Finnair’s sale of catering business to LSG Sky Chefs collapses

The board of Deutsche Lufthansa AG (ETR:LHA) has rejected a plan for its in-flight foodservices unit, LSG Sky Chefs, to acquire the  Finnish airline Finnair’s (HEL:FIA1S) catering business.

The parties signed a memorandum of understanding (MoU) on the deal on 12 March, but due to an investment freeze at Lufthansa, the German airline’s board decided not to give the green-light to the acquisition.

Anssi Komulainen, senior vice president of customer service at Finnair, said the decision to drop the deal was a disappointment for both parties, adding that Finnair will now focus on increasing productivity at the catering business with the view of boosting profits and improving customer service.

Other alternatives for the business will also be considered, Komulainen said.

Under the MoU, LSG Sky Chefs was to buy Finnair Catering Ltd and Finncatering Ltd combining 650 employees. The move was expected to widen LSG Sky Chefs’ operations to the strategically important Finnish market, the potential buyer said in March.

Subject to Lufthansa’s board approval and regulatory clearance, the transaction was expected to be completed in the first half of this year.

Financial terms were not disclosed.

Finnair, a client of LSG Sky Chef, will continue this relationship with the German firm, it said, adding that the development announced today would not affect its programme to cut annual costs by €140m ($173.5m) by 2014.

Its catering business generated net sales of around €80m last year.