Fraport AG Frankfurt Airport Services Worldwide

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Fraport AG Frankfurt Airport Services Worldwide

Flughafen Frankfurt/Main
Frankfurt am Main, D-60547
Germany
Telephone: (49 69) 690-0
Fax: (49 69) 690-74843
Web site: http://www.fraport.com

Public Company
Incorporated: 1924 as Südwestdeutsche Luftverkehrs AG
Employees: 28,246
Sales: EUR 2.1 billion ($2.6 billion) (2006)
Stock Exchanges: Frankfurt am Main
Ticker Symbol: FRA
NAIC: 488190 Other Support Activities for Air Transportation; 488119 Other Airport Operations; 531120 Lessors of Nonresidential Buildings (Except Mini-Warehouses); 531190 Lessors of Other Real Estate Property; 541614 Process, Physical Distribution, and Logistics Consulting Services; 561210 Facilities Support Services; 541330 Engineering Services

Fraport AG Frankfurt Airport Services Worldwide owns and runs Frankfurt Airport, one of the world's top ten airports. Due to its central location in Europe, Frankfurt Airport is a popular transition point for intercontinental air cargo transport and passenger travel. The airport is Europe's number one air cargo hub where over two million metric tons of air freight is handled annually. With almost 53 million passengers passing through, Frankfurt Airport is Europe's third most frequented airport. With roughly 70,000 people working for over 500 employers, including airlines, businesses, and noncommercial institutions, Frankfurt Airport is Germany's largest place to work. Fraport AG employs about two-fifths of the total. Fraport AG's major shareholders include the state of Hesse, which owns roughly 30 percent of the share capital; the city of Frankfurt am Main with a 20 percent stake; and Deutsche Lufthansa AG with approximately 10 percent.

Fraport AG runs and maintains the airport's infrastructure and main facilities, including runways, terminals, access roads, and parking structures, as well as commercial buildings. Fraport also offers a variety of essential services such as traffic and terminal management, ground handling services, and security services. The company leases commercial space at the airport to more than 500 contractors, including airlines, freight forwarders, travel agencies, and retail store and restaurant operators. In addition to Frankfurt Airport, Fraport AG operates airports in which the company has majority shares, or as a joint venture partner, including Frankfurt-Hahn, Bremen, and Hannover-Langenhagen in Germany; Antalya in Turkey; Burgas and Varna in Bulgaria; and Lima Airport in Peru. Through a variety of domestic and foreign subsidiaries in Europe, Asia, and North and South America, the company utilizes and markets its know-how in airport logistics and management as well as aviation security that was acquired in over seven decades of running Frankfurt Airport.

BANKING ON AVIATION IN FRANKFURT AFTER 1924

At the onset of the 1920s in Germany, airplanes rapidly gained in popularity as a means of transportation. In 1924, a group of visionary businessmen and city planners in Frankfurt am Main formed a consortium to secure a leading position in the promising future market for air travel and transportation. Together with the city of Frankfurt and with Junkers Luftverkehrs AG, one of Germany's leading airlines, they founded Südwestdeutsche Luftverkehrs AG, Frankfurt am Main, on July 2, 1924. The purpose of the new corporation was to promote and expand aviation; to plan, set up, and manage the necessary logistics infrastructure; and to provide related services. Südwestdeutsche signed a lease with the city of Frankfurt for a site in Frankfurt's Rebstock suburb and began operations. The site, which had been used as an exhibition space for the International Aviation Exhibition in 1909 and later served as a base for Deutsche Luftschifffahrt Aktiengesellschaft (DELAG)—the company that built the legendary Zeppelin airships—was modified to accommodate commercial air traffic and Frankfurt Rebstock airport began operations.

In its first year, Rebstock recorded 234 takeoffs and landings, 536 passengers, and roughly 2,430 pounds of mail transported. However, only one year later the number of takeoffs and landings as well as the number of passengers grew tenfold. Soon the airport reached its limits and the city of Frankfurt established Frankfurter Flugplatz GmbH, a city-owned company that modernized the existing facilities and greatly expanded the airport after additional land had been purchased. Meanwhile, Germany's leading airlines fought fiercely for shares in the rapidly expanding market. The German government, one of the main financiers of the two major airlines Junkers Luftverkehrs AG and Aero Lloyd, was not willing to subsidize a price war between them and decided to merge them into one large airline. In January 1926, Deutsche Luft Hansa AG was founded, the airline that would later become one of the world's largest air carriers and make Frankfurt am Main its hub. At the end of 1926, Frankfurt Rebstock ranked number five among Germany's largest airports. Regular service to popular domestic destinations, including Munich and Berlin as well as to main European cities, including London, Paris, Vienna, Brussels, and Geneva, resulted in a healthy 60 to 70 percent increase in the number of flights, passengers, and freight volume.

