Interview: Thomas Kaeser on compressed air and split-rentals

Kaeser Kompressoren is now in its third generation of Kaeser family ownership and shows no signs of slowing down. IRN Editor Murray Pollok met CEO Thomas Kaeser at the company’s headquarters in Coburg, Germany.

As managing director of a classic German ‘Mittelstand’ family-owned business you might expect Thomas Kaeser to take a conservative approach to capital expenditure. In fact, as he gives IRN a tour of the company’s Coburg headquarters, the evidence of investment piles up: the €10 million spare parts operation, robots transporting components between production halls, excavators working outside to finish another recent extension.

Mr Kaeser points over to spare ground outside the compound and says there are plans for two more facilities there as well. That will add to the existing 50000 m2 of covered space already on the site.

That investment is what has propelled Kaeser to its current status as one of the world’s foremost compressed air specialists. With revenues of around €600 million, its compressors and other products are sold all over the world to industrial and manufacturing customers of all types. It has 46 branch offices worldwide, including new offices in Peru and Kenya, plus 64 ‘partner’ companies.

Of the total business, Mobilair portable compressors represents a relatively small part – around 15% of revenues – but it is important, with rental being the single biggest customer segment for the division.

Around 60% of Mobilair sales are in Europe, and it has many of the region’s major rental companies as customers, but it also sells a lot worldwide, with major rental clients in North America (Volvo Rents, for example) and South America (where Brazilian rental company Engebras Kompressoren has around 500 of its M 26 compressors).

Kaeser’s links to rental go beyond its Mobilair business. The company sometimes ‘rents’ its static, industrial compressors to customers, charging them by the volume of air generated. The compressors are owned by a third-party leasing company, Kaeser monitors the performance of the machines and maintains them, with customers paying a ‘utility’ bill for air. That kind of contract still represents less than 10% of its fixed installations.

“We understand why the rental model works”, says Mr Kaeser, “It’s like electricity or gas. We don’t rent the compressor, we make the unit available to the customer. It’s beyond rental – super rental.”

This flexible approach to selling and ownership of its products extends to the equipment rental market with its portable Mobilair units, with Kaeser willing to provide compressors in a number of ways, either through a straight sale, via a leasing company, or on a split-rental basis.

Under split-rental, ownership of the compressor is with a leasing company, with Kaeser taking a proportion (around 60%) of the rental revenues. Rental companies only pay this split-fee, with Kaeser and its service organisation maintaining and servicing the compressors.

Mr Kaeser says this is a low risk option for rental companies; “The rental company gets brand new machines and customers want state-of-the-art machines, and downtime is reduced as well.”

“You need to have very close contact with the rental company, to see that the rental company is really renting it. We also monitor whether the machines are being used, and prompt them to re-deploy it if not. When it is not profitable for us – and the customer does not need to rent it – then we take it back.”

Kaeser has hundreds of portable compressors operating under rental-split arrangements like this and has being offering the option for 10 years.

Different ownership models is one way of getting business, but offering high quality products on short delivery times is just as important.

It is Kaeser’s aim to deliver compressors within five to eight working days of an order. The key to achieving this is keeping control of production in-house. The company manufactures all of its portable units at Coburg, in Northern Bavaria (with the exception of three models assembled at Kaeser’s small facility near Lyon in France). The dedicated 5000 m2 Mobilair facility in Coburg has a production capacity of 10000 units a year, although it is not working at that rate now.

Almost everything is done in-house, except the tanks. A sheet metal plant, close to Coburg, was built five years ago and paid for itself in two years, says Mr Kaeser.

The company only builds to order and has a sophisticated system that quickly allocates parts and components for a very large number of product variations.

“Our aim is to have very short and controlled delivery times”, says Uwe Grundmann, who is in charge of the portable compressor factory, “Every model within five to eight working days, and in the configuration and colour that you want. Every unit can be configured with about 500 or 600 variations”. For example, there are 100 different air-end options available.

Mr Kaeser says; “The reason we don’t have stock is that we use production capacity to deliver to customer orders.” Having such a large number of product variations “sounds complicated”, he acknowledges, “but we do it intelligently by computer: we can provide the specification variations in a very short time.”

There are no current plans to expand the manufacturing output outside Germany or Europe. “The core of the product is not just engineering and labour, it’s also international logistics”, says Mr Kaeser, “We prefer to concentrate production and decentralise sales, service and logistics. Perhaps in five years the model will change a bit, but now we produce in Germany.”

