Cargolux Airlines International S.A. Business Information, Profile, and History

Company Perspectives:

Mission--Our mission is to secure the profitability of our company by providing freight forwarders unrivaled competitive advantage in their operations worldwide.

Values--We are a dynamic, multinational, customer-focused organization. We stand for integrity, tolerance and teamwork. We set ourselves the highest standards and we deliver on our promises. We succeed through the quality of our relationships. We value every contribution made by our employees to securing the profitability of our company. We abide by the laws and regulations governing our activities. We respect the environments and communities within which we operate.

History of Cargolux Airlines International S.A.

Luxembourg's Cargolux Airlines International S.A. is Europe's largest cargo-only airline, ranking in the top five of this category worldwide. Cargolux operates a fleet of more than 12 Boeing 747-400F freight aircraft--the largest fleet of this type of aircraft in the world--flying to 49 locations; the company also coordinates a network of 15 trucking subcontractors to expand its total reach by an additional 42 truck route destinations. Billing itself as the "freight-forwarders airline," Cargolux sells freight carrying capacity to logistics companies and freight forwarding companies, which in turn coordinate the shipping needs of manufacturers, distributors, and other customers. Cargolux and other all-cargo carriers play a key role in the development of international trade, delivering cargo to destinations, including manufacturing centers, not served by passenger airlines. Cargolux has achieved strong growth since the late 1990s, in part because the company has adopted a policy of using only a single type of aircraft, which enables it to cut down on fuel, operating, and maintenance costs. The company's 747-400Fs each allow a maximum payload of 129 tons; the company's planes average nearly 16 hours of flight time daily, for an annual combined carrying capacity of nearly 450,000 metric tons and nearly four million ton-kilometers flown. The company also operates one of Europe's largest modern cargocenters, with a capacity of more than 500,000 tons, located at its Findel, Luxembourg airport home base. Since former CEO Heiner Wilkens's surprise resignation in 2001, the company has been led by chairman and founder Roger Sietzen, who has taken on the added role of acting CEO. Cargolux is a privately held company, although the company may have plans to go public in the early years of the new century. Principal shareholders include Luxair (34.9 percent); Swissair, through SAirLogistics (33.7 percent); and a consortium of Luxembourg-based financial institutions.

Freight Carrying Cooperative in the 1970s

During the 1960s, Loftleidir, the Icelandic national airline, began looking for a means to dispose of its aging fleet of Canadair CL-44 aircraft. Originally operated as passenger airliners (Icelandic's later CL-44 models, which carried 214 passengers, were then the world's largest), the CL-44 had never successfully imposed itself on the airline market, and by the end of the decade Icelandic sought to shift its fleet to newer, more fuel-efficient aircraft. Yet the company found no buyers for its planes. Instead, the company met up with the head of a logistics company, Salen Shipping (which changed its name to Cool Carriers in 1984), who proposed that the two companies convert the CL-44s to a cargo fleet and set up an airfreight joint venture.

The two partners decided to set up the new company in Luxembourg. The location gave the company a base in a centrally situated European hub, while enabling the proposed cargo-only airline to avoid the traffic at the continent's larger airports, where passenger planes received priority treatment. Salen and Icelandic then began looking for local partners for the new venture, bringing in Luxair, the Luxembourg national airline, and a consortium of Luxembourg financial institutions. In 1970, Cargolux, a Luxembourg registered company, was founded. The Luxembourg airport became the company's home and site of its maintenance facilities.

Cargolux made its first flight, to Hong Kong, in September of that year. The company's CL-44 was capable of a maximum payload of 24 tons. At the start, the company did not operate on a fixed, scheduled route basis, but instead flew to destinations on a per-order basis. Cargolux also flew a number of humanitarian missions.

By 1972, however, Cargolux's flights to Asia were running on a more regular basis, and the company set up its first scheduled flights, using Hong Kong as a hub. Supporting the company's operations was an expanding fleet of planes. By 1973, the company operated five CL-44s, all of which came from Icelandic. The company also added a second aircraft type, the DC-8, which had a maximum payload of 46 tons. Soon after, Cargolux adopted its slogan, "You name it, we fly it."

In 1974, Icelandic Air turned over its maintenance and engineering department to Cargolux, which then opened a two-hangar facility in Luxembourg, as a well as a new headquarters in 1975. The facility, which also handled maintenance on the company's DC-8s, became especially noteworthy not only for the high level of its CL-44 maintenance program, but also for its development of safety modifications for the CL-44. As production on the CL-44 ended in the mid-1970s, Cargolux's maintenance program became solely responsible for the safety of its fleet.

