According to a piece by Reuters, Lufthansa’s Catering Division, LSG Sky Chefs, may be put up for sale later this year in an attempt to further focus on it core operations and dispense with peripheral business units. Even though LSG is profitable it’s margins are relatively weak. It took €2.3 billion in revenue to generate a relatively soft €85 million operating profit. With a ratio like this, there are some evident risks.
The idea of dispensing the unit is in alignment with Lufthansa’s objective under their SCORE initiative which aims to improve operating margins by reducing or eliminating units that detract from their operating profits. Translated, it mean working “SMARTER”, not “HARDER”.
You may have not realized it, but LSG Sky Chefs has a worldwide reach. You regularly see their catering trucks throughout airports in the US and countries through out the world. United and Qantas are among LSG’s biggest clients. Overall LSG is responsible for 25% of airline catering world-wide. One of the recent challenges for airline catering has been dealing with airlines cutting their food-service aboard flights. These reductions obviously have a direct impact on operations dedicated solely to airline food service.
The primary suitors for such a deal will be most likely involve dedicated catering companies or private equity groups. According to the article, no specific decisions have been made, but bids may be welcomed starting in the 3rd or 4th quarter of 2012. It’s also not clear if Lufthansa will sell the entire unit outright or initially only a share of the operation.
Expect more on this development later this year.