January 10th, 2018
Lufthansa’s Financial Strategy|Review of Structure of the Company
The financial aspects of Lufthansa group are organized according to the five business segments into which the operations are subdivided. Each individual segment is run as a separate company except for passenger airline group segment (Lufthansa 2010, p. 44). The individual segments for instance have separate profit and loss responsibilities with each having its distinct supervisory board (with representatives from the executive board) to monitor its progress (Lufthansa 2010, p. 44).
The corporate organization of the company is divided into separate supervisory and management functions in accordance to German principles (Lufthansa 2010). While the executive board oversees and directs the strategic business growth the supervisory board is responsible for appointment, advising and vetting the performance of the executive board (Lufthansa 2010). Below the executive board in the organization ladder are three chief executive officers; one for German Airlines, the second for group airlines and human resources, and the third being the chief financial officers (Lufthansa, 2010, p.43). Down the ladder are various departments that comprise the five segments into which the group’s business activities are sub-divided (Lufthansa, 2010, p.43).
The management appraisal for each segment and the entire group are performed through a cash value added (CVA) measure (Lufthansa 2010, p. 45). Through this measure the contribution of each segment and the entire group to the value of the entity is evaluated (Lufthansa 2010, p. 45). CVA is expressed as the residual amount that is obtained by “subtracting from the cash flow generated in a year the cost of capital employed expressed as a required minimum cash flow” (Lufthansa 2010, p. 45). The sum of capital recovery rate, required return on employed capital and constant tax rate is deemed to be the least amount of cash flow required (Lufthansa 2010, p. 45). With this organization the company has been able to manage its approximately 112,320 employees to generate annual revenues of EUR 22.3 billion in 2009 (Lufthansa 2010, p.44). Go to part 7 here.