Lufthansa is looking to merge the European operations of its catering unit LSG with a peer as it struggles with low margins in a competitive market on the continent, people close to the matter said.
Lufthansa has provided information to potential bidders and has asked them to make offers for the business in early April, the people said, adding that Lufthansa was not interested in a deal with private equity.
Austria's Do&Co and Switzerland's Gategroup are expected to make offers for the European LSG operations, the people said, adding that given its low profitability and low expected value even medium-sized Do&Co could do a deal without a partner.
Lufthansa reiterated that it was considering options for LSG, while Gategroup declined to comment and Do&Co was not immediately available for comment. While Lufthansa is currently focused on finding a solution for its European operations, a deal for its international business could follow at a later stage, the people said.
The catering business is challenged by a large number of locations it serves, high staff costs and exposure to currency exchange rates, Lufthansa's Chief Executive Carsten Spohr said recently.
Lufthansa's LSG group saw adjusted earnings before interest, tax, depreciation and amortization rise 39 percent to 181 million euros last year on flat revenues of 3.2 billion euros. It employs 35,500 staff.
The bulk of profits came from the international business, the sources said. Lufthansa does not provide a regional split of the figures. The figures were helped by lower restructuring costs.
Do&Co, backed by gastronomy entrepreneur Attila Dogudan, has a market capitalization of 735 million euros. It serves customers at 60 airlines including Lufthansa's Austrian unit and its core catering business posted 61 million in 2018 EBITDA on sales of 574 million.