To manage those kinds of lead times requires a sophisticated parts operation and very responsive suppliers. As Mr Kaeser says; “Today a supplier is almost as important as a customer. A reliable supplier is vital.”

Meanwhile, technical innovation remains as important today as it was for his grandfather, company founder Carl (senior), and father, Carl (junior). Kaeser’s Sigma profile rotor for screw compressors was first introduced in 1973 and the Sigma Control Mobil system was introduced in 1998. The company has been fitting polyethylene enclosures for 10 years, first using the material on its M 26 unit.

“We have two main strategies”, explains Mr Kaeser, “One is to produce air at the lowest possible cost. In 1975 my father created the slogan ‘more compressed air, less energy’. People said energy didn’t matter; now the page has changed. The philosophy of reduced energy use has been in our genes for 30 years.

“Second, air is as important as electricity. We build high quality products, with telemetry features and service, so that this air is always there when needed. When the jackhammer is used, the air needs to be there...Our new models are always more reliable and more efficient. Not cheaper.”

The key areas of focus now are “to choose the right engine, optimise the air end and internal pressure losses”, says Mr Kaeser. In terms of product development, the M 350 is one of the latest models – a large, 34 m3/min unit designed for particular applications and attractive to specialist rental companies. One application for this has been to create underwater ‘air curtains’ to reduce the impact on undersea life during engineering operations, such as building foundations for offshore wind turbines.

“The M350 is significant for big rental companies”, says Mr Kaeser, “The dealers who also have rental fleets don’t have this machine – it’s only for specialist rental companies.”

So-called oil free compressed air has become a more important technology in recent years, although Kaeser prefers the more accurate term ‘dry running’, because the compressor still needs to have oil to operate. Kaeser may have something new in this area coming up, but is keeping its plans under wraps for the time being.

Like other manufacturers Kaeser has been wrestling with the new engine emission requirements. “This is hard work”, says Mr Kaeser, “I really don’t know how small companies can achieve this – the cost is so high, and you have to have engineers to do it.

“In the end it’s the right thing to do – we only have one planet. But it takes real work, time and engineering capacity to achieve.”

Kaeser uses Kubota engines on units up to 10 m3, then a mix of Deutz, Mercedes Benz and Caterpillar for bigger units. It isn’t opting for a preferred technical solution, as Thomas Kaeser explains; “We don’t choose Adblue [used with Selective Catalytic Reduction (SCR) solutions] or particulate filters (Exhaust Gas Recirculation (EGR) techniques], we choose the engine manufacturer. The choice of engine is very, very important.”

The Mercedes Benz engines on the M250 and M350 use Adblue/SCR technology, while the M200 uses a Caterpillar ACERT engine.

With the addition of the M 350 unit the Mobilair range is now even broader. “The range supplies 95% of the market”, says Mr Kaeser.

It’s one thing to have the right products, but do its rental customers have money to spend? Conditions are certainly better than they were in 2009 and 2010, says Mr Kaeser, “People who bought hundreds every year went to zero units. Rental companies aged out their machines. I’m not sure it was the most efficient way of doing it, but it was the most cautious way. Liquidity was more important than maximising profits.”

Spending resumed at the end of 2010, but growth has slowed again. “The Eurozone crisis is there, we cannot deny it... we have no choice but to overcome the problem. The politicians have to explain that we have to tighten our belts.

“We are in a difficult situation, but when we overcome the difficulty I think the market will be about the same as 2012, and a bit higher. We don’t plan for a drop in 2013.” Mr Kaeser thinks the company as a whole will see 10% growth next year, although there is little certainty.

Whatever happens, Kaeser will do what many ‘Mittelstand’ companies try to do, which is look after its employees. During the recession, Mr Kaeser says not a single employee was laid off – they worked fewer hours, of course, and there was little overtime on offer.

As one of the three big employers in Coburg, with around 1600 staff locally plus 300 at a facility in Gera, north of Coburg, Kaeser takes its responsibilities seriously. That extends to taking on around 80 engineering apprenticeships every year, far more than is actually needed.

Mr Kaeser says the quality of the training is such that those who don’t get jobs with Kaeser often manage to find work elsewhere.

The Kaeser family isn’t just investing in bricks and mortar.