Cargolux: The great looping

    My Orchids. Looping Beauty. Photo ET

Cargolux: The great looping

Over the last years, Cargolux as a company had a flight plan that is adequately described as a looping.

That looping puts a Luxembourg socio-economic feature, the Tripartite upside down. The Tripartite has for years been an instrument of social peace that gathers three parties around the negotiation table, government, employers and unions, all in search of a consensus in employment and labor related affairs. One pre-eminent feature is to avoid too much conflict through automatic triggers for wage increases, where wages are tied to the cost of living. The great looping that occurs now at Cargolux upsets that applecart in the unions’ favor. But actually it was the government that as the owner, employer and Tripartite partner upset the applecart first, through consistent mismanagement. Here is the visual on that great looping:

The plunge

Management, is it through arrogance, incompetence, sheer stupidity (your choice), or should anyone use the C-word, starts the great plunge beginning the looping by engaging in criminal activity through the well-known price fixing scandal that ended up costing Cargolux about $250 million in fines, and the CEO and a top manager to go to jail in the US. Note the de facto control of the Luxembourg government at the Board level at the time and ever since, and actually even more today than ever before.

The free fall

Then came the sale of 35% of CV to the lowest bidder, QR for $117.5 million, a pittance. Of course the unbelievable deal left so much freedom of action to QR that they cannibalized CV’s clients by under-bidding tariffs by 30-40%. What an irony when the former CEO of CV is sitting in a US jail for price-fixing. The loss of clients, of opportunity, and of trade secrets are enormous. The belated reversal of the impossible deal thanks to employees’ pressure and outrage cannot erase the losses and damage done to the company.

The collapse

The collapse, when it comes to corporate leadership, is the cancellation of CWA, the nuclear option taken by Management to force cuts on wages. I say nuclear, because this action clearly passed the threshold of what has been a political “do not touch” tradition. Remarkably this was the action of the government as the majority shareholder of the company, an act of war dutifully executed by a mercenary. The Tripartite had died in a proxy war where two sides, the government and the employer (both the same: the government!) unilaterally delivered the first shot. The nosedive just accelerated, after destroying credibility, after criminal activity, after a corporate blunder selling to QR, now let’s do everything we can to destroy the morale of the employees who had shown their commitment and enthusiasm over 40 years!

The climb

During several uninspired months, where thankfully no irreversible decisions were taken, nothing helped more than a number of small successes such as the reversal of the QR deal, the reduction of expected losses by half, the addition of new destinations, an Exim bank financing etc. But one event may become a historic event: the unions beat back the government’s arrogant decision to cancel the CWA by giving it a proposal that puts the situation upside down, which hopefully signals the end of the looping.

The government is in no good position to ignore a reasonable proposal that the unions gave in an ultimatum form. It basically says without saying it: you, management, for years have run this company to where it is. Employees have no fault in the mismanagement we have seen. And yet we are willing to do our share to re-establish the company as its former self. You should be embarrassed even to ask for anything more.

The historic event is that the Tripartite ends up in a new shape after all this. The government in its bold move of canceling the CWA inadvertently opened a new concept for future debates: reciprocity. Concessions in the future will come with reciprocal concessions in return. As in the Cargolux case, concessions now on the salary mass will need equivalent concessions from the shareholder when the good years return. The Tripartite is no longer on autopilot.