AER Lingus is close to completing a deal to sell 60 per cent of its Airmotive subsidiary to the German airline Lufthansa. The deal is expected to be completed by the end of the year.
Lufthansa Technik, the maintenance subsidiary of the German airline, will begin a due diligence examination of Airmotive, following consideration of the proposed deal by the Aer Lingus board yesterday. Both Aer Lingus and Lufthansa yesterday declined to discuss the financial details of the deal.
"We will disclose the price when we finalise the deal," Lufthansa Technik executive chairman, Mr Wolfgang Mayrhuber said. Employment at Airmotive would "at a minimum" stay at current levels but links with Lufthansa's maintenance business in Germany should provide opportunities, he said.
Industry sources suggested that Lufthansa could pay £8 million to £10 million for the stake.
Airmotive maintains and overhauls jet engines and employs 430 people in Rathcoole, Co Dublin. Set up 10 years ago, the company was initially profitable but its fortunes declined with the depression in the airline industry. Employment fell from 600 to the current level.
After two reorganisations, the latest in 1994, the company returned to profit last year.
The Aer Lingus subsidiary does not publish annual results but its annual turnover is understood to be about $100 million (£62.5 million). Profit margins are low in an intensely competitive and oversupplied industry.
Negotiations between Lufthansa Technik and Aer Lingus have been going on for some time. Aer Lingus sought a strategic partner for Airmotive in line with the airline's corporate plan to sell off subsidiaries and because the new capital investment needed at Airmotive could not be provided by the airline.
As a small independent company in a market dominated by engine manufacturers and large airlines, Airmotive has had to fight hard to win maintenance business but has been successful in winning contracts - Aer Lingus provides only about 10 per cent of its business.
A deal with Lufthansa would ensure a steady supply of work as well as the capital for new equipment - two engines currently serviced by Airmotive are to go out of service and new equipment will be needed to service different engines.
One of the largest aircraft maintenance operators in the world with an estimated 10 per cent of the market, Lufthansa Technik's turnover in 1995 was £1.1 billion.
Pre tax profit was £16 million and investments of £40 million were financed out of cash flow. It employs 10,000 people.
It already has business interests in Ireland through its stake in the aircraft maintenance operation, Shannon Aerospace and its ownership of Shannon Turbine Technologies. It owns Shannon Aerospace jointly with Swissair Technical Services following the reorganisation of the company last year. Some 700 people are employed at Shannon Aerospace and Shannon Turbine Technologies has 70 employees.
The Airmotive group of unions welcomed the alliance but expressed concern that a commercial state company would give a majority stake of 60 per cent to a new partner. The group wants an immediate meeting with Airmotive management to discuss the situation.
Secretary, Mr Eamon Devoy, said the unions would be seeking assurances about the protection of employment and maintenance of existing terms and conditions.
