Sales: FFr 19.162 billion (US$ 2.979 billion)
Market Value: FFr 28.380 billion (US$ 4.412 billion)
Stock Index: Paris
L’Air Liquide, one of the world’s largest producers of industrial gases, currently commands approximately 25% of the world market. Industrial gases find multiple applications in a diversity of products. The areas of chemistry, industry, agriculture, pharmacy, electricity, biology, papermaking, glassmaking, and medicine all use industrial gases. The company conducts operations in four sectors: industrial gases, welding and cutting, engineering and construction, and chemicals and sundries. Founded in 1902, the company prospered under the acclaimed chemist Georges Claude. L’Air Liquide presently operates more than 430 plants in 55 countries. Five research centers, the newest located in Chicago, contribute to the continued achievements of the company.
Georges Claude received his diploma in chemistry from the School of Physics and Chemistry in 1889. From 1896 to 1902 he worked as a chemist at Compagnie Franchise Houston-Thompson. While employed there he attempted to develop a process for handling acetylene. The chemical, discovered only a few years earlier, posed several difficulties for industrial use; in particular the expense of production and storage made it economically unfeasible for wide-scale use. At the age of 26, Claude solved these problems and discovered a method for liquefying acetylene. Professor Land, a German chemist, had succeeded earlier in separating oxygen and nitrogen. However, the gases converted by Land’s “counter-current procedure” contained 40% impurities. The triumph of Claude’s process, acclaimed by the Academy of Science and Chemistry, returned gases with less than 1% impurities.
Claude’s research led him to believe that air gases, produced and stored economically, could serve as viable and inexpensive sources of energy. He envisioned oxygen and nitrogen as sources of power for combustion engines. Claude’s process for separating air gases resulted in the emission of large quantities of heat. However, many of his early experiments failed. They were expensive to undertake and the young chemist had no financial resources of his own to rely upon. Good ideas, Claude realized, needed financing if they were to become anything more than ideas.
Paul Delorme, a former schoolmate and co-worker at Houston-Thompson, encouraged his friend Frederic Gallier to match his own financial contribution to Claude’s research. In November of 1902 Delorme and Gallier each contributed FFr 50,000 to the fledgling enterprise; the company was formally constituted, and Paul Delorme was named president, a position which he held until 1945. The bulk of the company’s original 26 shares were entrusted to Claude.
During the early years the company suffered from financial hardships, but the business skills of Paul Delorme carried L’Air Liquide through these difficult times. In 1903 Delorme issued 725 new shares and offered 100 of these shares for sale. By the third quarter of 1906, L’Air Liquide had overcome its financial problems, and during that year the company earned its first dividends. Since that time L’Air Liquide has continued to prosper and has, without interruption (even during the war years), earned dividends.
Under the direction of Delorme, L’Air Liquide established plants in Belgium and Brazil in 1906, and continued to expand into overseas markets; plants were set up Spain (1910), Japan (1911), and Canada and Sweden (1913). One of the earlier inventions of Claude, neon lighting, appeared on the streets of Paris in 1910. (He had applied for the first patent on neon tubes in 1907.) In 1908 L’Air Liquide began producing oxygen and is now one of largest producers in Europe. Immediately prior to and during World War I, Claude designed machinery to improve the production of ammonia. His work with liquid oxygen at this time led to technological innovations in explosives.
The inter-war years were ones of continued overseas expansion for L’Air Liquide. Plants were established in Greece, Singapore, Hong Kong, Malaysia, Portugal, and Senegal. In this period Claude concentrated his efforts on the separation and utilization of rare atmospheric gases. His engineering skills overcame the practical difficulties and Claude was able to improve on his process for separating hydrogen. Through several stages of cooling, using liquid carbon monoxide as the coolant, hydrogen was compressed. His success with hydrogen produced a lubricant which could be used for driving motors. Employing nitrogen, the gas was injected into the motor and provided an efficient lubricant down to —211 degrees fahrenheit. No other lubricant product had proved to be so efficient at this temperature.