Nonetheless, the CL-44's small size meant that the aircraft type's future was nearing an end with Cargolux as well. The company began phasing out its CL-44 fleet. At first the DC-8 took over as the company's flagship aircraft. But by the late 1970s, Cargolux already had begun to seek expanded cargo capacity.

Cargolux ordered the first of its new class of aircraft in 1977, purchasing a Boeing 747-200F, which featured a maximum payload of 119 tons. While the company awaited delivery of the new plane, it continued expanding its routes using the DC-8. By the end of the 1970s, Cargolux had set up a strong network of destinations throughout Asia, as well as to the Middle East and Africa.

The DC-8's days were soon numbered at Cargolux, when the company took delivery of its first 747 in 1979. A second 747 was added in 1980; by then Cargolux began planning the phaseout of its DC-8 fleet. Meanwhile, Cargolux's Asian operations extended into China, when the company signed a joint venture agreement with China Airlines in 1982. The company began working with another major and long-term customer when Swiss-based freight forwarder Panalpina began subcontracting aircraft in Cargolux's fleet. Featuring Cargolux crews as well, the flights, operated under Panalpina subsidiary Air Sea Broker, guaranteed Cargolux filled capacity on its aircraft. Over the course of the decade to follow, the relationship between the two companies continued to develop as Panalpina established a number of fixed international cargo routes--to the point where the company was rivaling many of the world's largest airlines in terms of flown tonnage.

Gaining World Leadership in the 21st Century

In 1983, Cargolux inaugurated its CHAMP (Cargo Handling and Management Planning) computer system, which was to receive regular updates over the following two decades. Soon after its implementation, CHAMP began attracting interest from other airlines, and Cargolux began selling CHAMP to other carriers. In that year, also, Cargolux moved into passenger services, offering flights to pilgrims traveling to Mecca. These flights proved successful enough for the company to begin leasing additional 747s to service its Hajj passengers.

Cargolux sold off the last of its DC-8 fleet in 1984 and ordered a third 747-200F. That airplane arrived in 1986. The following year, Cargolux gained a new shareholder, Lufthansa, which acquired a 24.5 percent share, taking over Icelandic's shareholding. At the same time, Luxair reinforced its own shareholding, boosting its stake to 24.53 percent.

Cargolux's relationship with Luxair tightened in 1988 when the two airlines set up a joint venture passenger airline, Lionair, flying on B747-100 aircraft. That venture lasted only a couple of years, however, ending in 1990. By then, Cargolux had joined the top ranks of world cargo airlines and had become one of the largest cargo-only carriers.

The year 1990 marked a turning point for the now 20-year-old company. Cargolux ordered three new 747-400Fs with a maximum payload of 129 tons. At the same time, Cargolux held an option for the purchase of an additional three 747-400F craft. The company also updated its CHAMP system, which was now used not only by Cargolux, but by eight other cargo carriers as well. Meanwhile, Panalpina's expansion had enabled Cargolux to increase its route network as the two companies cooperated closely on establishing new lines--often using Cargolux crews on leased aircraft, with capacity guaranteed by Panalpina.

This activity helped boost Cargolux's sales to new highs, nearing $300 million in revenues by the end of 1991. Then in 1993, the company took delivery on the first two of its new 747 series--Cargolux became the first in the world to operate flights on the new state-of-the-art cargo aircraft and was to remain the only European operator flying the 400F class of 747s. These planes were flown alongside the company's existing fleet of 747-200s.

The third 747-400F was added to Cargolux's fleet in 1995. In that year, also, the company took on a new CEO and president, Heiner Wilkins, when Roger Sietzen, who had been among the company's founders, stepped up to the chairman's position. Wilkens led Cargolux into a new expansion phase. In 1996, the company opened its new cargo center at Luxembourg Airport, which, at 500,000 tons capacity, was among the largest and most modern in Europe. That year, Lufthansa sold its shares in the company to SAirLogistics, subsidiary of Switzerland's Swissair. This led to the signing of a cooperation agreement between Cargolux and another Swissair subsidiary, SwissCargo. At the same time, Luxair strengthened its own position in the company, building its shareholding to nearly 35 percent. Swissair later increased its own shareholding to 33 percent in 1998.

