Turnaround of Catering Business makes progress
Recent coverage in the media causes Lufthansa to comment on the situation of her catering subsidiary LSG Sky Chefs.
In addition to the general economic downturn, the terrorist attacks of September 11, 2001 in particular led to a significant decline in LSG Sky Chefs` revenues. LSG Sky Chefs reacted to this development with a worldwide halt of investment programs, a freeze on expenditures, and personnel measures. The objective of these efforts is the recovery of sustained operating profitability as well as the optimal strategic positioning of the company.
As prescribed by International Accounting Standards (IAS), the preparation of the year-end accounts also includes the valuation of the interest in LSG Sky Chefs. Based on the described situation of LSG Sky Chefs, Lufthansa believes that the impairment test will result in significant unplanned impairment write-offs, the amount of which cannot yet be specified. In this connection Lufthansa is also considering the forgiveness of a portion of its shareholder loan to LSG Sky Chefs of up to Euro 500 million.
Furthermore, an analysis of the development of LSG Sky Chefs` business in Scandinavia led to the conclusion that, from today`s perspective, the catering contracts, which currently run until 2005, will lead to losses of approximately Euro 45 million per year. LSG Sky Chefs will establish corresponding provisions which will also have an impact on the results of the Lufthansa Group. Lufthansa has entered into negotiations with a view to modify the existing catering contracts.
Lufthansa is confident that after the above mentioned business steps and balance sheet adjustments LSG Sky Chefs will continue to have a leading role in the consolidating industry and that the division will create sustainable value.