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Country Commercial Guides FY 2000: Luxembourg Report prepared by U.S. Embassy Luxembourg, released July 1999 Note*

CHAPTER V. LEADING SECTORS FOR U.S. EXPORTS

The following market analysis describes major growth areas that offer American companies excellent business opportunities:

BEST PROSPECTS FOR NON-AGRICULTURAL GOODS AND SERVICES

Transportation
Luxembourg's Findel airport is a strategic center for air transport in the "heart of Europe." It is located five miles from the city center. There are excellent opportunities for American companies looking to do business in the expanding airport and air transport sectors. Two growing national carriers are based at Findel: Luxair, its passenger airline, which flew over 900,000 passengers in 1998 (up 5.19%) and Cargolux, its international airfreight carrier. Cargolux was founded in 1970 and is now one of the world's largest air cargo carriers, presently handling 321,982 tons of airfreight annually in 1998, up from 273,696 in 1997. Cargolux flies to numerous destinations on a regular basis around the world with many U.S. destinations including New York, Houston, Seattle, San Francisco, and Los Angeles. Recently, Findel has been expanding its passenger and cargo handling capacity to accommodate the growth of its carriers. Despite the country's small size, it is an important logistical point serving the large community of EU officials, international financial services personnel, and the growing number of travelers from the neighboring Saarland and Lorraine regions.

By the end of 1999, Cargolux will operate an all-Boeing 747-400F fleet of ten aircraft, giving it the most modern and youngest fleet of any leading international cargo airline in the world with an average age of only 2.3 years. An additional two 747-400F are on order from Boeing that will be delivered after 2000. In conjunction with its acquisition of the world's first B747-400F simulator, Cargolux is building a new training facility in Luxembourg. Cargolux had an operating profit of $38.5 million on revenue of $578 million in 1998, up 5.2% from the previous year. The new alliance with Swisscargo and the acquisition of its new aircraft will allow Cargolux to maintain its position among the top five international airfreight carriers.

To develop its European traffic, Luxair has continued to expand as a major regional European carrier by investing in new jets in order to migrate to an all-jet fleet. In total, Luxair has placed firm orders for nine Embraer ERJ 145 "Eurojet" with the option for two mores. The addition of the new jets has allowed Luxair to add six new destinations (Bologna, Florence, Dublin, London City, Stuttgart, and Stockholm) during the winter 1998/99 season in an effort to develop its "regional hub" strategy.

Steel Industry
Luxembourg's steel producer ARBED Group is currently the world's fourth largest producer, with a highly diversified product range and production sites in Luxembourg, Spain, France, Germany, Belgium, and the United States. ARBED successfully diversified in the 1980's and 1990's, and continues to search for further niche markets for processed or semi-processed, highly specialized steel products. It is a market leader in a variety of products such as galvanized metal sheet and galvanized metal wire.

The company views the continuing process of restructuring and consolidation in the European steel industry as an important factor in its future health. Therefore, it seeks international acquisitions and joint venture opportunities as part of its business strategy for growth although the recent attempt to buy the German company Saltzgitter AG failed. ARBED's production of crude steel in 1998 was 20 million tons, an increase of 60.6% from the year before (not including Aceralia and Aristrain output). Output of rolled products increased by 57.9%, up to 18.8 million tons in 1998. The flat steel products increased 47.2% for a total of 10.2 million tons. The volume of long steel products increased by 79.5% to 8.1 million tons. Output of rolled stainless steel products increased by 5.8% to 478,000 tons. Wire products had a production of 1.1 million tons, an increase of 24.9%. None of the comparisons with prior year include the 1997 acquisition of the ARBED-Aceralia/Aristrain entity.

Communications/Media
In the domain of telecommunication, and in line with the EU's policy of "television without frontiers," the government backed the creation of the private satellite company Société Européenne des Satellites (SES). It was created in 1985 to operate a telecommunication system by satellite for transmission of television programs throughout Europe.

