Fatal Flight

For Lufthansa, Airbus, Plunging Prospects

flight haltern am see dpa
A press conference Wednesday at the school in Haltern am See in northwest Germany which lost 16 students in the crash of a Germanwings flight on Tuesday in the French Alps.
  • Why it matters

    Why it matters

    The crash of Lufthansa’s 4U 9525 flight comes at a difficult time for the airline, and could affect the confidence of its passengers and staff.

  • Facts

    Facts

    • Lufthansa’s Germanwings flight 4U9525 crashed in the French Alps on Wednesday, killing all 150 people on board.
    • The cause of the crash is still unclear, one black box has been found.
    • Lufthansa and Airbus shares fell sharply in the hours after the accident but later rallied.
  • Audio

    Audio

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Little is left of the Airbus 320 plane, which crashed in the French Alps on Tuesday morning. The cause of the tragedy, which killed all 150 people on board, including 16 children of a German school, is still unclear.

Interior Minister Thomas de Maiziere told reporters in Berlin on Wednesday that “according to the latest information there is no hard evidence that the crash was intentionally brought about by third parties,” but said investigators were still studying all possible causes.

It is the worst accident ever for Lufthansa since it was founded in 1926 and comes at a difficult time for Europe’s largest airline group, which includes the budget brands Germanwings and Eurowings and Swiss and Austrian Airlines.

Lufthansa, led by former pilot and engineer Carsten Spohr since May last year, has been struggling with high costs for its main brand Lufthansa and striking pilots. Lufhansa’s 2014 net profit fell by 82 percent to €55 million on sales of €30 billion.

The crash could further hit passenger confidence in the company.

Germanwings had to cancel flights on Tuesday and Wednesday because some crew members refused to fly in the wake of the accident.

Lufthansa CEO Carsten Spohr said Tuesday evening that he understood the crew members’ sentiments.

“One must not forget: many of our Germanwings crews have known crew members who were onboard the crashed plane,” Spohr said.

“We will get back to a full flight operation as soon as possible. But for me, this is rather secondary now,” he added.

The company’s reputation for reliability has already been dented by industrial strife: pilots have held 13 strikes since April last year. The last one came last week.

“I think it’s a bit harsh to draw the conclusion that a budget airline is low cost, therefore they deploy inexperienced pilots. All pilots need to be properly trained.”

Gert Zonneveld, analyst, Panmure Gordon

The strikes were in response to Mr. Spohr’s attempts to put pilots on cheaper contracts with less costly pension plans. Mr. Spohr, whose term runs until April 30, 2017, wants to expand operations of Germanwings and Eurowings to cut costs and remain attractive to customers. Lufthansa has lost ground to budget airlines such as Easyjet and Ryanair and to Middle Eastern, state-sponsored carriers including Etihad and Emirates.

“In the short term bookings may drop because customers will have become more hesitant about taking a plane, especially with Lufthansa and Germanwings,” Jochen Rothenbacher, an Equinet analyst based in Frankfurt, told Handelsblatt Global Edition.

“If  Lufthansa is found to bear responsibility its reputation may suffer in the long term,” Mr. Rothenbacher said.

Mr. Spohr’s plan to focus on offering flights at lower costs might also run into difficulties.

“After the crash, it will be difficult for Mr. Spohr to defend the budget strategy,” Gerald Wissel, managing director of advisory Airborne Consulting and a former Lufthansa manager, told Handelsblatt.


Video: The airplane’s route and the debris at the crash site.

The accident will raise again the question of how to recruit and retain pilots.

The pilot flying the Airbus A320 had ten years of experience, Mr. Spohr said on Tuesday after the crash. If it were proven the pilot made a mistake, it could have repercussion for the Lufthansa group.

“Everyone will then start to question whether Germanwings pilots get the same kind of thorough training and tests as those of Lufthansa,” Mr. Wissel said.

Analyst Gert Zonneveld at brokerage and investment bank Panmure Gordon in London said there was a perception that budget airlines are cutting costs to keep prices down but in reality they just use assets more efficiently and have simpler businesses to run.

“I think it’s a bit harsh to draw the conclusion that a budget airline is low cost, therefore they deploy inexperienced pilots. All pilots need to be properly trained and need to go to regular updates and do flight simulations and so on. I don’t really think there is an issue,” he said.

Budget airlines do not stint on maintenance. Most of them use Airbus 320 or Boeing 737 narrow bodied planes, Mr. Zonneveld said.

“It is a very heavily regulated industry. It works on the cradle to grave principle. Every single component is known in an aircraft. There is documentation about who made it, when it was installed and when it was last checked.”

 

Foreign Affairs min Frank-Walter Steinmeier French Environment minister Segolene Royal second of right visit Lagezentrum in Seyne Les Alpes in der Naehe der Absturzstelle der Germanwings Source DPA
The German foreign affairs mininister, Frank-Walter Steinmeier, middle, and French environment minister, Segolene Royal, second to the right, visit the area near the crash site. Source: DPA

 

Share prices of European airlines had held up reasonably well, which meant there was still faith in the airlines and the aircraft, Mr. Zonneveld said.

Lufthansa shares were down 1 percent at €13.43 on Wednesday 1045 a.m., after losing 1.5 percent on the day of the crash. Shares of Airbus were down 1 percent, after a small gain of 0.3 percent during trading on Tuesday.

The Airbus A320 type of plane is the most successful the company, originally a German-Franco joint venture, has ever produced. About 6,400 A320s and its sister models A318, A319 and A321 have been taken in operation since 1988.

Airbus, with plants in Toulouse, France, Hamburg and other European cities, also launched a new A320 airplane with more efficient engines to save up 20 percent of fuel. The aircraft is called A320neo, which stands for new engine option.

Mr. Zonneveld said the accident would not necessarily harm Airbus’ reputation. “Whatever the reason, it’s too well established an aircraft to write off the entire fleet,” he said.

“The one issue to consider is the Germanwings plane is 24 years old. Now planes are so well maintained that there is probably not one component of that plane that was there in the original version. But from a consumer point of view, people may think hmm – that’s a bit old.  That may be a consideration when booking a flight, but usually people don’t know what plane they will be flying in,” said Mr. Zonneveld.

Airbus A320s does not have a blemish-free record. In December, an A320 of Air Asia crashed in the Java Sea off the coast of Indonesia, killing 162 people. In 2007, a TAM Linhas Aereas A320 skidded off a runway in Brazil, killing 187 people.

“If it was proven there was a problem with the plane, it might be problematic for Airbus. But it is a well-established aircraft, which is used everywhere and has a long history. It does not appear as though Airbus is to blame at all,” Mr. Rothenbacher, the Equinet analyst, said.

A supersonic Concord aircraft, which serviced travelers between Europe and the United States, crashed in 2000 near Paris, and the aircraft never flew again.

Mr. Zonneveld said there were very few Concords in circulation and they were expensive to produce but the Airbus fleet was different. Airbus planes were cheaper to produce and manufactured on a larger scale, he said.

 

Christoph Schlautmann is a reporter with Handelsblatt, covering the consumer goods industry. Meera Selva and Gilbert Kreijger are editors with Handelsblatt Global Edition in Berlin, covering security and companies and markets. Handelsblatt reporters Markus Fasse and Hans Christian Müller also contributed to this article. To contact the authors: schlautmann@handelsblatt.com, selva@handelsblatt.com and kreijger@handelsblatt.com

 

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