The sky is the limit: Emirates has its eyes set on Lufthansa's catering business
Emirates, the No. 1 airline on international routes, is interested in buying the world’s leading inflight catering business from Deutsche Lufthansa AG, the head of the Dubai-based company’s Dnata services arm said.
Lufthansa’s LSG Sky Chefs would be a good fit as Emirates Group seeks deals in ground handling, catering and other travel services, Dnata President Gary Chapman said in an interview, adding that the German unit was not currently available.
“They have to be ready to sell and they’ve said they’re not ready,” Chapman said at Airport Show 2014 in Dubai.
“You have a new change of leadership in Lufthansa, maybe they will change their approach. New leaders bring different approaches.”
Carsten Spohr took over as Lufthansa’s chief executive officer on May 1, succeeding Christoph Franz, who sold U.K. carrier BMI, wound up the Jade Cargo International Co. joint venture in Asia and initiated the disposal of parts of the information technology unit. Spohr has said he would present his strategy for Europe’s second-largest airline on July 10.
LSG had sales of 2.51 billion euros ($3.4 billion) in 2013, making it more than six times the size of Dnata’s catering business, where revenue rose 25 percent to 1.8 billion dirhams ($490 million) in the 12 months to March 31, according to an Emirates statement on May 8. It has 32,000 employees.
The Lufthansa unit posted an operating profit of 105 million euros, which was the highest since 2002, while amounting to 4.2 percent of sales, a mark it has not topped in at least 12 years. LSG has been set an earnings goal of 160 million euros under the carrier’s ongoing efficiency program.
Dnata has 2.4 billion dirhams in cash, with Sheikh Ahmad bin Saeed al-Maktoum, the chairman and CEO of Emirates, having granted approval to reinvest in its business, according to Chapman, who is also president of group services at the company.
Acquiring LSG would boost Dnata’s global footprint by adding 210 catering facilities in 54 countries. The unit was made available for sale in 2012, before Chief Financial Officer Simone Menne said six months later that it would be retained.
Lufthansa spokesman Andreas Bartels said Tuesday that Menne’s comments still held true.
Dnata grew its overall revenue 14 percent to 7.6 billion dirhams last fiscal year, returning a profit of 829 million dirhams that Chapman described as “modest.”
Purchases have included Australian plane-cleaning company Broadlex, Britain’s Gold Medal Travel Group, and Air Chefs of Italy, in which it took a remaining 50 percent stake from Servair. The business is also developing the 20-acre Dnata City cargo center at London Heathrow airport and spending 8 million pounds on freight infrastructure at U.K. regional airports.
Lufthansa said on May 5 that Walter Gehl would step down as head of LSG in September, when his contract expires, and will be replaced by marketing chief Erdmann Rauer. LSG has sought unsuccessfully to expand in train catering, singled out by Menne as an area of interest, and is looking to supply more salads and sandwiches to U.S. retail companies.
The German unit bought Belgian catering operations from Gategroup Holding AG in November and closed the purchase of a catering business from Finnair Oyj in February.
Chapman also said he would like to see Dnata grow further in Africa and the Middle East.
“Unfortunately it’s a very fragmented market. A lot of it is government-controlled, so there aren’t a lot of opportunities,” he said. “And when they do come along it takes a long, long time to make it happen.”
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