Cargolux continued to expand its network of destinations, reaching 31 international destinations by 1997, supported by nearly 70 offices in 40 countries. Cargolux also exercised its option to purchase additional 747-400Fs, adding two more in 1997, then placing an order for an additional five aircraft, as well as options on two more, in 1998. By then, Cargolux made the strategic decision to phase out its fleet of 747-200s. Instead, the company adopted the model established by highly successful airline Southwest, which operated a fleet based on a single aircraft model. By reducing its fleet to a single model of aircraft, Cargolux expected to achieve greater economies, both in maintenance and in fuel costs.

The last of the company's 747-200F aircraft was sold off in 1998. By the end of 1999, Cargolux had increased its 400F series fleet to ten aircraft. The company also continued opening up new air routes, including to Shanghai, China, and to Montevideo, Uruguay. The company completed its coverage of all of the world's continents when it opened scheduled routes to Australia and New Zealand at the end of that year. In that year, also, Cargolux's relationship with Panalpina took on a new closeness when the Swiss-based freight forwarder formed the SwissGlobalCargo joint venture with SAirLogistics (Panalpina took full control of SwissGlobalCargo in 2001).

By the end of 1999, Cargolux's revenues neared $650 million, and the company had succeeded in capturing not only the lead position among European cargo carriers, but also a spot in the top five of the world's leading cargo-only carriers. In that year, the company continued adding new routes, including regular flights to Seoul, Korea, and expanding its flights, in partnership with China Eastern, to Shanghai. At the end of that year, Cargolux added a new route in South America, to Ecuador's Latacunga. By then, the company's list of destinations had topped 90 cities, including 49 by air and an additional 42 connected through subcontracts with local trucking companies.

CEO Wilkens resigned abruptly in April 2001, despite the company's strong annual results--sales had neared $740 million for the year 2000. Yet Wilkens, who favored stepping up Cargolux's 747-400F purchases--at $150 million per aircraft--came into conflict with the company's board of directors, which shied away from such a large-scale financial commitment during a time of widespread economic uncertainty. With the United States entering an apparent recession in 2001, Cargolux was forced to brace itself for diminishing business. Chairman Roger Sietzen took back the CEO seat while the company began looking for Wilkens's successor.

Nonetheless, the company took delivery on an 11th 747-400F in August 2001, with a 12th aircraft expected for delivery in September 2002. Although Cargolux appeared to be placing further fleet expansion on hold, that position was expected to be temporary and most likely short-lived. A number of financial analysts had begun to forecast the United States' emergence from its recession; many others began to question whether the country had entered a recession at all. Whichever proved correct, the return to growth of the U.S. economy promised to give a new boost to the demand for international air cargo services--and new business for Cargolux.

Principal Subsidiaries: Geraldine Aircraft Leasing Co. Ltd. (Cayman Islands); Elena Aircraft Leasing Co. Ltd. (Cayman Islands); Lionair SA (45%); Luxfuel SA (30%).

Principal Competitors: Air Cargo, Inc.; Atlas Air Worldwide Holdings, Inc; Air T, Inc.; Airborne, Inc.; BAX Global Inc.; CargoLifter AG; Fine Air Services Corp.; Pilot Air Freight Inc.

Chronology

• Key Dates:
• 1970: Cargolux is founded as a partnership between Loftleidir Icelandic and Salen Shipping; joined by Luxair and others, using Icelandic's fleet of CL-44 planes, Cargolux begins operations in Luxembourg.
• 1973: With a fleet of five CL-44 planes, Cargolux adds the first of a series of DC-8 aircraft.
• 1979: Cargolux takes delivery on the first 747-200F and begins phaseout of the CL-44, and then the DC-8.
• 1983: Cargolux introduces the CHAMP computerized cargo handling system.
• 1984: Cargolux phases out the last of its DC-8 fleet.
• 1988: Cargolux forms short-lived Lionair passenger airline joint venture with Luxair (closes in 1990).
• 1993: Cargolux takes delivery on its first 747-400F aircraft.
• 1996: Cargolux inaugurates a new 500,000-ton capacity cargo center at Luxembourg airport.
• 1998: Cargolux begins phaseout of the 747-200F in favor of developing a fleet based on a single type of aircraft (the 747-400F).
• 2000: The company continues to expand its route network, reaching more than 90 destinations, including 49 air destinations and 42 trucking destinations.
• 2001: Cargolux takes delivery of its 11th 747-400F.
• 2002: Delivery of its 12th 747-400F is slated for September, giving Cargolux the world's largest fleet of this type of aircraft.