Air Products and Chemicals, Inc. History

Company History:

Air Products and Chemicals, Inc. is the world's third largest producer of industrial, specialty, and medical gases such as oxygen, nitrogen, argon, and hydrogen. Industrial gases contribute over half of the company's sales and nearly three-fourths of its profits. The company's chemicals and intermediates segment, which comprises about one-third of sales, claims U.S. leadership in polyurethanes, polymers, performance, and industrial segments. Air Products is also a fully-integrated supplier of industrial and specialty gases, equipment, and technical services to the electronics industry; the company dominated this market, with over one-fourth of the electronics industry's sales in the early 1990s. In the late 1980s and early 1990s, Air Products diversified into environmental energy systems, including waste-to-energy projects, tire recycling, and flue-gas desulfurization. Geographic expansion into Europe and the Pacific Rim has also opened new opportunities to the firm. The creation, development, and growth of Air Products has been characterized by innovation. As former company president Dexter F. Baker noted in Research Management magazine in 1986, the company found success through the employment of four fundamental criteria: 'finding a market that is not being well-satisfied, creating a superior technical solution, commercializing the solution, and acting as an investor in one's own new creative solution.'

Air Products founder Leonard Parker Pool began his career as a teenager selling oxygen to industrial customers, and, by the age of 30, he was district manager for Compressed Industrial Gases. In 1938, when Pool began his work, the oxygen market was dominated by such large companies as Linde A.G. and the Air Reduction Company, which avoided price wars and did not intrude in each other's sales territory. Oxygen was inexpensive to distill, and the raw material from which it is distilled, air, is free, so the chief costs involved shipping oxygen in heavy containers. Pool's idea was to distill oxygen in the customer's plant; however, the cost of this plan would have been prohibitive unless a cheap oxygen generator could be designed.

Pool, the son of a boiler-maker, had only a high school education, so, to design the generator he needed, he hired a young engineer by the name of Frank Pavlis to work with him. Pool's and Pavlis's design was revolutionary because it used a compressor lubricated with liquid oxygen and graphite. At that time, competitor compressors were lubricated with water due to the fear that the compressed oxygen, in contact with a lubricating oil, would ignite when exposed to the smallest spark. When oxygen was compressed using water, several steps were required to then remove the water from the oxygen. The new generator, however, could skip these steps and, as a result, it was less expensive to build, install, and maintain.

By 1940, Pool and Pavlis had a functioning generator. Pool quit his job, sold his insurance policy, and borrowed all the money that his wife--a schoolteacher--had saved. With this capital, he founded Air Products Inc. and opened shop in a former mortuary. In these last years of the Great Depression, the American business climate was dismal, and Pool had a great deal of difficulty selling his generators.

With the onset of World War II, however, Air Products began to thrive, manufacturing mobile oxygen generators for the armed services and heavy industry. When the war ended, Air Products lost many of its clients and was forced to aggressively pursue new accounts. Although Air Products could provide oxygen at a cost 25 percent lower than its competitors, customers were slow to take advantage of the new system, which was offered through five- to ten-year leasing agreements, under which Air Products would maintain the generator and teach employees how to operate it. While customers found the idea appealing, many were locked into long-term contracts with a company that shipped oxygen to their plants.

In desperation, Pool traveled to Pittsburgh and used a sales technique called 'door-stepping' to win a major contract with Weirton Steel. This sales technique involved staying at the customer's plant until the contract was signed. Pool said years later, 'God, we just lived at Weirton Steel when we learned they were interested in our proposition.' Indeed, Weirton was practically Air Product's only customer at that time.

In need of funds to construct a new plant, Air Products sent out a prospectus to potential investors. Pool acknowledged the company's inexperience, stating that Air Products 'has no background in prewar civil business,' and that in competing 'by a new method of distribution in a well-established field against experienced competitors who have much greater resources' Air Products expected 'to operate at a loss following the completion of its government contracts.' The company's boldness and candor apparently impressed investors, and the necessary $300,000 was raised. Soon, Air Products had installed generators at several chemical companies and had built a huge generator for Weirton Steel, a generator 100 times larger than any that had been built before.

Pool attributed a large part of his company's success to his 'tiger pack,' a group of aggressive young engineers serving as sales staff at Air Products. Pool maintained a close watch over operations, and, although he became known for his sense of humor and his commitment to his employees, he was also capable of dealing out a tongue-lashing to anyone who mislead a customer or lost a sale.

