Lufthansa said to explore options for catering arm Sky Chefs

[FRANKFURT] Deutsche Lufthansa AG is exploring options for its catering and in-flight services business LSG Sky Chefs, including a sale or combination with a competitor, according to people with knowledge of the matter.

The German airline is working with advisers to review the business, according to the people, who asked not to be identified because the information is private. Other possibilities include selling a stake to a partner, the people said.

Airline catering is growing more slowly than overall air traffic, as short-haul flying outpaces longer-leg travel and budget carriers gain market share. With travelers increasingly unwilling to pay for food on shorter hops and airlines pressuring suppliers on costs, airline caterers have been branching out into supplying trains and supermarkets to make up for lost business.

LSG Sky Chefs, based in Neu-Isenburg near Frankfurt, produced 696 million meals in 2017, according to its website. Deliberations are at an early stage, and Lufthansa isn't running a formal sale process, according to the people. It could still opt to retain its ownership of LSG Sky Chefs, the people said.

A representative for Lufthansa declined to comment.

Lufthansa told investors in July that cost cuts and higher fares would help it reach full-year targets, after disruption from storms and air-traffic-control strikes hurt second-quarter earnings. The carrier has struggled to integrate aircraft it took over from failed rival Air Berlin Plc, while higher fuel costs have been a source of concern.

Sky Chefs was founded by American Airlines in the 1940s and merged with Lufthansa's own LSG division in a series of transactions through 2001. The combined business grew to become the world's largest airline caterer, before later being overtaken by Swiss rival Gategroup Holding AG.

Deal activity has been heating up among firms providing support services to the aviation industry. Temasek Holdings Pte agreed in July to invest in Gategroup. Brookfield Asset Management Inc is in advanced talks to buy Swissport International, the baggage handler owned by HNA Group Co., Bloomberg News reported this month.

Lufthansa previously sought a buyer for LSG Sky Chefs, hiring an investment bank in late 2012 to solicit interest, people with knowledge of the matter said at the time. That search, which came at a time when the carrier was shedding ancillary businesses, didn't result in a transaction. It has also previously weighed an initial public offering of the unit.

BLOOMBERG