Lufthansa tosses IT biz to Big Blue, inks outsource deal with IBM

Cutting costs to compete with hungry little rivals

Lufthansa has announced that it’s about to sell off its IT infrastructure division to IBM and rent IT services from Big Blue in an outsourcing partnership.

The German airline has been restructuring itself in an effort to cut costs and said earlier this year that it was looking for a buyer for its IT biz so it could better compete with low-cost rivals and fast-growing Middle East airlines including Emirates and Gulf Air.

Lufthansa said it plans to split its subsidiary, Lufthansa Systems, into three companies, selling the infrastructure division to IBM as part of its outsourcing deal with the firm. The Airline Solutions and Industry Solutions units will operate as independent companies from Lufthansa.

The outsourcing partnership will see Big Blue handle all of the airline’s IT infrastructure services.

The entire restructure is going to cost Lufthansa €240m in one-time charges this financial year.

“Cooperation with a global and successful IT group like IBM will strengthen the competitiveness of the Group companies and the Lufthansa Group as a whole. It will directly improve our cost base and allows access to the latest IT technologies which we will use to continue digitising our business processes in order to increase efficiency and customer focus,” said Simone Menne, CFO at Deutsche Lufthansa and chairperson of the supervisory board of Lufthansa Systems, in a canned statement.

“This will also give the employees of the infrastructure division clear job prospects and enable them to participate in future technological developments,” he added.

Lufthansa had said that the infrastructure unit was a good one to sell off because it required a high level of investment and economies of scale that the airline group doesn’t have. It’s a good deal for IBM as well, which has signed Lufthansa for seven years, and could do with some good news.

Big Blue reported disappointing results earlier this week, saying overall revenues for the third quarter were down six per cent year-on-year to $22.4bn, while net income had dropped 14.6 per cent to $3.5bn.

The results forced IBM to give up on meeting its long-term earnings per share goal of $20 a share. Analysts on the company’s earnings call asked if the numbers were the sign of a crisis at IBM, but chief exec Ginny Rometty said that the firm was still acquisitive and was not being managed for decline.

The Lufthansa deal is subject to its supervisory board’s approval and regulatory nods, but if all goes well, the airline reckons the split of Lufthansa Systems and the formal launch of the new companies will happen in the first quarter next year, while the infrastructure biz will be sold by the end of March. ®