Lufthansa, Etihad Deepen Ties With Catering, Maintenance Pacts

  • Ex-rivals say inflight-food accord may lead to joint venture
  • German group interested in cooperation with Italy’s Alitalia

Long-time adversaries Deutsche Lufthansa AG and Etihad Airways PJSC announced deals covering catering and aircraft maintenance and said the agreements could act as a springboard to a broader alliance.

While the accords amount to contract wins for Lufthansa worth more than 200 million euros ($216 million), the carriers said they’re targeting further tie-ups in cargo, procurement, information technology and new code-share routes, and could form a full joint venture, the closest relationship available to airlines from different regions. The German carrier said its also open to cooperation with Alitalia SpA, in which Etihad has a 49 percent stake.

The companies are drawing closer as Lufthansa struggles to cut costs and add low-cost flights amid union opposition, just as Abu Dhabi-based Etihad grapples with losses from European investments. James Hogan, who leads the Mideast group, said Wednesday’s announcements mark a “major step” and that closer ties to the German carrier would bring vital “scale,” while his counterpart Carsten Spohr said talks are already underway on a deeper deal.

“This is just the beginning of something that could be of significant size,” Spohr told Bloomberg Television following a joint ceremony in Abu Dhabi. “Today marks the start. I think there’s room for more. A joint venture could be a potential next step, and there are other ideas.”

Modest Beginnings

The initial accords between the carriers are modest, with Lufthansa’s Sky Chefs arm set to provide in-flight food to Etihad at 16 cities worldwide under a $100 million contract. The Lufthansa Technik maintenance unit will also explore cooperation with Etihad Aviation Group and its partner carriers, according to Spohr, who said that deal may be worth more than 100 million euros.

Hogan, who plans to stand down later this year, said the accords with Lufthansa are “the most significant” struck by his company outside of its investments in so-called “equity alliance” partners, and will form a “platform for a much wider strategic collaboration.”

Spohr said the carriers still hold “different perspectives” on a range of topics and restated his opposition to the funding of airlines through state aid, something he has previously claimed helped Etihad and Gulf peers Qatar Airways and Emirates became major global players. All the same, the pair will be “putting these differences aside,” he added.

Lease Deal

Lufthansa is struggling to keep pace with network rivals including British Airways owner IAG SA, in which Qatar Air has a 20 percent stake, just as discount operators led by Ryanair Holdings Plc eat away at its market share on short-haul routes. Etihad has failed to halt losses at Air Berlin Plc and Italian flag carrier Alitalia SpA, in which it has built up holdings as part of the equity alliance tying together eight carriers spanning Europe to Australia.

Etihad and Lufthansa began working together in 2016, announcing a code-share -- or joint sales -- agreement covering four routes and brokering a deal for Air Berlin to supply 38 surplus planes and crews to the larger German carrier. The lease contract is worth 1.2 billion euros over six years, Hogan revealed, while Spohr said talks are underway about the addition of further code-share destinations as early as next winter. Etihad will also relocate terminals next to Lufthansa in Frankfurt and Munich to aid cooperation.

Both carriers have announced plans for major Europe-Mideast initiatives in the past, only for them to fail to materialize. Etihad said in 2012 that a code-share pact with Air France-KLM Group could become a “much larger strategic partnership,” while Lufthansa and Turkish Airlines were exploring a deal as recently as September 2015. Under joint venture agreements, which require antitrust immunity, airlines can effectively operate as a single carrier on specified routes, coordinating timetables and sharing costs and revenue.

Asked whether Etihad had considered seeking a stake in Lufthansa, Hogan said that the planned partnership is “not about equity,” but “the right strategy for the market.”

He added that the Gulf carrier won’t give up on its minority partners, and that while Chairman Mohamed al Mazrouei has said the alliance needs adjusting, he has also “been very clear that the investment in those equity airlines continues.” The task at Air Berlin, where the fleet will be cut by half as aircraft transfer to Lufthansa and TUI AG, is one of rebuilding the company, he said after being questioned about whether it might be sold.

Lufthansa executive Harry Hohmeister, who runs the German group’s network airlines, said on the fringes of the Abu Dhabi event that cooperation with Italian flag-carrier Alitalia is something the airline could potentially pursue as it works more closely with Etihad. Hogan also said that Lufthansa has held talks with some of Etihad’s European equity partners, without being more specific.

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