Lufthansa leaves the computing to IBM

The German airline is selling its IT services business to IBM in an outsourcing deal that could save it €70 million annually

Getting out of the business of designing and running computer systems, German airline Deutsche Lufthansa AG is selling its IT services division to IBM and having Big Blue run its internal IT operations.

The deal, announced by Lufthansa on Wednesday, comes about as part of the break-up of Lufthansa Systems, a subsidiary of the airline that provides systems integration services.

Two divisions of that subsidiary, Airline Solutions and Industry Solutions, will now operate independently, while a third -- the IT infrastructure division -- will be sold to IBM, according to Lufthansa.

The deal is not yet complete and is still subject to "final negotiations," the airline said. IBM didn't immediately respond to a request for comment.

In a seven year outsourcing contract, IBM will manage Lufthansa's IT infrastructure. The airline will take a one-off pre-tax charge of €240 million ($304 million) for moving the division to IBM.

Lufthansa said it expects to save €70 million EUR annually by having IBM run its IT operations.

"The IBM deal with Lufthansa looks like a pretty straightforward effort by the airline to get out from under the considerable ongoing costs of maintaining/managing its own IT shop," said Charles King, head of IT analysis firm Pund-IT, in an e-mail.

King noted that the airlines face severe and dynamic pricing pressures, due to the fiercely competitive nature of the business. So it is important for the company to off-load non-core assets wherever possible. The outsourcing deal also means that the airline may have its infrastructure upgraded by IBM.

The work "should result in a nice piece of business for IBM," King wrote.

IBM has been shifting its own IT assets recently in order to meet the changing needs of the IT marketplace.

On Monday, IBM announced that it was transferring its own microelectronics division to GlobalFoundries.In a conference call with investors, IBM CEO Ginni Rometty said that, despite shedding its microelectronics business, the company plans to make strategic acquisitions of other companies to pursue work in high-growth rate areas of IT.

Currently, Lufthansa Systems has about 450 corporate customers. If the deal is finalized, Lufthansa said all 1,400 employees of the infrastructure company will move to IBM. It said it expects to close the sale by the end of March 2015.

Joab Jackson covers enterprise software and general technology breaking news for The IDG News Service. Follow Joab on Twitter at @Joab_Jackson. Joab's e-mail address is Joab_Jackson@idg.com

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