Claude regarded the oceans as the most abundant yet untapped source of energy on the globe, and during the 1930’s he began experimenting with thermodynamic principles to take advantage of this energy source. His efforts in this area did not have any immediate practical results, but following World War II the Academy of Sciences used his principles of thermodynamics and started to build a thermodynamic plant off the coast of Cuba. An accident caused the project to be cancelled, but L’Air Liquide continues to develop oceanic products; the company currently manufacture special equipment for deep-sea diving.
Following World War II the French High Court accused Claude of collaborating with the Nazis. Unconfirmed charges claimed that the development of the “flying bomb” resulted from Claude’s work. In his defense, Claude stated that he believed in German victory under the auspices of Pétain in Vichy France. The Court, however, sentenced him to life imprisonment and stripped him of all honors. He was released from prison in 1950.
During the 1960’s gas sales declined, and most of the major industrial gases manufacturers began to diversify their companies. But Jean Delorme, Paul Delorme’s son, believed the potential market for gases remained strong, and under his leadership L’Air Liquide did not follow the movement to diversification. This decision improved the company’s leading position in the industrial gases market. At the same time, L’Air Liquide pursued a policy of expansion through cautious acquisition, Delorme seeking to acquire only companies with an established customer base.
Unlike most industries, gases producers usually perform well during a recession; the real cost of gases actually declined during the 1970’s. With other fuel costs rising, the incentive to use combustion engines, which use oxygen, increased. Improved technologies resulted in the intensified use of more efficient combustion engines. Recession, though, adversely affects the customer base which consumes industrial gases. Heavy industry, like steel manufacturing, was adversely affected by the recession of the 1970’s, resulting in the reduction of demand for L’Air Liquide products. This trend continued into the 1980’s as European and American steel makers reduced their capacities. In order to compensate for its losses, L’Air Liquide sold its unprofitable sectors.
Technological innovations pose another major threat to L’Air Liquide’s markets. For example, new technologies have allowed steel manufacturers to do away with blast furnaces and the oxygen used to power them. However, L’Air Liquide recognized that these innovations have resulted in more efficient blast furnaces which, in turn, have maintained a demand for oxygen.
Welding accounts for 11% of L’Air Liquide’s sales. This sector traditionally used oxy-acetylene in all its welding equipment. Oxy-acetylene, the hottest and most concentrated fuel gas, provided light before the invention of the electric light bulb. Yet the welding market for L’Air Liquide has recently declined. Laser technology now provides cleaner, safer machinery, replacing the traditional gas-fueled torch.
The smallest customers of industrial gases producers tend to be hospitals which purchase gases in cylinders. United States industrial gases manufacturers leave this market to the smaller producers. In Europe the larger manufacturers sell and cylinder gases, and then lease the cylinder. To some degree this practice insulates them against cyclical changes in the marketplace. However, the demand for cylinder gases, mainly oxygen and acetylene, is usually met by local producers since these gases can not be liquified and are dangerous to transport. Reductions in social security drug reimbursements and lower health care expenditures have led some gases manufacturers in Europe to believe that the market may decline in this sector. These governmental policies, along with exchange rate fluctuations, have recently contributed to declining profits and sales for L’Air Liquide.
As early as 1916 L’Air Liquide entered into a joint venture with Rockefeller and Hollingsworth to form L’Air Reduction Company in the United States. After World War II, however, the French government forced L’Air Liquide to sell its U.S. holdings in order to assist France in diminishing its war debts. Not until 1969 did L’Air Liquide return to the United States. The highly international character of L’Air Liquide makes the company susceptible to parity changes between the French franc and the U.S. dollar. Recent efforts to increase L’Air Liquide’s share of the United States market has contributed to this volatility. As L’Air Liquide’s presence in the U.S. market grows, this vulnerability increases in importance. The limiting effects of the European Monetary System make this a lesser concern in the European markets; these markets account for 53% of the net sales of L’Air Liquide.
L’Air Liquide, however, acquired Big Three Industries of Texas in 1986 for $1.6 billion. This acquisition makes L’Air Liquide the second largest industrial gases manufacturer in the United States. The deal, financed by cash and U.S. borrowing, increased the company’s United States market from approximately 14 to 20%. However, the Federal Trade Commission required L’Air Liquide to divest part of its holdings by selling certain sections of the company to ensure free competition and guard against monopolization of the industry within the U.S. by L’Air Liquide.