The ASTRA satellite broadcasting system and one of Europe's biggest commercial TV companies, Compagnie Luxembourgeoise de Télédiffusion, operate from SES headquarters. These very successful companies were created as a result of Luxembourg's decision to grant a franchise to private investors to exploit the satellite positions it had been allocated. The plan was to send satellites into space capable of beaming TV and radio signals back to earth, then rent the capacity to broadcasters. A decade later, demand has far outstripped the original forecasts, due partly to the development of digital technology. Currently, the fleet of eight ASTRA satellites broadcast to over 74 million households throughout Europe and carry more than 400 TV and over 300 radio channels. As of year-end 1998, ASTRA's market share within satellite and cable was 92.3% of the European market.

1998 was an excellent year for ASTRA with strong growth in both revenues and earnings. Revenues were up 15% from the previous year to 517 million euros. Earnings also increased, up 16% from 1997. In addition to strong growth, ASTRA also announced other banner events such as a 34% stake in AsiaSat Telecommunications Holdings Ltd., the launch of digital services in 2 new major European markets, and the acquisition of full ownership and commercial control of ASTRA-NET. ASTRA-Net links satellite broadcasting with personal computers and had been a joint venture that SES created with Intel. SES has stated plans for expansion into the U.S. An American partner has been found and will be announced later this year.

The 1997 merger of Luxembourg's television and radio production company, Compagnie Luxembourgeoise de Télédiffusion (CLT), and Universum Film AG, formerly a part of the German media group Bertelsmann AG, created CLT-UFA, headquartered in Luxembourg. While operating for two years in deficit due to heavy startup costs of its new ventures, it is predicted that the company will be profitable in 1999. CLT-UFA is the undisputed leader in the European radio and television industry, moving to strengthen its leadership role in 1999 by building stronger intra-group cooperation and development of non-broadcasting activities such as merchandising. An example would be the agreement CLT-UFA reached in October 1998 with Walt Disney Television International securing attractive content for Group channels.

Luxembourg was late to follow completely the European Directives to fully liberalize the telecommunications market. P&T Luxembourg's voice telephony and public telecommunications monopoly was abolished on July 1, 1998. Applications are being processed by Institut Luxembourgeois de Télécommunications (ILT) and new licenses should be granted soon. Milicom, a Swedish-Luxembourg joint venture that also operate the Tango mobile phone network, has been granted a second license for fixed telephone voice service. Application forms are available online on the ILT website at www.etat.lu/ILT.

Finance
Banking and insurance have long overtaken steel as the most important sector in the economy, employing approximately fifteen percent of the total workforce and accounting for more than 20 percent of gross added value in 1998.

Tax rebates, help in obtaining credits, and a host of other incentives are offered to companies intending to set up in Luxembourg. Fiscal legislation, which dates from 1929, favors banks and holding companies. A severe law against "laundering" of drug money has been in effect since 1992 and has been extended to all criminal activity in 1998.

Over 210 banks, 1200 investment funds, 180 insurance and re-insurance companies, and 19,000 domiciled holding companies benefit from a favorable tax environment and bank-secrecy legislation. This presence represents the largest banking concentration in all of the European Union.

Big insurance and re-insurance companies have set up subsidiaries in the capital. Luxembourg is positioned to become one of the major European centers in this sector, as it is reputed to handle a major share of the EU's insurance business as a result of the favorable fiscal regime it provides for insurance companies.

The Cedel group enjoyed significant business growth and record financial results in 1998. This included a record level of consolidated gross operating income of $603.8 million and operating profit (before tax and provisions) of $72.6 million. Cedel sees a move toward pan-European alliances and new business models for the stock exchanges and central securities depositories. As a result, there will arise new opportunities and new competitive arrangements for capital market infrastructures. The bank's security deposits grew 27.1% from the end of 1997 to $1.8 billion, while transactions increased 9 percent to 10.1 million. The changeover to the euro has been a smooth transition without any mishaps.

On May 14, 1999, Cedel group and Deutsche Börse Clearing announced a merger creating a new Cedel International that will be the basis for a single European clearing organization on the model of the Depository Trust Company (DTC). The goal of the new organization is to create a pan-European clearinghouse. This deal is expected to create up to 400 new jobs in Luxembourg. Once shareholders and regulatory authorities approve the merger, other securities depositories are invited to join new structure with SBF group, the holding company of the Paris Bourse, and Sicovam, the French central securities depository already signed a memorandum to join the alliance. The creation of the European clearinghouse will enable the new Cedel International to offer customers standardized procedures and access to the entire securities market.