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Wednesday, June 1, 2005


Further Cuts Planned at Thriving Lufthansa Technik

Business at Lufthansa Technik (LHT) has grown faster than the market in 2004. The German-based maintenance, repair, and overhaul (MRO) service provider saw its sales rise by 7.3 percent in a market that was up by an estimated 5.3 percent, after two years of decreasing demand. Although it is a subsidiary of Lufthansa, LHT did 56 percent of its 2004 business with customers other than the European carrier and its affiliates. The encouraging figures were given by LHT senior executives speaking at their annual press conference in Hamburg, Germany, on March 31.

Sales revenues in 2004 reached EUR3.1 billion (approximately $4 billion). Operating earnings were EUR207 million ($269 million) in the LHT Group, which comprises 19 companies. The net profit of EUR180 million ($234 million) marked a 75 percent jump over 2003.

In contrast, the capacity of LHT's completion center was under utilized last year. It delivered only one widebody and two BBJs. This resulted in completion revenues suffering a 47 percent drop, or EUR97 million ($126 million), in 2004. Demand has since picked up, chairman August Wilhelm Henningsen stated, and the rate of capacity utilization this year is "again satisfactory." Some 80 of 420 jobs have been cut, however.

Although the global MRO market seems to be recovering, prices are on a negative trend, Henningsen said. "The recent losses that our airline customers have sustained compel them to exert an intensified downward pressure on the prices," he stated. Other factors pressing on prices include oversupply and improved engine and airframe reliability. The latter translates into the need for an expanded customer base, Henningsen concluded. In 2004, the number of the LHT Group's customers increased by 12 percent, to 514.

In 2004, the so-called "D-Check" cost-cutting program, launched in 2002, exceeded expectations. It contributed to a EUR130 million ($169 million) improvement in cash flow. Another cost-reduction program, called "Technik Prospects," now aims at a further EUR240 million ($312 million) savings by 2006. "LHT must do its share" of its parent company's plan to achieve 1.2 billion euros [$1.56 billion] cost reductions and earnings increases by 2006," Henningsen said.

In 2004, the LHT Group's workforce averaged 18,128 people. This was 1.5 percent more than in 2003. Including all direct and indirect affiliates, the total is 24,500. Henningsen tried to reassure local workers. "[Thanks to our global presence] at our regional production facilities we benefit from...lower labor costs; at the same time the newly generated business safeguards jobs back here in Germany," he insisted.

Henningsen offered few comments on some major changes in the company's environment. Asked about Lufthansa's takeover of ailing carrier Swiss, he hardly expressed hopes that it would bring more business to LHT. Regarding Airbus's newly created MRO service network, he just said that more discussions were needed before deciding to join the network or not.

LHT executives put great hopes in two new alliances. Both relate to the entry into service of the 550-seat Airbus A380. Early in 2007, operations should start at N3 Engine Overhaul Services in Erfurt, in the German state of Thuringia. The LHT and Rolls-Royce joint-venture is to service Trent engines for the A380, A330, and A340. Construction of the plant will start by the end of this year. With France-based MRO service provider Air France Industries, a joint offer for parts and components support is being set up for A380 operators.

LHT is also betting on a fast-growing MRO demand in China. Over the next four years, EUR100 million ($130 million) will be invested in expanding the capacity of Ameco Beijing's facilities. The latter company is a joint venture with Air China.

In spite of the expected market growth and the cost-cutting action plan, "the results achieved in 2004 will be hard to match," Peter Jansen, chief financial officer, warned. Whether IATA members can be back in the black in 2005 remains to be seen. "All depends on fuel prices," Henningsen said. Regarding currency exchange rates, Jansen said that favorable hedging bought in 2001 had a EUR42 million ($55 million) positive effect this year." The effect is fading, though," he added. -- By Thierry Dubois

Embraer to Make Light Jet

Embraer has announced its intentions to build aircraft in the very light and light jet categories. The company hopes this product portfolio expansion will strengthen its position in the business aviation market. Embraer says that it will offer a complete range of integrated service solutions that will support the product portfolio expansion.

Introduction of these categories to the company's offerings was approved by Embraer's board of directors in April. The investment in the new jets will total $235 million. "Embraer is committed to making long-term investments in this business. Our goal is to build a robust business aviation unit and global infrastructure to support it," said Luis Carlos Affonso, senior vice-president for the corporate aviation market.

Embraer claims the jets will be designed for high utilization and high availability and that the key design drivers will be comfort, performance, and low operating cost. The very light jet Embraer is proposing would carry up to eight people and be powered by Pratt & Whitney Canada's PW617F engine. The company predicts entry into service in the mid-2008 time frame and predicts a price tag of $2.75 million.

The light jet will be powered by Pratt & Whitney Canada's PW535E engine and could accommodate up to nine people. Estimates by the company have this jet entering the market in mid-2009 with a price tag of $6.65 million.

"The Legacy has paved the way for Embraer to build a name in the business aviation market. This has been an enriching experience from which valuable lessons were learned. The accrued knowledge will shape our entrance into the very light and light jet segments," said Mauricio Botelho, Embraer president and CEO.

Airbus A380 Flies for the First Time

The Airbus A380 successfully completed its first flight on April 27, 2005. For its first flight the aircraft took off at a weight of 928,300 pounds, the highest weight of any civil airliner ever. During the flight over the southwest of France, the flight test crew tested the aircraft's handling, gear operation, and flaps and slats settings at cruise altitude. This will be the beginning of a rigorous test flight program for the aircraft involving five A380s, including one for the certification of the Engine Alliance GP7200 engine, and 2,500 flight hours.

The culmination of this test program will be the certification of the aircraft and ultimately the aircraft's entry into airline service. Airbus predicts the A380 will enter into service in the second half of 2006 with first customer Singapore Airlines.

The aircraft spent three months on the A380 final assembly line where systems including the hydraulics, electrical, landing gear, and flight controls were tested. Next came the pressure tests, fuel system checks, and communication and navigation radio checks. Meanwhile other tests were being carried out on the development simulator in a "virtual first flight campaign" so that by the time the first flight occurred the test pilots had flown the first flight profiles and were acquainted with the expected behavior of the aircraft.

"This aircraft is very, very easy to fly. Any Airbus pilot will feel immediately at ease with this aircraft," said Jacques Rosay, chief flight test pilot. To date, Airbus has received 154 orders and commitments from 15 customers. "We are extremely proud of everyone who made this happen," said Noel Forgeard, Airbus president and CEO.

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