* Christoph Franz leaves for Swiss drugmaker Roche
* Franz had introduced tough cost-cutting under SCORE
* CEO unpopular with unions, staff
* Possible replacements include board’s Spohr, Hohmeister
By Marilyn Gerlach
FRANKFURT, Sept 16 (Reuters) - The unexpected departure of Lufthansa Chief Executive Christoph Franz risks throwing the German flagship airline off course as it struggles to remain profitable despite cut-throat competition and soaring costs.
Franz will leave Lufthansa when his contract runs out in May next year, waving goodbye to strife with employees to join his wife and five children in Switzerland where he is to become chairman of Swiss drugmaker Roche.
“The departure of its CEO will be a huge blow for the airline. Franz has been the mastermind behind the restructuring and the renovation of Europe’s largest airline group,” Equinet analyst Jochen Rothenbacher said.
Like Air France-KLM and International Consolidated Airlines Group, which groups British Airways and Iberia, Lufthansa is undergoing deep cuts to cope with soaring fuel costs and competition from Middle East rivals and low-cost carriers.
After taking the helm of Lufthansa in January 2011, Franz launched Lufthansa’s most aggressive cost-cutting programme in nearly two decades - dubbed SCORE - to quadruple operating profit to 2.3 billion euros ($3.1 billion) by 2015.
He clashed with labour representatives over plans to cut 3,500 jobs, gaining a reputation for a hard-nosed approach and clumsy communications with the company’s 117,000 employees.
He has defended SCORE, saying the airline industry has its back against the wall and market shares are being eroded.
One union official, who declined to be named, called him a “devil”. “That he is going lends credence to our suspicions that he was brought into Lufthansa in the first place to do the dirty job of firing people.”
Although employee representatives had been considering voting against renewal of Franz’s contract if the issue came up, analysts and investors have applauded the CEO’s efforts to cut costs to protect earnings.
Lufthansa has remained profitable at an operating level, unlike other European full-service carriers.
Last year, Lufthansa made an operating profit of 524 million euros ($695 million), compared with losses of 613 million for IAG and a loss of 300 million for Air France-KLM.
“It’s disappointing because he (Franz) is very instrumental and a vocal part in terms of pushing through the restructuring,” Goodbody Stockbrokers analyst Donal O‘Neill said.
German media named three possible candidates to succeed Franz, all Lufthansa veterans. They are Lufthansa management board members Carsten Spohr and Harry Hohmeister and Lufthansa Cargo CEO Karl Ulrich Garnadt.
“If you are already a board member, like Carsten Spohr, then you stand a good chance of becoming the successor,” a company source said.
Spohr, a 46-year-old German from Wanne-Eickel in the country’s industrial heartland, worked his way up through the ranks to become the CEO of Lufthansa Cargo in 2007.
Four years later, Spohr, who holds a commercial pilot’s licence to fly Airbus A320-family planes, was promoted to the group’s management board to oversee its passenger airline business, taking over from Franz.
Spohr has had a rocky time, with passenger airlines taking the biggest hit from Franz’s savings programme and therefore drawing the most wrath from workers over job cuts.
Hohmeister, 49, started his career at Lufthansa almost 30 years ago and replaced Franz as the chief of Lufthansa airline Swiss, which accounted for more than a third of group operating profit last year.
“It looks like Hohmeister is doing a good job in his present portfolio,” said a Lufthansa person familiar with the matter, who asked not to be named.
The same source added that for the CEO job, Lufthansa Cargo chief Garnadt “would be the last person I would think of”.
At 56, Garnadt is the oldest of the three and the only one who is not on the group’s management board.
Lufthansa still has until next May to pick a replacement.
Franz told analysts not to expect any change of course.
“Given the competitive environment that we are in, I am deeply convinced that there is no alternative to the way forward, even if this includes some unpopular decisions,” he said on Monday.