The New York stock market crash in late fall of 1929 put an end to commercial aviation's rapid growth, at least temporarily. As a sizable number of businesses went bankrupt in many countries, air transport slowed down significantly. This, however, did not discourage Frankfurt city officials and the German government from rolling out plans for a new airport at a larger site in Frankfurt am Main. Meanwhile the young democracy of the Weimar Republic did not withstand the political pressure of a growing army of impoverished German workers. Adolf Hitler's National Socialist government, which took over the reins in 1933, sympathized with the idea of building an airport in Frankfurt and turned it into one of its gigantic job creation projects. In 1934 Südwestdeutsche Luftverkehrs AG was renamed Südwestdeutsche Flugbetriebs AG Rhein-Main and its purpose changed to building and operating the new Rhein-Main Airport, the construction of which was largely financed by the Nazi government. Hundreds of Notstandsarbeiter, previously unemployed workers who received a modest pay for their work instead of unemployment benefits, cleared a large area of forest in Frankfurt's southwest and prepared the site for the following construction work. Eighteen months later, in July 1936, the new Rhein-Main Airport, strategically located at the junction of two national freeways, opened for air traffic.

COMPANY PERSPECTIVES

We professionally develop mobility, making it an exciting experience for our customers. As an airport group we are the most strongly performing player in all business segments of the industry. For Fraport, airports are worlds of excitement and diversity as well as intermodal hubs. We systematically link different modes of transportation. At all our locations, process efficiency and innovation is our hallmark. Our success is based on competitive integrated services, which flexibly meet our customers' requirements. Our top priority is safety and security. In pursuing our business, we create sustainable value for the benefit of our shareholders, employees, and the regions where we are located.

SHORT-LIVED ZEPPELIN ERA ENDS IN 1940

It was no coincidence that the opening ceremony for the new Rhein-Main Airport took place on July 8, 1936, the birthday of the German inventor of the Zeppelin airship, Count Zeppelin. Zeppelin airships were masterpieces of German engineering and had witnessed a renaissance as a means of civilian air transport, and the Nazi government was aware of their high public relations appeal. In late 1934, Südwestdeutsche Flugbetriebs AG had signed an agreement with Luftschiffbau Zeppelin GmbH, the company that built and operated Zeppelin airships, regarding setting up a large hall and other infrastructure to enable Zeppelins to land and take off at Rhein-Main Airport. Luftschiffbau Zeppelin in turn agreed to use the airport as their hub for regular transatlantic Zeppelin service to North and South America. A large area of forest had to be cleared for the project before two airship hangars, each of them roughly 300 meters long, 60 meters wide, and 55 meters high, were built in Frankfurt between fall 1935 and summer 1938. Hydrogen, the Zeppelin fuel, was delivered by chemicals manufacturer Hoechst AG via an underground pipeline.

After the first hall was finished, the two German airships, LZ 127 Graf Zeppelin and the much larger LZ 129 Hindenburg, commenced regular overseas service in May 1936. By the end of that year alone, almost 4,000 passengers, 20,400 pounds of mail, and about the same amount of freight, were transported on ten trips to North America and 20 trips to South America. Traveling by airship offered the conveniences of a cruise ship—private bathrooms, a large dining hall and a bar, a lobby, and two promenade decks—without the sometimes sickening swaying of an ocean liner. The Zeppelins were equipped with refrigerators and a bakery, and there was even a grand piano on board. Although it took about two weeks to get from Europe to South America, the number of people interested in traveling at this kind of comfort level often exceeded the limited number of seats available. A third Zeppelin, LZ 130, was under construction when the sudden explosion of the Hindenburg while landing at Lakehurst Naval Air Station in Manchester Township, New Jersey, on May 6, 1937, made international headlines. The tragic accident, which took 36 lives among passengers and crew, marked the end of the Zeppelin era at Rhein-Main Airport.

Initially, the highly explosive hydrogen gas used in the Hindenburg Zeppelin's envelope was to be replaced by helium imported from the United States. However, after it became obvious that Nazi Germany was preparing for war, the Americans refused to deliver the promised high volumes of the nonflammable gas. After Germany marched into Poland in September 1939, the remaining two Zeppelins—the construction of LZ 130 had been completed in September 1938—were put out of service. Six months later, Hermann Göring, the Third Reich's aviation minister, gave the order to destroy the Zeppelins, the airship halls, and the related infrastructure in the southern part of Rhein-Main Airport. This was carried out between March and May 1940.

