CAL Cargo: Busy growing a bespoke service
30 / 01 / 2018
Offer Gilboa went from running a successful textile business to owning Israel’s CAL Cargo Airlines (CAL) because he liked the cut of its cloth.
Gilboa, trained as a lawyer and with an MBA, began his career in the rag trade supplying clothing for some of the world’s largest retailers.
“I was managing director of a UK operation in the 1990s before I went back to Israel,” he says. “I was trying to get away from the clothing industry and for a while I was with a construction company.”
His escape was temporary and Gilboa was soon head-hunted by another clothing company in Israel: “Whereas the first company was focused on underwear and socks, the new one produced suits, so you can say that I moved up in life, from socks to suits.”
Gilboa headed this company for another ten years as chief executive, making it a global player with manufacturing bases in China, Egypt and Jordan, selling high quality wares to the US and UK.
A new opportunity
He was part of the 2005 initial public offering, and after selling his shares in 2010 was looking for a new opportunity. This came when a friend mentioned that CAL was up for sale, but needed some nifty management footwork to keep flying.
“I saw that CAL is a great company, with a great culture, and that it was at a critical point because it needed to rejuvenate its fleet.”
CAL had two vintage B747-200s. One was grounded and would not fly again, while the other had to undergo a heavy maintenance check within four weeks of Gilboa’s arrival but did not have a slot with a maintenance, repair and overhaul (MRO) provider to carry out the job.
Says Gilboa: “The first challenge was to find an MRO to refurbish that plane and to find another aircraft to support the needs of the company, which we did.”
There was a further administrative obstacle to overcome: CAL was not allowed to use a foreign MRO and there was no slot available with an Israeli company.
Gilboa managed to convince the Israeli authorities that China had great MROs who could carry out the work.
His experience of setting up businesses in China had given him an appreciation of the nation’s engineering prowess.
The best MROs
“In 2010, China had two or three of the best MROs but they were sneered at. I was a veteran of the textile industry and had opened a factory producing high-level suits with Italian fabrics made in China. I had been in China since 2004 and I had a very high appreciation of their abilities.
“Sure enough we found one in China that could challenge any MRO in the world. Don’t forget, these were new operations with state-of-the-art facilities.”
In September 2010 the freighter flew out on the last day before it could be grounded just as CAL management sourced another B747-200F.
“We relied on those two aircraft while trying to develop an alternative growth strategy for the group,” says Gilboa.
Having stabilised the company, whose European operation has been hubbed out of Liege in Belgium since 1996, Gilboa started working out a strategy to establish a unique selling proposition (USP). This, he says, was based on “what are we good at and what are the opportunities that will make a sustainable business?
“We understood that we needed to grow, as Israel is a very limited market.”
Gilboa quotes the Red Queen from Alice in Wonderland to sum up the dilemma: “It takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”
Prices were under pressure and CAL needed to sell its services outside of Israel. It had one flight a week to the US but in 2011 signed a block space agreement with an integrator to buy half the space on a daily B747-400F out of Liege to New York.
Having established a US presence, Gilboa looked closely at the Liege Air Cargo Handling Services (LACHS), which is owned by the CAL Group. “It looked strange to me, as to why does an airline own a ground handler?” he says.
Gilboa concluded that it gave CAL “a great opportunity” to pull together the strategy of the airline and the handling company as one.
“It gave us a seamless vertical operation that is talking the same logistics language and giving the service level we required.
“That became one of the pillars of our group strategy: to be the specialist in special freight. Non-standard cargo is our standard. LACHS became a very important part of this approach because if we were to really give excellent service to verticals they would need seamless operations from start to finish.
“Our strategy was to focus on the verticals and to give, where possible, a door-to-door solution, to be the FedEx of complicated cargo.”
Those verticals include pharma goods, energy charters and equine transport. The latter premium sector saw LACHS, together with Liege Airport Authorities, set up the Horse Inn for valuable bloodstock cargo three years ago.
Year by year, CAL added more destinations, starting with New York, then Larnaca, as a stopover on the way to Israel, then Oslo for the salmon trade to Israel. Atlanta was added two years ago and more recently Mexico City.
“Out of Mexico you can fly only half full because of the airport’s altitude. We then go to Atlanta and feed the other half, coming back to Europe with a full freighter by virtue of this stopover.”
CAL has 15 flights a week out of Liege and another five in codeshare, making 20 in total.
CAL’s fleet upgrade, to a pair of more fuel efficient B747-400Fs, came in 2014, one of them an ex-Jade freighter in the desert. A third -400F was added early in 2016.
Adds Gilboa: “Right now, we are actively looking for a fourth -400F. I need another vehicle for the growth opportunities, because an Israeli airline has limits on its route network because it is difficult to fly to Africa due to the bans in flying over Arab countries in North Africa.”
CAL has since acquired another ex-Jade Cargo Boeing 747-400ERF via the Chinese online auction site Taobao.
Entrepreneurial Gilboa has an ace up his sleeve. “I am in the process of establishing a Belgian air operator certificate (AOC) which will be for a sister company to CAL, called Air Cargo Europe (ACE), and also located in Liege,” he says.
“Only one of the B747-400Fs will be registered in Belgium to start with. The idea is to grow both companies, as soon as we get an aircraft, and I hope to be in a position to do that in the next six months.
“We have been working on this project for the past 18 months, preparing all the paperwork, and we are now recruiting teams and the post holders that are required for an airline.”
Pilot availability is not a problem for the new venture. “We managed to find pilots in Israel and in Europe, and we have supplemented our crews with European pilots who are well integrated into CAL. Once ACE is up and running, some of these guys could become the initial team to start up the operation.”
India is one destination under consideration for ACE and the plan is to complement the CAL network.
Liege airport is an important part of the strategy for Gilboa. “I see it as a specialist hub for freighter material and that is why I talk so much about the non-standard cargo.
“It is not by chance that you see such a large concentration of players with B747-400Fs or B747-8Fs meeting here.
“It is like the club for the guys with nose-loaders and that is why I see such a great opportunity for networking.
“If we create an alliance, where everybody can tap into a flight and a network with a direct booking, it would be really something.”
Liege has very few passenger flights so bellyhold cargo is not a frequent option, but Gilboa does not see this as a hindrance.
“Most [freighter] operators are flying from Liege to destinations that others do not serve and even if they do, they can usually codeshare because they do not have a dominant position in the local market.”
Given the night flight curfew at Frankfurt and the freighter slot travails at Amsterdam Schiphol airports, so-called secondary Euro-pean hubs like Liege have a golden opportunity, says Gilboa.
“With the restrictions that are now being put on slots and with curfew issues, Liege can really take off and I believe that the bottleneck will be getting enough facilities up and running. The airport needs to be developed and there is space available.
“My feeling is that the need is there for many companies, so Liege has a real opportunity. Other airports can try to compete but if Liege is smart enough and plays its cards right then, out of the second tier airports, it is in the best position to grow.
“I think that the airport management here is really proactive and really keen to grow.”
What are Gilboa’s ambitions for the CAL Group and is he planning an IPO along the lines of his textile business?
“A year ago we devised a plan to double ourselves in four years, and we are well into this plan,” he says.
He is not looking to sell.
“I really like the private company life. It allows you to focus on the business’ needs and not on what the market wants to see and not on quarterly reports.
“What is my ambition? I see myself as a combination between a builder and a farmer. I like growing things.
“My true ambition is to create an excellent organisation and to grow it in a sustainable way so that it can live up to the upheavals and all the ups and downs that the market nowadays confronts us with.
“The world has become more volatile than ever before so it is a real art to create something that can last.”