Lufthansa Cargo might be folded back into Lufthansa’s Passenger Business. This scheme is a serious option among other bullet points listed in an updated restructuring plan titled “Renew”. Lufthansa CEO, Carsten Spohr presented its contents in a recent internal meeting to employees. If implemented, Lufthansa staff will be well advised to fasten their seatbelts.
It is expected that the Supervisory Board will take a final decision on the austerity program, and thus also the fate of Lufthansa Cargo, either on Monday (21SEP20) or the day after.
“At the moment, anything is conceivable, given our dramatic financial situation,” a leading Lufthansa manager told CargoForwarder Global when asked about the option to reintegrate Lufthansa Cargo into the parent company or leave things as they are.
How dramatic the cash drain is, is documented by the monthly losses amounting to approximately €500 million, caused by the lack of travelers in Covid-19 times. Hence, the government-granted loan of €9 billion will be down to zero in about 18 months, leaving Lufthansa only little time to get back on its feet again, an alarmed Mr. Spohr told the shocked staff.
“Renew” is a mix of cost reduction and revenue improvement. It advocates further job cuts on top of the 22,000 (including pilots) already announced, selling a minority stake in the MRO subsidiary Lufthansa Technik, recommends decommissioning more than the already announced 100 aircraft (A340 / A380), and streamlining flight operations, which would spell the end for Sun Express Germany, Germanwings, and parts of Eurowings.
“There is a great disillusionment in management. Many employees still don’t seem to have comprehended the graveness of our situation,” the executive stated, pointing at stalling tactics in labor-related issues preferred by union officials in negotiations with the employer’s side.
A matter of conditions
But what advantages, if any, would result for Lufthansa Passenger Airlines should the cargo subsidiary be incorporated? There might be some economies of scale when unifying the pilot corps, streamlining pension funds, or in consolidating administrative processes. It all depends how much freedom and responsibility are accorded to the cargo unit once reintegrated, states Stan Wraight, President & CEO of Montreal-based consulting firm, Strategic Aviation Solutions International (SASI).
For him, it is not a question of faith whether an airline operates its cargo business under the umbrella of the passenger unit, or as a legally independent company such as Lufthansa Cargo has been so far. If air freight is run as part of passenger, it depends on the specific conditions of how it is managed, he states.
Clear partition of responsibilities is key
Given that case, it would be best if both units have their own divisional heads who are given full responsibility for their respective businesses and their staff. The cargo unit must be acknowledged as a core business of the company, similar to passenger, by the Board of Directors. Only then can it work. “No matter what happens to Lufthansa Cargo, the Board of Supervisors should never ever downgrade cargo to become an appendix of the passenger business. Instead, the controllers should bolster up freight and declare cargo a part of Lufthansa’s core business with equal rights and privileges that the passenger division has.” This includes admitting the VP Cargo a seat on the Executive Board, with direct access to the CEO, Mr. Wraight advocates.
“When you amalgamate the two and you don’t make it transparent which one of them is actually profitable or losing money, you might get better interest rates from financial institutions, or impress analysts. But in that case, cargo becomes a subdivision of passenger without its own voice,” he warns.
Stan Wraight’s conclusion: In the event that Lufthansa Cargo is folded back into Lufthansa’s passenger division, “the key factor is that cargo is given the greatest possible degree of control for its own business activities, including personnel decisions and bottom-line responsibility.”
More will be known come Monday or Tuesday.
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