Lufthansa Said to Propose Franz as New Chief at Board Meeting

Deutsche Lufthansa AG, Europe’s second-largest airline, plans to propose Christoph Franz as successor to Chief Executive Officer Wolfgang Mayrhuber at a supervisory board meeting tomorrow, according to a person with direct knowledge of the matter.

Chairman Juergen Weber may ask Mayrhuber, 63, whose contract runs out at the end of 2010, to stay on until the carrier’s next shareholders’ meeting on May 3, 2011, said the person, who asked not to be identified because the discussions are private. The board is scheduled to discuss Mayrhuber’s succession at a gathering in Hamburg tomorrow.

Franz was appointed Mayrhuber’s deputy and chief of the Lufthansa’s brand passenger unit in June last year. The 50-year- old set a 1 billion-euro ($1.3 billion) cost-cut target at the unit through 2011. In an interview with the most recent edition of the airline’s employee newsletter, Franz said he’s targeting an operating margin of 8 percent for the Lufthansa brand.

“Lufthansa’s biggest challenge is making the passenger business sustainably profitable and that means lowering the cost structure in line with the competition,” said Martina Noss, an analyst with Nord LB in Hanover. While intercontinental flights are profitable, “the European business is the problem child.”

Fare Rebound

Amelie Schwierholz, a spokeswoman for Cologne, Germany- based Lufthansa, declined to comment on the CEO succession plan.

Lufthansa added 30 cents, or 2.3 percent, to 13.65 euros at the 5:30 p.m. close of trading in Frankfurt, giving the carrier a market value of 6.3 billion euros. The stock has gained 16 percent this year, compared with a 9.7 percent increase by the eight-company Bloomberg EMEA Airlines Index. Air France-KLM Group, Europe’s largest airline, has gained 6.7 percent this year.

The German carrier has benefitted from a rebound in fares in most markets except on short-haul flights. Chief Financial Officer Stephan Gemkow said last week that the airline is confident it will achieve its 2010 target of raising operating profit to more than last year’s 130 million euros while expanding sales.

From 2004 to 2009, Franz steered Swiss International Airlines, the carrier taken over by Lufthansa, to profitability as its CEO.

Franz, who studied industrial engineering in Germany, France and the U.S., worked at Deutsche Bahn AG for nine years, where he was eventually put in charge of the state-owned railway’s passenger business.

Swiss Turnaround

Mayrhuber, CEO of Lufthansa since 2003, presided over the acquisitions of Swiss, British Midland, Austrian Airlines and Brussels Airlines. It isn’t clear yet what he plans to do after stepping down.

“The second task is to integrate Austrian Airlines and BMI and restructure them into profitable units,” said Noss, who has a “hold” rating on Lufthansa’s stock. “That’s where Franz has experience after turning around Swiss.”

Lufthansa’s net income for the three months ended June 30 more than doubled to 194 million euros. British Airways Plc had a 122 million-pound loss in the period. Air France reported an operating loss of 142 million euros from its passenger business.

Airlines may post an $8.9 billion profit this year, more than triple an earlier forecast, as demand for travel increases, the International Air Transport Association said today.

European Losses

For Europe, the group pared its loss forecast for 2010 to $1.3 billion from $2.8 billion. The industry group said that margins are still “razor thin” and that earnings may subside to $5.3 billion next year as government austerity measures crimp spending in some markets.

Lufthansa this year concluded pay freezes with its pilots and ground personnel. The airline still faces potential walkouts from cabin crews as it hasn’t found an agreement with the UFO union in seven rounds of negotiations.

Carsten Spohr, 43, head of Lufthansa’s cargo unit, is the most likely candidate to succeed Franz, said the person with knowledge of the matter. Karl Ulrich Garnadt, 53, who is in charge of personnel at Lufthansa’s passenger division, will probably succeed Spohr, the person said.

To contact the reporter on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong in Berlin at kwong11@bloomberg.net

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