Lufthansa (LH, Frankfurt International) is considering an Initial Public Offering (IPO) of its maintenance business Lufthansa Technik to fund future expansion at the unit and help boost the market value of Lufthansa Group, Bloomberg reported on January 22 citing sources familiar with the matter.
The process is still at an early stage and no firm decision has been made. A partial spinoff to shareholders is also being considered, but a minority IPO is a more likely option, the anonymous sources said. Lufthansa declined to comment to Bloomberg.
The process would generate funds for Lufthansa Technik - one of the world’s biggest MRO operations - to invest in acquisitions or digitalisation. Lufthansa Group is currently adopting a new holding-company structure designed to give its units greater autonomy.
The reorganisation should allow the group to better allocate capital across its units and reduce the 'conglomerate discount' - when a stockmarket values a group of businesses as less than the sum of its parts - weighing on its share price.
Bloomberg Intelligence estimates that Lufthansa Technik has an enterprise value of around EUR7.5 billion euros (USD8.26 billion), which is more than Lufthansa’s market cap of EUR6.9 billion (USD7.6 billion). The German magazine Finance puts it closer to EUR8 to 9 billion (USD8.8 to 9.9 billion).
Given the synergies between the group's airlines and its maintenance business, which Lufthansa has said is “core” to the group, a majority share sale would be highly unlikely.
Lufthansa Technik has approximately 26,000 employees worldwide. It posted adjusted earnings before interest and taxes of EUR371 million (USD409 million), on the back of revenues of EUR5.15 billion (USD5.67 billion), in the first nine months of 2019, according to its most recent financial report.
