Lufthansa to save €70m in annual IT infrastructure costs in mega-outsourcing deal with IBM

Airline giant to split-up and privatise IT arm in a deal that will cost €240m upfront, but save €70m annually in IT operating costs

German national airline Lufthansa is on the verge of signing a long-term outsourcing deal with services giant IBM in a deal the airline says will save it "at least" €70m on IT infrastructure costs - every year.

Lufthansa is planning to outsource all of the company's IT infrastructure services to IBM, with the services giant expected to take over the Infrastructure division of Lufthansa Systems AG. The outsourcing agreement will last for an initial period of seven years.

However, Lufthansa will incur €240m in what it calls "one-time charges" arising from the restructuring the outsourcing deal will entail, which it will book in its current financial year

The company plans to split Lufthansa Systems into three companies, selling the Infrastructure division as part of the outsourcing process. The Airline Solutions and Industry Solutions divisions of Lufthansa's IT subsidiary will operate as independent companies in their respective markets in the future.

IBM is expected to take on all of the 1,400 staff in Lufthansa's Infrastructure division as part of the deal, with its sites in Kelsterbach and Budapest retained.

However, the plan remains subject to the approval of Lufthansa's Supervisory Board and German and EU anti-trust authorities.

The Lufthansa Systems restructuring is expected to be complete in the first quarter of 2015, with the deal to sell the IT infrastructure unit due to complete by the end of March 2015, according to Reuters. Other parties reportedly interested in the unit were Hewlett-Packard and France's Atos.

"The cooperation with a global and successful IT group like IBM will strengthen the competitiveness of the group companies and the Lufthansa Group as a whole. It will directly improve our cost base and allows access to the latest IT technologies which we will use to continue digitizing our business processes in order to increase efficiency and customer focus," said Simone Menne, member of the Executive Board and chief financial officer at Deutsche Lufthansa AG, as well as chairperson of the Supervisory Board of Lufthansa Systems AG.

She added that the deal would be good for staff: "This will also give the employees of the Infrastructure division clear job prospects and enable them to participate in future technological developments."

Lufthansa is also keen to pursue a deal in order to rationalise and standardise much of its IT infrastructure.

Work on the deal has been ongoing for the best part of a year, with IBM, Hewlett-Packard and Atos all in discussions in April over a major outsourcing. In 2011, Tata Consultancy Services also sought out an outsourcing deal with Lufthansa, but pulled out due to concerns about profitability and problems reaching agreements with Lufthansa's labour union.