SERVING THE MILITARY DURING AND AFTER WORLD WAR II

Up until the beginning of World War II, Südwestdeutsche Flugbetriebs AG managed the dynamically growing Rhein-Main Airport. Air traffic had increased significantly with the growing number of European airlines, passengers, and freight volume. In 1937 Frankfurt witnessed an all-time high of 70,910 flight passengers. By that year the city's airport had surpassed all German airports, except Berlin-Tempelhof, in the number of scheduled flights which connected Frankfurt am Main directly with most European countries. However, with the outbreak of World War II, Rhein-Main Airport came under the control of the German Air Force. Foreign airlines vacated their offices at the airport and most international flights, except a few connections operated by Deutsche Lufthansa to neutral European countries, were canceled.

KEY DATES

1924:: Südwestdeutsche Luftverkehrs AG is founded.
1936:: Rhein-Main Airport commences operations.
1946:: The airport is used as a U.S. air base.
1947:: Verkehrsaktiengesellschaft Rhein-Main (V.A. G.) is established.
1949:: A second runway doubles capacity for takeoffs and landings.
1958:: The company is renamed Flughafen Frankfurt/Main AG (FAG).
1972:: Newly built Terminal 1 and an underground train station are opened.
1974:: FAG lowers landing fees for airlines using quieter airplanes and less noise-inducing landing procedures.
1988:: The Frankfurt Airport Center with 48,000 square meters of office space is completed.
1994:: The new Terminal 2 and the airport elevated train Sky Line are opened.
2000:: The company is renamed Fraport AG Frankfurt Airport Services Worldwide.
2001:: Fraport AG goes public.

During the war, Südwestdeutsche Flugbetriebs' activities were limited to infrastructure maintenance and administrative tasks, while most of its former employees served in the military. After the Zeppelin hangars and airships had been destroyed, the extended runway was taken over by fighter planes of the German Luftwaffe, which flew countless bombing raids on European cities. The Third Reich's aviation ministry developed plans to expand greatly Rhein-Main Airport and to use it exclusively for military purposes. Nevertheless, not only did this project meet fierce resistance from Frankfurt's city officials, as the war proceeded with Hitler's attack on the Soviet Union in 1941, there was simply not enough money available to finance such a large project. After the German troops were defeated near Stalingrad, Russia, in 1942, the war returned to Germany a year later. Frankfurt's Rhein-Main Airport was heavily bombed in 1944, resulting in the destruction of the runway as well as severe damage to many buildings. Before German troops retreated in March 1945, they blew up important installations at the airport. Finally, after the Germans abandoned the site, most of the remaining inventory was stolen before the American Allied Forces arrived.

In late May 1945, four out of the 80 employees who had worked at Südwestdeutsche Flugbetriebs AG in 1939 remained to secure any valuable materials they were able to find on the premises of the destroyed airport. As a growing number of Südwestdeutsche Flugbetriebs' former employees returned from the battlefields and prisoner camps, the reconstruction of Rhein-Main Airport progressed more quickly. Under American military administration, American soldiers and German prisoners of war built the first runway and repaired the power and water supply systems in 1945. From spring 1946 on, the American military used the airport as a U.S. air base and Südwestdeutsche Flugbetriebs AG was contracted to rebuild and expand the airport facilities. After the essential infrastructure and services had been reinstalled, the landing of an American Overseas Airlines aircraft in May 1946 marked a new beginning following the war. Two years later, Rhein-Main Airport became the base from which the legendary U.S. Air Force Airlift supplied almost two million tons of goods to West Berlin, which was under siege by the Soviets between June 1948 and September 1949. Every three minutes, one of these cargo planes took off from Frankfurt for Berlin, day after day and night after night. Because this operation used up most of the airport's capacity, a second runway was built in 1949. After the airport was opened for civilian traffic in 1950, the U.S. Air Force moved to the southern area of Rhein-Main Airport that was formerly reserved for Zeppelin airship service, where it established a permanent air base.