In the mid-1950s, Air Products profited from the launching of the first Soviet Sputnik, which American scientists surmised was powered by liquid hydrogen. When the U.S. defense department wanted liquid hydrogen, Air Products was asked to supply it. As a security precaution, new Air Products Company plants were provided with such code names as 'Baby-Bear' and 'Project Rover'; one large plant was disguised as the 'Apix Fertilizer Company.'

In addition to the production of liquid hydrogen, Air Products also branched out into new areas of chemistry like fluorine chemistry and cryogenics (the science of ultra-low temperatures). The company's oxygen business also continued to grow. The company no longer leased generators but built multi-million dollar operations near major customers, including Ford Motor Co. and U.S. Steel, selling any excess capacity to smaller customers.

Throughout the 1960s, Air Products thrived; sales rose 400 percent, while earnings rose 500 percent. The expansion into merchant gas (gas sold in tanks) proved profitable for the company, although Air Products was a latecomer to the field. Air Products used its late entrance into the field to its advantage by conceding the saturated markets to its well established rivals, Linde and Air Reduction Co., seeking out smaller, more receptive markets instead. In fact, as Air Products saw its fortunes growing, competitors like Linde experienced decreased profits.

During this time, oxygen-fired furnaces became a popular alternative to the hearth-style furnaces used in the steel-making industry, increasing oxygen consumption considerably. Nitrogen, another Air Products specialty, was also in demand as a refrigerant. Air Products also began selling the implements necessary to handling gases, such as welding tools, anesthesia equipment and cryogenic systems. Gases and gas-related equipment accounted for approximately three-fourths of Air Product's profits during the 1960s; the remainder came from chemicals and engineering services.

The diversification of Air Products into chemicals began in 1962 with the company's purchase of Houdry Chemicals and, later, Air Company, a specialty chemical company. When the Air Company was purchased by Air Products, it was losing money. To achieve a turnaround, Air Products took Air Company's acetylic chemicals and made them into specialty chemicals which fetched a higher price; the plant became profitable almost immediately. In 1969, Air Products purchased Escambia Chemicals, paying a cash price well below its market value. Escambia's attraction lay in a product called DABCO, regarded as the best catalyst for making urethane foam.

Due to the energy crisis and a recession, the 1970s was a difficult period for many chemical companies. While Air Products could not sustain the phenomenal growth it experienced in the 1960s, its annual sales and profits increased at least nine percent and sometimes as high as 20 percent. During this time, the company held a strong position in industrial gases both in the United States and abroad, as its gases were used by virtually every major industry. The chemical division performed erratically, however, and, during the recession, its engineering services division, which designed pipelines and plants, yielded disappointing results. Nevertheless, Air Products' industrial gases kept the company afloat.

The energy crisis had both positive and negative effects on Air Products. The industrial gases division, which consumed a large amount of electricity, was sensitive to rising utility rates. However, as the price of organic fuels rose, oxygen became a more popular fuel. The increased production costs of petro-chemicals and plastics were offset by higher demand for cryogenic equipment and gases to liquify natural gas. Like many other successful chemical companies, Air Products was thus able to benefit from the high energy prices in some cases.

During this time, the OPEC oil embargo convinced company management to invest in synthetic fuels. In 1980, Air Products, Wheelbraton Fry Inc., the state of Kentucky, and the U.S. Department of Energy formed a joint venture to produce a high energy, low pollution fuel from coal. Air Products invested $45 million in the project, while the bulk of the money, $748 million, came from the federal government. As none of the various synthetic fuel projects were successful, Air Products' only consolation was the high levels of oxygen consumed in the unsuccessful venture. Still, Air Products remained interested in energy development. In 1985, the company bought a methane recovery plant and accelerated development of a plant that converted garbage to steam and electricity.

Despite the disappointment of the synfuel project, Air Products sales grew an average of 20 percent per year throughout the 1970s. A 12-year, $281 million contract to supply liquid hydrogen for the space shuttle bolstered earnings as did the discovery of expanded uses for industrial gases. For instance, the food industry increased its use of hydrogen for hydrogenating vegetable oils, and flash-freezing, a process which required nitrogen, became an increasingly more popular technique.

