Lufthansa Technik Budapest Aims to Strengthen and Grow its Market Position

Interview

Thoralf Wagner, CEO of Lufthansa Technik Budapest

The Budapest Business Journal talks with Thoralf Wagner, CEO of Lufthansa Technik Budapest, about the aircraft maintenance industry globally and the development of the business here in Hungary.

BBJ: How do you see the current situation and prospects of the aircraft maintenance market? What are the challenges in the industry?

Thoralf Wagner: Market demand has, luckily, fully returned to its pre-pandemic levels, and we also anticipate a robust future market. Current challenges for airlines arise from the reduced aircraft availability due to issues with new-generation engines and delays in the delivery of new aircraft, forcing operators to keep their older aircraft in operation longer than planned. Sustaining older aircraft generates additional demand for the aircraft overhaul sector, which is precisely the business our company performs here at Budapest Ferenc Liszt International Airport. The most significant challenges for the aircraft maintenance industry remain the provision of a skilled workforce and the still challenging situation in the supply chain.

BBJ: How did the Lufthansa Technik Group perform in 2023?

TW: Our mother company, Lufthansa Technik Group, returned to the pre-coronavirus record levels and achieved EUR 6.5 billion in revenue (up 18% compared with 2022) and a EUR 628 million profit (up 13% vs. 2022). Lufthansa Technik Group, therefore, significantly contributed to the overall Lufthansa Group 2023 result of EUR 2.7 billion, the third best in our history. Lufthansa Technik Group now services 4,600 aircraft and could increase its workforce to around 23,000.

BBJ: What ambitions do you have for the coming years?

TW: Due to significant changes in the aircraft maintenance market, the strategic value of the aircraft maintenance business has grown considerably for the Lufthansa Group. In November of last year, the group decided not to sell part of Lufthansa Technik to external investors but rather emphasize organic development and launched our “Ambition 2030” growth program. This aims to boost Lufthansa Technik’s revenue to EUR 10 bln-plus in 2030. Growth and size will be decisive factors in remaining a key player in the aircraft maintenance market in the future.

An aircraft engineer checks the exterior of an aircraft cockpit window housing at Lufthansa Technik’s Budapest Airport facility.

BBJ: How is Lufthansa Technik Budapest developing at the moment?

TW: Lufthansa Technik Budapest has keenly felt the impact of strong market demand, with our hangars consistently at full capacity. In the past year, we completed maintenance on 67 aircraft. According to the feedback from our clients, we excelled in delivering high-quality maintenance and great flexibility for our clients. For example, we are already highly efficient, achieving the highest revenue within the group in proportion to our hangar area size.

However, the high inflation of the last two years posed a substantial challenge for Lufthansa Technik Budapest, significantly impacting the cost structure. Suppliers increased their prices, and we increased salaries five times. Overall, the budget for wages has grown by around 50%. Nevertheless, we believe these adjustments have been a good investment in our workforce because employees in the lower wage categories, in particular, have been strongly affected by inflation. These measures have helped us retain our well-qualified employees.

To restore reasonable profit levels, we had to negotiate price increases with our clients on the one hand and increase our productivity further on the other hand. Therefore, we constantly work on two levers, process optimization and digitization, to reduce waste in our business model and make it leaner. Furthermore, we must keep an eye on our competitiveness within Central and Eastern Europe because our clients are fully flexible in where they will take their aircraft.

The second major challenge after inflation is finding enough skilled workers. Compared to the past, we are investing much more into our internal training school for aircraft technicians and running courses more often. We are doing more marketing and advertising externally to explain the advantages of the job, with constant development and career steps in the first five to six years, which lead to a high compensation level usually only achievable with a university degree. We improved our incentive schemes and provided more flexibility to our employees. They can tailor incentives to their personal needs from a budget per employee.

Through all these measures, we could significantly decrease our fluctuation levels, were able to increase our staff level again and have laid the basics for future growth. In Hungary, Lufthansa Technik currently employs 400 people in the aircraft overhaul unit and an additional 40 people in our engineering unit, which provides mainly digital services.

BBJ: What will the focus be for 2024?

TW: The full-year impact of salary increases and cost hikes will manifest this year, posing significant challenges for the company in maintaining reasonably profitable operations. We continue robust recruitment activities, place continued emphasis on employee retention, and organize additional aircraft mechanic training to enhance our performance both in the short and the long term.

In operations, productivity increases will be the main focus. We still see a lot of potential in implementing more digital solutions, which will improve process planning and work organization.

Product-wise, we continue to concentrate on the Boeing 737 and Airbus A320 families, holding all the necessary certifications for their older and innovative new-generation engine-equipped variants. We have no intention to increase complexity by adding additional aircraft types. We believe in a lean organization with the highest productivity output and the lowest complexity.

As part of Lufthansa Technik Group’s long-term growth strategy in aircraft overhaul, Budapest stands as one of the possible locations. The company is committed to maintaining and developing its presence in Hungary.

This article was first published in the Budapest Business Journal print issue of May 6, 2024.

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