KEEPING UP WITH BURGEONING COMMERCIAL AIR TRAFFIC

Because Germans were not allowed to get involved in aviation immediately after the war, the erroneous translation of Südwestdeutsche Flugbetriebs' name into English as "Southwestern Airlines" caused the Allied Control Council to ban all Germans from Rhein-Main Airport and to cancel all related contracts with German companies, including Südwestdeutsche. In response the company began construction work on a new office complex and other operations buildings just one-third of a mile outside of the airport's northern gate. In September 1947 the company was renamed Verkehrsaktiengesellschaft Rhein-Main (V.A.G.) and moved into the new office building. After the foundation of the Federal Republic of Germany in the three western German zones in May 1949, the formerly tense German-American relations turned friendlier. In the same year the American aviation authorities assigned V.A.G. full responsibility for ground services at Rhein-Main Airport and in 1952 transferred responsibility for the airport's security to the company. In 1955 the state of Hesse became V.A.G.'s majority shareholder, owning 45.2 percent of the share capital. The city of Frankfurt/Main held a 28.9 percent stake and the Federal Republic of Germany held the remaining 25.9 percent stake in the company, which had been renamed Flughafen Aktiengesellschaft Frankfurt/Main in 1954. In 1955 Germany regained sovereignty over its airspace. Three years later V.A.G.'s name was changed again to Flughafen Frankfurt/Main AG (FAG).

Following the official reopening of Rhein-Main in June 1950 the airport witnessed an unprecedented growth in air traffic, putting the expansion and modernization of its facilities at the top of FAG's agenda for the next 20 years. Starting out with three times the highest prewar levels in 1950, the number of takeoffs and landings doubled each year until 1953, when the introduction of tourist class seats contributed greatly to even faster growth. FAG's construction projects included new fuel tanks, hangars, a large freight handling hall, and a post office, as well as other office buildings. The first radar equipment was installed; an air traffic control tower was erected; passenger capacity was doubled; and the runway system was expanded.

The landing of the first jet airplane at Rhein-Main Airport, a Russian Tupolev 104 with Soviet Deputy Prime Minister Mikojan on board, in April 1958, ushered in the jet era which gave another major boost to commercial aviation and made coping with burgeoning traffic at Frankfurt airport a real challenge for FAG. The new jets required longer runways and carried 140 passengers instead of 100 or less. Again, the airport's facilities were expanded and modernized. New, larger passenger luggage transporters with built-in conveyor belts, as well as larger transfer busses, were provided to handle the increasing number of passengers per flight. The airport's main runway was extended to 3,000 meters and a new underground fueling station that sped up the time needed to refuel an airplane was installed. A brand new passenger hall was equipped with separate check-in and waiting areas for domestic and international flights. In 1957 the number of passengers passing through Rhein-Main Airport passed the one million mark. This figure doubled by 1960, due to the increasing number of scheduled flights offered by a growing number of airlines. In 1961 Deutsche Lufthansa commenced overnight airmail service for the German Post Office. In the early 1960s it became obvious that only by significantly expanding Rhein-Main Airport's facilities could the anticipated immense increase in air traffic be handled. After a plan for building a new terminal was approved by the stakeholders, Frankfurt's airport became Europe's largest construction zone.

FURTHER EXPANSION AT HOME AND ABROAD

In the 1970s and 1980s Rhein-Main Airport evolved as one of the world's major hubs for air cargo handling and transitioning flight passengers. The opening of the new Terminal Mitte on March 14, 1972, marked an important milestone for FAG, which by that time employed almost 5,000 people. At the heart of the terminal was a world's first, a 40-kilometers-long, electronically controlled, partly underground baggage transportation and sorting system that could handle up to 50,000 pieces of luggage and cut the transfer time between flights down to 45 minutes. Despite major losses in the two-digit millions in 1974 and 1975, caused by an air traffic controller strike and the effects of the 1973 oil price shock, it took only until 1979 for FAG to amortize this major investment of roughly DM one billion.

However, keeping up with ever growing numbers of passengers and cargo volumes was a continuous task, since the carrying capacity of passenger and cargo planes increased significantly with every new airplane generation. It took 16 years until FAG's plan to build a new runway in the western part of the airport was approved by local and state authorities. Finally, in April 1984, a Lufthansa Airbus was the first plane to take off from the new runway 18 West, which could be used only for takeoffs due to geographic factors. By the mid-1980s Terminal Mitte, which enabled the airport's capacity to double, reached its limits, and the construction of an additional terminal became inevitable. The fall of the Berlin Wall in 1989, the subsequent opening of the Eastern European countries and progressing economic globalization and political liberalization, combined with the decreasing costs for air travel, kept driving the dynamic growth of international air traffic. In 1989 FAG's board of directors approved a DM 7.4 billion ten-year investment program for expanding the airport facilities. In October 1994 the new Terminal 2 and the airport elevated train Sky Line connecting the main terminals were completed. Another major construction project was the airport's new freight handling area Cargo City South begun in 1996 using area that the U.S. Air Force was gradually vacating.

