Disproportionate Rise In LHT Sales To Outside Companies

Sales and profits up again in 1999 High dollar rate makes materials and spare parts more expensive
In the fifth year of its existence as an independent company, Lufthansa Technik AG (LHT) has again achieved higher sales and profits. While its sales were up by nearly 300 million or 9.1 percent above their 1998 level to 3.5 billion DM, pretax profits rose by almost 29 percent to over 36 million DM (all figures per IAS - International Accounting Standards). Its sales to companies outside the Lufthansa Group increased disproportionately and now amount to almost 50 percent of the total.
“We`re suffering as a result of the high dollar exchange rate, especially in our purchases of materials and spare parts”, said Chief Executive Finance Dr. Gerald Gallus at the Lufthansa Technik annual press conference in Hamburg on May 24th. “And we were unable to pass this increased expense along to our customers - or could do so only to a limited extent.”
As reasons for LHT`s higher sales to customers outside the Lufthansa Group, Gallus cited the strong demand in the engine market and for LHT`s customized equipping of VIP and business aircraft. Sales of engine services were up by 15 percent, of aircraft overhauls by 13 percent. Sales of LHT`s other two products, aircraft maintenance and components maintenance and overhaul, rose by nearly 12 and 8 percent, respectively. Somewhat steeper than the increase in its 1999 sales was the rise of the company`s operating income by 10.9 percent to 3.89 billion DM.

Offsetting that, its 1999 expenditures for materials rose by 25.8 percent and for purchased services by even more than 60 percent. This was due to the high utilization of its capacities and to its resulting increased need to subcontract work to other companies amid rising prices and with a higher dollar exchange rate. “This was a bitter pill in our otherwise favorable report, especially as there is nothing we can do over the short term to offset the rising cost of materials”, said Gallus.
The company`s income from operations of 71 million DM (up 27 percent) and its profits could have been better if its increased sales had not been accompanied by a disproportionate increase in its operating expenses. “Earnings are bound to be depressed when the cost of materials rises by 7 percentage points to 52.7 percent within a single year. To be mentioned here in particular is the costly U.S. dollar, which continued to cause us pain - a pain which has intensified in the first quarter of this year.”

In the first three months of the year 2000 the unfavorable exchange rate continued to make goods and services more expensive. An operating income of over 1 billion DM (up 20 percent from 1998) was offset by a nearly 24-percent increase in operating expenses due solely to the rising costs of materials including prices for purchased services.

Despite an increase in its income from consolidated holdings in other companies,
LHT`s 1999 financial results dropped 64 percent to -34.9 million DM. This reflected the increased interest component of its pension reserves plus its greater financing needs. Its overall cash flow increased by 19 million to 265 million DM.

At 104 million DM, the company`s capital expenditures were 39 million below the 1998 level. While its outlay for plant and machinery, for workshop equipment plus EDP and other facilities was about the same as in 1998, its outlay for spare engines was down by 9 million DM and for participation projects by 29 million DM. This fell within the usual range of variation of capital spending.


At year`s end Lufthansa Technik had 10,394 employees including 511 trainees. That was 248 more than at the end of 1998. Of the total, more than half were working in Hamburg.

With inquiries and for further information, contact:

Lufthansa Technik AG
Press and Public Relations
Tel.: ++ 49 - 40 - 5070 3667
Fax: ++ 49 - 40 - 5070 8534
E-Mail: [email protected]
Internet: www.lufthansa-technik.com