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Lufthansa Weighs Listing of Stake in Jet-Maintenance Unit

William Wilkes

(Bloomberg) -- Deutsche Lufthansa AG is considering the sale of stock in its jet-aircraft maintenance business to fund the unit’s expansion and help boost the airline group’s market value, according to people familiar with the matter.

A partial spinoff of the Technik division to Lufthansa shareholders is also being considered, though an initial public offering of a stake is the more likely option, said the people, who asked not to be identified because the deliberations aren’t public. The review is at an an early stage and no final decision has been taken, they said.

Lufthansa shares gained as much as 3.3% in early trade in Frankfurt. A spokesman for the carrier declined to comment.

For Lufthansa Technik, a minority listing would help generate funds to invest in digitalization or acquisitions, the people said. Unshackling the unit, one of the world’s largest aircraft-maintenance operations, would come as Lufthansa adopts a new holding-company structure meant to allow greater autonomy between its various divisions.

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Technik has an enterprise value of about 7.5 billion euros ($8.3 billion), according to Bloomberg Intelligence analyst George Ferguson, more than Lufthansa’s market capitalization of 6.9 billion euros.

The unit had revenue of 5.15 billion euros, including sales to Lufthana businesses, in the first nine months of 2019, and adjusted earnings before interest and taxes of 371 million euros, according to the company’s most recent financial report. It employs about 26,000 people worldwide.

Analysts have said the ongoing reorganization led by Chief Executive Carsten Spohr will allow Lufthansa to better allocate capital across the company and remove the so-called conglomerate discount that weighs on the share price.

Lufthansa’s deliberations fare in line with some of Germany’s biggest corporate names, which are also listing or spinning off units in order to raise investment and increase the value of their stock. Industrials conglomerate Siemens AG has spun off its health and lighting divisions, while Thyssenkrupp AG, where Spohr was a supervisory board member until last year, has plans to sell or list its prized elevator unit.

“We would see a commitment to unlock more shareholder value through portfolio decisions as very positive for Lufthansa,” said Daniel Roeska, aviation analyst at Sanford C. Bernstein Ltd., adding that it would be a difficult undertaking and take several years to complete.

Given its profitability and synergies between the maintenance operation and airlines, the company would be highly unlikely to sell a majority shares in Lufthansa Technik. Lufthansa has said the business was “core” to the group.

(Updates with share price in third paragraph.)

To contact the reporter on this story: William Wilkes in Frankfurt at wwilkes1@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, John Bowker

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