Lufthansa, Etihad cooking up bigger things after catering accord

Long-time adversaries Deutsche Lufthansa AG and Etihad Airways PJSC announced deals covering catering and aircraft maintenance and said the agreements could act as a springboard to a broader alliance.

While the accords amount to contract wins for Lufthansa worth more than 200 million euros (USD216 million), the carriers said they’re targeting further tie-
ups in cargo, procurement, information technology and new code-share routes, and could form a full joint venture, the closest relationship open to airlines from different regions. The German carrier said its also open to cooperation with Alitalia SpA, in which Etihad has a 49 percent stake.

The companies are drawing closer as Lufthansa struggles to cut costs and add low-cost flights amid union opposition just as Abu Dhabi-based Etihad grapples with losses from European partners. James Hogan, who leads the Mideast group, said yesteday’s announcements mark a “major step” and that closer ties to the German carrier would bring vital “scale,” while his counterpart Carsten Spohr said talks are already underway on a deeper deal.

“This is just the beginning of something that could be of significant size,” Spohr told Bloomberg Television following a joint ceremony in Abu Dhabi. “Today marks the start. I think there’s room for more. A joint venture could be a potential next step, and there are other ideas.”

The initial accords between the carriers are modest, with Lufthansa’s Sky Chefs arm set to provide in-flight food to Etihad at 16 cities worldwide under a $100 million contract. The Lufthansa Technik maintenance unit will also explore cooperation with Etihad Aviation Group and its partner carriers, according to Spohr, who said that deal may be worth more than 100 million euros.

Hogan, who plans to stand down later this year, said the accords with Lufthansa are “the most significant” struck by his company outside of its investments in so-called “equity alliance” partners, and will form a “platform for a much wider strategic collaboration.”

Spohr said the carriers still hold “different perspectives” on a range of topics and restated his opposition to the funding of airlines through state aid, something he has previously claimed helped Etihad and Gulf peers Qatar Airways and Emirates became major global players. All the same, the pair will be “putting these differences aside,” he added.

Lufthansa is struggling to keep pace with network rivals including British Airways owner IAG SA, in which Qatar Air has a 20 percent stake, just as discount operators led by Ryanair Holdings Ltd. eat away at its market share on short-
haul routes. Etihad has failed to halt losses at Air Berlin Plc and Italian flag carrier Alitalia SpA, in which it has built up holdings as part of the equity alliance tying together eight carriers spanning Europe to Australia.

Etihad and Lufthansa began working together in 2016, announcing or code-
share – or joint sales – agreement covering four routes and brokering a deal for Air Berlin to lease 38 surplus planes and crews to the larger German carrier. Talks are underway about the addition of further code-share destinations as early as next winter, Spohr said, and Etihad will also relocate terminals alongside Lufthansa in Frankfurt and Munich to aid cooperation.

Both carriers have announced plans for major Europe-Mideast initiatives in the past, only for them to fail to materialize. Etihad said in 2012 that a code-share pact with Air France-KLM Group could become a “much larger strategic partnership,” while Lufthansa and Turkish Airlines were exploring a deal as recently as September 2015. Under joint venture agreements, which require antitrust immunity, airlines can effectively operate as a single carrier on specified routes, coordinating timetables and sharing costs and revenue. Deena Kamel Yousef, Richard Weiss, Bloomberg