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Gategroup on brink of deal for Lufthansa's European catering business

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By Reuters
Gategroup on brink of deal for Lufthansa's European catering business
FILE PHOTO: Flags of airline caterer Gategroup fly at the facility of their Gate Gourmet division at Zurich Airport in Kloten, Switzerland March 26, 2018. REUTERS/Arnd Wiegmann   -   Copyright  ARND WIEGMANN(Reuters)

By Arno Schuetze and Klaus Lauer

FRANKFURT (Reuters) – Lufthansa <LHAG.DE> is in final negotiations on a sale of its LSG catering division’s European operations to Switzerland’s Gategroup as part of plans to focus on its airline business.

The proposed sale announced on Tuesday comes as Lufthansa contends with low margins in a competitive market, with Lufthansa’s supervisory board expected to sign off on the deal on Dec. 3, sources close to the matter said.

“The sale is part of Lufthansa’s new strategy to focus on its airline business,” the Garman carrier said in a statement.

“Furthermore, the sale enables the new owner to further develop the catering business.”

No financial details were disclosed.

Airline catering company Gategroup said the deal, which would be subject to regulatory approval, was still under negotiation and parties were moving forward with discussions.

German trade union verdi, meanwhile, voiced its concerns over the proposed sale, first reported by Reuters earlier on Tuesday. The union reiterated that it views a sale as a strategic mistake and said it could call for a strike if demands regarding jobs and employee rights are not met.

Before signing a contract with Gategroup, Lufthansa must protect the wages and working conditions of LSG employees in a collective agreement, verdi representative Katharina Wesenick told Reuters.

Gategroup’s offer topped that of industry rival Do&Co <DOCO.VI> and the two had been the last remaining contenders in a long, drawn out auction, sources familiar with the process said.

A Do&Co representative was not available for comment.

Gategroup is owned by Singapore state fund Temasek and Asian investment firm RRJ Capital, who took over the company in several steps from Chinese conglomerate HNA. Gategroup operates the Gategourmet brand.

Lufthansa CEO Carsten Spohr has previously said the airline’s catering business was being challenged by the large number of locations it serves, high staff costs and exposure to currency exchange rates.

The sale of LSG’s European operations will be followed by an auction for its international business, which is expected to start in the first quarter, the sources added.

Though price detail has yet to emerge, company sources have said that Lufthansa might receive only a small sum for LSG’s European operations.

In its financial report, Lufthansa said it had assets held for sale worth 393 million euros (£305 million) and liabilities of 639 million euros related to the planned disposal of its European catering activities.

In the first six months, Lufthansa’s catering revenue increased by 4% to 1.6 billion euros while earnings before interest and tax contracted by 18% to 33 million euros.

(Reporting by Arno Schuetze and Klaus Lauer; Editing by Jane Merriman and David Goodman)