Airlines look to offload catering units

A plastic tray, a hard bread roll and cellophane-wrapped cutlery: airline food can be a joyless culinary experience for economy-class flyers, and some carriers may now be about to shed their catering units to focus on the hunt for higher margins. Steady cashflow produced by the catering operations is likely to attract buyers should the sales go ahead, and airlines may also hope that the food suppliers will produce inflight meals more cheaply if they are in independent hands. Lufthansa, Air France-KLM and Finnair are all reported to be looking at sales of their food units, with broader catering companies and private equity the most likely buyers. The largest, Lufthansa’s LSG Sky Chefs, could go on sale in September or October, according to an investment banker. “Private equity already talked to Lufthansa about the deal,” he said, adding that banks had not yet been instructed to arrange a sale and no deal was expected before the end of 2012. LSG Sky Chefs made €2.3 billion (Dh10.63 billion) in revenues last year and operating profit of €85 million but is trying to boost the margin with cost cuts and other restructuring moves. Analysts value the group, which controls more than a quarter of the inflight catering market and serves airlines such as Australia’s Qantas and United Airlines of the US, at about €700 million. Cost cutting Servair could also be on the block as its parent Air France tries to cut costs and boost profit. Paris broker Oddo Securities values the company at €278 million based on rivals’ multiples. Not all airline food comes in a plastic wrapper, at least in the business- and first-class cabins. The French group served 10 tonnes of lobster and 40 tonnes of foie gras last year, making €797 million in turnover. Servair’s profits are not split out but Air France made €25 million from catering, almost all of it from the unit. Finnair’s catering business, with €80 million of revenue, is up for sale and was due to be bought by LSG Sky Chefs earlier this year. But Lufthansa’s board pulled out to concentrate on cutting costs and non-essential investment. Catering companies would offer a buyer a steady inflow of cash, especially as they have been cutting their dependence on air travel by expanding into school and hospital food. In the air, though, times have been tough as several airlines have slashed free food on short-haul flights or followed the low-cost model of selling branded food on board. Long-haul flights On long-haul flights, food remains important but companies are struggling to keep costs down, particularly as travellers request specific meals such as kosher or halal. As well as private equity, possible buyers include Emirates Airline’s food unit Dnata, French catering company Sodexo and SATS, the airline support group spun off by Singapore Airlines in 2009, an LSG Sky Chefs source said. He also said US food service company Aramark Corp. could be another possible buyer. “Catering is not as cyclical as the airline business and it is likely that a financial investor could do more on the cost side than a flag carrier because its reputation would not be at stake,” Silvia Quandt analyst Stefan Kick said. Private equity groups, which typically like unloved but cash-flow rich units of major companies, are likely to sniff around any sales although inflight catering has burned them before. Texas Pacific Group bought Gate Gourmet, now the world’s No.2 airline catering firm, from bankrupt carrier SwissAir in 2002 for 1.1 billion Swiss francs, hoping for a recovery in air travel after the attacks on the United States in September 11, 2001. It ended up restructuring the business and selling it on. The new company Gategroup was listed in 2009 and although shares have since risen by a third since then, it still has a market value of only 686 million francs. Gategroup, which serves Virgin Atlantic, made 2.7 billion francs of revenues and 115 million of operating profit.