraft for government use.
The company envisions a more proactive role in Germany's defence efforts. Its aim as stated in the 2023 business report is to "contribute more to the German Air Force than just maintaining its flight fleet." This ambitious ambition was unveiled just before the International Air and Space Fair (ILA). Lufthansa's technician division's board member, Søren Stark, delivered one of the last modernized A350s, dubbed "Kurt Schumacher", to the Luftwaffe at the event amidst the roar of military jets.
Going forward, Lufthansa Technik will be identified as "Lufthansa Technik Defense" at ILA and other aviation events. It aims to focus on military systems alongside their traditional work on civil aircraft. Lufthansa employees who previously specialized in civil aircraft maintenance, repair, and day-to-day operations will now shift their attention to fighter jets and transport helicopters used by the Bundeswehr.
Lufthansa Technik lays the foundations for this new defence-oriented business segment. 'We made the choice in 2019 to handle our longstanding partnership with the Bundeswehr more strategically.' Jens Krüger, a spokesperson for Lufthansa Technik, explains to Capital. 'We see ourselves as part of national sovereignty. Now these strategic efforts have materialized into a range of activities.'
Some military projects have already acquired contracts, while others are still being ironed out. Pegasus, for example, provides systems for airborne surveillance and reconnaissance to the Bundeswehr through signal detections. Lufthansa Technik is set to modify three aircraft for this purpose. The airline company may also deploy its expertise in maintaining the 60 heavy 'Chinook' transport helicopters, a deal from Boeing that is set to be delivered to the Luftwaffe in autumn 2027. Aviation experts believe an agreement is in the works as to which tasks will be undertaken by whom within the industry consortium supporting the Bundeswehr's helicopter fleet. The negotiations are ongoing for maintenance contracts for the 35 F-35 fighter jets from the United States that the Bundeswehr plans to secure to retire their Tornado planes.
Lufthansa Technik aspires to modify military aircraft. If NATO decides to replace its ageing AWACS airborne radar system with new Boeing E-7 aircraft, Lufthansa can perform the potentially required modifications. The three-decade-old Boeing 707 aircraft - the basis for the AWACS - could be transformed, thanks to Lufthansa Technik's familiarity with this model from their civil aviation business.
Lufthansa Technik's employees will not handle weapons, Krüger confirms to Capital. 'We excel in what we know best: Lufthansa Technik will maintain and refurbish aircraft, including engines and parts like landing gear.' The military certifications for this work have been secured, and the processes and technology will mostly resemble those in civil aviation.
Lufthansa Technik's expansion into the defence sector appears to be a natural step to aviation experts, offering mutual rewards for both parties. The Bundeswehr stands to benefit from the financial efficiency of outsourcing aircraft maintenance, while Lufthansa Technik stands to boost its revenue, as the company has now recovered from the pandemic years. In the 2023 financial year, the maintenance firm increased its revenue by a billion euros to 6.5 billion and notched an operating profit of 628 million Euros.
Lufthansa Technik's leap into the defence sector is a key component of its "Ambition 2030" growth strategy, which aims to grow its sales past the 10 billion euro mark. Although initial discussions about deeper cooperation with the Bundeswehr date back to 2019, the evolving global security climate added momentum to the development of the "Defence" division. The perceived need for defence has become a hot topic in German politics and society in the wake of the conflict in Ukraine.
The increased defence budget aims to modernize and bolster the Bundeswehr - a thriving defence sector could not only resonate with investors but also strengthen the ESG rating of Lufthansa Group. MSCI ESG Research ranks Lufthansa as the "ESG sector leader" amongst its listed airlines. Despite recent calls for closer ties with the Bundeswehr, Lufthansa Technik's foray into defence won't significantly alter the ESG rating or impact on the company. The ESG rating was last certified as 'AA'.
The new field of 'Defence' represents a small yet promising market for Lufthansa Technik within its larger brand. As the maintenance company influences its future course independently after the failed investment bid, it remains unclear how this new development might factor into Lufthansa Group's overarching ESG rating. Given its efforts to expand the scope of its business, Lufthansa Technik is committed to maintaining high ESG standards.