In the late 1990s it became clear that patchworkstyle capacity-enhancing measures would not be sufficient to handle the anticipated traffic at Rhein-Main. After a heated public discussion and a lengthy mediation project with major stakeholders, the parliament of Hesse approved another large construction program in 2000 for an additional runway northwest of the current area in use, on the precondition that a ban on night flights would be put into place between 11:00 p.m. and 5:00 a.m. To help finance the costly project, FAG's board of directors decided to take the company public. However, the city of Frankfurt and the state of Hesse sealed an agreement to keep at least 51 percent of the share capital under their control. The initial public offering in 2001 of the renamed Fraport AG Frankfurt Airport Services Worldwide yielded over EUR 900 million. Thereafter, 29 percent of Fraport's share capital was held by private investors. The state of Hesse held 32.1 percent, the city of Frankfurt 20.5 percent, and the German government 18.4 percent of the shares. In fall 2005, the German government announced its decision to sell its stake worth an estimated EUR 660 million. Lufthansa jumped at the opportunity and acquired a 9.98 percent stake in Fraport.

Although Fraport had enough cash on hand to finance the expansion, the construction work had to be delayed. Ticona GmbH, a plastic manufacturer located in the entry lane of the planned new runway sued Fraport on the grounds that the new runway posed a major security risk to its manufacturing site. The dispute was settled in late 2006 when Fraport agreed to pay Ticona's parent company Celanese AG about $850 million to relocate the plant. A 100-page request for additional information by state authorities pushed Fraport's schedule further behind. Despite the delay with the new runway, Fraport pursued another ambitious project, building a new Terminal 3 on the grounds of the former U.S. Air Base, which was completely vacated in 2005.

As early as the 1980s FAG's top management decided to market its expertise in building and operating airports elsewhere in the world through various subsidiaries and joint ventures with other airport operators. Services offered ranged from consulting and staff training to providing and installing equipment and infrastructure, from ground handling and security services to operating whole airports. It was obvious that international expansion was a necessary step for securing the company's sustained growth. However, the write-off of an estimated $350 million in 2001 and 2002, after the Philippine government's fraud claim expropriated the new international airport terminal built by Fraport with business partners at Manila's airport, was a warning sign that this could be a risky business. By 2005 Fraport was involved in building, operating, or servicing airports worldwide, such as the tourist airports Mallorca, Menorca, and Ibiza in Spain; Antalya in Turkey; Varna and Burgas in Bulgaria; Jacksonville in Florida; Cairo in Egypt; and Lima in Peru. The company also acquired stakes in domestic airports including Bremen, Hannover, and the all-cargo airport Frankfurt-Hahn, and was investing in other promising airport projects in emerging markets such as Xi'an Airport in China and Delhi International Airport in India.

By mid-2007, there were two major concerns facing Fraport's future. First, the company would need to be able to compete successfully with other European airports by completing the planned capacity expansion in Frankfurt. The second challenge would come if the ban on night flights at Frankfurt Airport became a reality and Lufthansa moved its cargo operations to another German airport.

Evelyn Hauser

PRINCIPAL SUBSIDIARIES

FIS Flugund Industriesicherheit Serviceund Beratungs-GmbH; Fraport Cargo Services GmbH; Flughafen Hannover-Langenhagen GmbH (30%); Flughafen Frankfurt-Hahn GmbH (65%); ASG Airport Service Gesellschaft mbH (49%); Media Frankfurt GmbH (51%); Gesellschaft für Cleaning Service mbH & Co. Airport Frankfurt/Main KG (40%); Airport Cater Service GmbH; Airmail Center Frankfurt GmbH (40%); NICE Aircraft Services & Support GmbH (52%); Flughafen Saarbrücken Betriebsgesellschaft mbH (51%); Fraport Immobilienservice und -entwicklungs GmbH & Co. KG; AirIT Airport IT Services Hahn AG; Airport Assekuranz Vermittlungs-GmbH; Airport Retail Solutions GmbH; ICTS Europe Holdings B.V. (Netherlands); ICTS (UK) Ltd.; Fraport Peru S. A. C. (Peru); Lima Airport Partners S. R. L. (Peru; 42%); ICTS Netherlands Airport Services VOF (50%); Tradeport Hong Kong Ltd. (18.75%); Fraport Ground Services Austria GmbH; LIS GmbH, Sicherheitsberatung für Luftfahrt und Industrieanlagen (Austria); Air-Transport IT Services, Inc. (United States); New Age Aviation Security US Inc. (United States; 75%); Fraport Twin Star Management AD (Bulgaria; 60%); Security Partners Ltd. (Russia).