Air Products and Chemical, Inc., a leading U.S. competitor hoping to acquire a portion of L’Air Liquide’s customer base, has begun building small plants, approximately one-eighth the size of the larger L’Air Liquide sites. Air Products believes that the structure of the larger firm slows down its ability to respond quickly to changing market conditions. Air Products hopes this will give it a competitive edge against L’Air Liquide.
Nevertheless, L’Air Liquide can expect to maintain a substantial share of its customer base in the U.S. First, the size of the company allows for large expenditures on research and development. Second, the nature of the industrial gases market entices companies to build plants next to established customers. Traditionally, the customer and the supplier enter into long-term contracts for 15 to 25 years. The supplier installs pipelines to the customer site and pumps the gases directly to the plant, alleviating expensive shipping costs.
AGA of Sweden and L’Air Liquide recently dissolved a 15-year co-operative agreement. The decision not to renew the agreement resulted in the increased presence of L’Air Liquide in Belgium and Luxembourg, while AGA increased its holdings in Germany, Holland, and The Netherlands. L’Air Liquide’s management believes the termination of the agreement renders fewer constraints upon pursuing market opportunities throughout Europe, though the monopoly of the British market by BOC leaves Britain virtually inaccessible.
Business attitudes in France began to shift during 1986 in reaction to policies previously implemented by the former Socialist government. The trend toward an open economy with an emphasis on denationalization is also developing. L’Air Liquide, now a public company, can be expected to take greater advantage of these domestic trends.
The success of L’Air Liquide, represented by a doubling of its markets over the past five years, is impressive. De Royere, its current vice chairman, asserts that the company will continue to double its earnings every five years. During this time sales in the United States, Canada, Australia, Asia, and Africa increased from 20 to 36%, while the gas sector alone accounted for approximately 66% of net sales.
Although technological innovations potentially threaten the continued use of gases, L’Air Liquide exhibits its capability to adapt to changing market conditions. In 1985 the company entered into a joint venture with Whemo Denko of Japan to supply NASD A, the Japanese Space Agency, with liquid hydrogen. In addition, the rapidly growing electronics industry in Japan requires vector gases, nitrogen and hydrogen. The purification techniques developed by L’Air Liquide provide quality products for this market, with less than one part per billion of impurities. L’Air Liquide is second only to Nippon Sanso in this Japanese market.
New techniques in food processing require the use of carbon dioxide and nitrogen. The company has therefore started to package food products in inert atmospheres, another example of L’Air Liquide’s response to changing market demands. The sale of agricultural fertilizers, utilizing air gases, declined in 1986, as part of an overall decline in the agricultural sector as a result of poor weather conditions and a weaker U.S. dollar. This sector of the business accounts for only 10% of the domestic market in France.
Although L’Air Liquide maintains a virtual monopoly in its home market, it continues to apply innovative measures to sustain its strong position. Products developed over the past 10 years account for more than 40% of current sales. The outlook for L’Air Liquide’s continued growth appears positive. The company has always recognized the importance of responding to changing market conditions; this flexibility and foresight makes L’Air Liquide one of the most successful industrial gases manufacturers in the world today and will assist the company in maintaining its present market share.
L’Air Liquide SA; Air Liquide International; Société Chimique de la Grande Paroisse (64.79%); Compagnie Franüaise de Produits Oxygenes (99.85%); Société Anonyme de Fabrication de Genilis (99.99%); Société Industrielle des Gaz de 1’Air (99.96%); SOGIF (98.84%); Compagnie Industrielle Commerciale et Financiere des Gaz; CRYOLOR (79.99%); ALM (60%); SEPAL (50.95%). The company also has subsidiaries in the following countries: Argentina, Australia, Austria, Belgium, Cameroon, Canada, Denmark, Gabon, Ghana, Greece, Italy, Luxembourg, The Netherlands, Nigeria, Paraguay, Portugal, Senegal, Sweden, Tunisia, United Kingdom, United States, and West Germany.
The Origins and Early Development of the Heavy Chemical Industry in France by John Graham Smith, Oxford, Clarendon Press, 1979.