In the 1970s and the early 1980s, Air Products, like other highly successful chemical companies of the same size, became concerned with having a product that could be used by a myriad of industries, in order to avoid overdependance on staple products linked to cyclical industries. Toward this end, Air Products focused on marketing oxygen and industrial gases to a wide variety of clients, so that dramatic downturns in an industry--such as steel manufacturing--would not be fatal to the company.

Also during this time, Air Products established a reputation for hiring highly competent, professional engineers, chemists, and business staff. Rather than assuming responsibility for such hirings, company president Edward Donley delegated the job to the vice-presidents and line managers, whom, according Donley, were better judges of an applicant's potential than a professional recruiter. The applicants hired by Air Products sometimes spent up to three years working in different departments of their choice, in order to decide where their skills would be best employed. Air Products also believed the exposure of engineers and chemists to management positions would prove vital to future success.

Air Products also demonstrated a commitment to the health and safety of its workers. In the 1970s, when three employees died from PVC induced cancer, Air Products periodically tested 492 other workers at two plants for possible exposure, and steps were taken to minimize health risks. In the late 1980s and early 1990s, the company developed 'Responsible Care' objectives to promote safety, environmentalism, and health at its facilities. At the same time, however, the company initiated a legal challenge to industry regulations, claiming that many were unfeasible to implement.

In 1986, Air Products embarked on a ten-year strategic plan that added a third core business, environment-energy, and focused on globalization of the firm. Between 1986 and 1993, the company invested $1 billion in European facilities as part of its strategy to replace older, less efficient plants, add new production capacity, and create new products. Significant investments in Asia resulted in the construction of seven industrial gas plants by 1992. The company also gained access to significant markets by buying mid-size competitors and entering into joint ventures.

By 1990, investments of $1.2 billion in the environmental-energy systems segment had expanded that division to include: a refuse-fired cogeneration facility; the American REF-FUEL joint venture with Browning-Ferris for building waste-to-energy facilities; a joint venture with Mitsubishi Heavy Industries to market flue gas desulfurization systems; and a methane gas reclamation business for landfills. Air Products' tire recycling program, which was undertaken in 1988, came to fruition in the early 1990s, as the rubber recovered from scrap tires promised to reduce the environmental and health hazards presented by scrap tires and offered cost savings for the production of rubberized asphalt, shoe soles, carpet underlay, and other products. Although Air Products faced well-established competition in the environmental arena, the rapid expansion of that market promised significant returns.

During this time, Air Products' earnings per share increased about 20 percent per year, double the rate of Standard & Poor's industrial index. In 1992, Harold A. Wagner, who had been a key proponent of the strategic plan, replaced Dexter Baker as chairperson and chief executive officer, and Air Products launched a two-year program to consolidate and restructure its $1.1 billion chemical business. The reorganization streamlined the chemicals segment from four to three divisions, realigned its management, and reduced its work force by seven to ten percent, or 1,000 to 1,400 jobs. In 1993, Air Products achieved record cash flows, sold record volumes of industrial gases and chemicals, and ranked as the third largest supplier of industrial gases in the world. The company planned to continue expanding its global investment programs throughout the 1990s.

Principal Subsidiaries: Air Products International Corp.; Air Products Manufacturing Corp.; Air Products REF-FUEL Holdings Corp.; Air Products REF-FUEL of Essex County, Inc.; Air Products REF-FUEL of Hempstead, Inc.; APCI (U.K.), Inc.; GSF Energy Inc.; Permea, Inc.; Prodair Corp.; Stearns-Catalytic Corp.; Air Products S.A. (France); Air Products Management S.A. (Belgium); Air Products Gases Industriais Ltda. (Brazil); Air Products Canada; Air Products Japan Inc.; Prodair S.A.; Air Products Nederland B.V.; Air Products plc (United Kingdom); Air Products (GB) Ltd.; Air Products (U.K.) Ltd.; Air Products (B.R) Ltd.; Anchor Chemical Group plc; Air Products GmbH (Germany).

Further Reading:

• Butrica, Andrew J., Out of Thin Air: A History of Air Products and Chemicals, Inc., 1940-1990, New York: Praeger, 1990.
• Storck, William J., 'Air Products on Course in Ambitious Strategic Plan,' Chemical & Engineering News, October 5, 1992, pp. 44-46.
• Swaim, Will, 'Air to the Throne,' World Trade, February 1993, pp. 66-68.

Source: International Directory of Company Histories, Vol. 10. St. James Press, 1995.

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