Cargolux, Shearman&Sterling, and Chambre des Salariés CSL

My Orchids. Phalaneopsis Target. Photo ET

Cargolux, Shearman & Sterling, and Chambre des Salariés CSL

I'm aware of the two opinions about the pending CV/HNCA deal. The first, dated 7 November by Shearman &Sterling, the second dated 20 December by Chambre des Salariés. Both have similar reservations, concluding that the "agreement" is very lopsided. Both unfortunately confirm my own analysis of what is visible. Both are wondering if they have seen ALL the information.

Looking at the big picture, the agreement will achieve the following: HNCA will gain a share of CV, gain 200,000 tons of traffic, gain a new airline, and other logistical know how. CV can only hope to have no losses of capital and employment, and gives away know how and effort. That is lopsided and very cheap access for HNCA, unless there is a "yes" to the following unanswered question: is there a secret part to the "agreement" serving other purposes than CV? In which case, where are we with the trumpeted commitment to an ever more transparent government? Yes, as taxpayers, we have a right to know. Not only mysterious suggestions about the hidden benefits. List them, until we strike a balance in the "agreement".

1. Let 1,000 questions be asked

 It is very disappointing to see the "agreement" in such a sorry state. Even at the elementary level of language. Even after the botched alliance with Qatar Airways, nothing seems to have been learned. There are dozens if not hundreds of questions to be answered, and some of the visions sound like a pie in the sky.  The target for CV three years from now to move 200,000 tons annually in and out of CGO lets me wonder about who did the underlying projections, including the weekly need for aircraft in those rotations? Not to forget the loss of opportunity for those aircraft, that obviously would be pulled back from now commercially more viable routes.

2. State corporatism at its finest

I'm perplexed to discover that "negotiations" were done by the government alone, without CV's management or other shareholders being present. How can the government, that's not a majority shareholder, commit the other shareholders into other binding agreements, when its proclaimed purpose was to sell its shares? For sure, most of the shareholders won't protest too much, as they are represented by people who owe their positions by the grace of the same government, but not all: Luxair has private investors. And employees have to contemplate this perceived unlawfulness in awe.

3. What about levels of engagement?

In doing its solo "negotiation" beyond the immediate wish to sell its shares, shouldn't the government have negotiated with the Chinese Central government too? There is a logic to the level of representation around the table, there could have been shortcuts, as HNCA's economic development plan is in the context of China's 12th five year plan. CV's interest would have been to have broad rights in China with a priority to serve other existing and commercially viable hubs. Positive cash flow will be of the essence for the indebted CV, not the mere compensation of losses through a limited, ill-defined Fund.

4. Never use an argument that you knew not to be true

Not to miss: the CSL report's Annex about what constitutes illicit governmental aid. It addresses the Luxembourg government's claim that it has to sell its CV stake, given European law. Which obligation, it appears to me, is not present in CV's case, though the government has long argued to the contrary. Not many will believe this. In addition, I would make the case that European obligations under European treaties are not always respected, and many violations by our neighbors have been met with willful blindness in the past. After the Qatar Airways mishap, there was room for leniency towards Luxembourg at the least.  

5. Conclusion

Now the deal is done. Let's negotiate the deal. Fire, aim, ready!

There is a very small statistical chance that we have hit the target. Now we have to try harder and move the target, so we can see it.

BCCI victims pursue extra £200m payout

My Orchids. List inside a Cattleya. Photo ET

BCCI victims pursue extra £200m payout 

"The Telegraph"

Make that $326,000,000

After 22 years (!) the liquidation process was closed. Wrongfully? A Luxembourg court will tell. Remarkably, against the odds and expert advice, a large percentage of the nominal moneys were retrieved. If successful, these additional funds might get recuperated.

Aboout 250,000 clients in 70 (+) countries were victims of the "Bank of Crooks and Criminals".

Luxembourg's tax break that helps companies to make profit from loss

My Orchids, Oncidium. Goldilocks. Photo ET

A tax break that helps companies to make profit from loss

Tuesday 17th, December 2013 / 22:35 Written by Oman Observer 

This article by Tom Bergin is presently making its round across the universe, probably through some syndication agreement. Of all places, this is a link to the "Oman Daily Observer". The main focus is on what sounds like a magic formula, and is summarized here in the article:

"The rule, which dates back to World War Two, helps companies save hundreds of millions of dollars in taxes each year, a Reuters analysis of the accounts of several major international corporations shows. The profits that escape tax have often not been earned in Luxembourg, but in countries like Britain, the United States and Germany. Those countries may lose out.

New York-listed telecoms group Vimpelcom, US Internet group AOL Inc, building equipment maker Caterpillar and UK mobile telecoms group Vodafone are just four of those to have made use of the system, accounts for their Luxembourg subsidiaries show. Other firms have similar arrangements, tax advisers say, but have not made them public."

On one hand, this looks like good publicity. Considered however in the context of a wide assault on tax havens, the fundamental question is: where is the border between a tax haven and a non tax haven? And we know already what a tax hell is. I learnt that from Gerard Depardieu, the famous French actor who left the French tax hell for heaven in Russia. Not seen since Napoleon.

Two conclusions for (new) governments in "tax havens":

• It is a losing proposition to fight against the rest of the world's will to eliminate tax evasion, financial crime, and money laundering.
• It is a legitimate battle to defend a line that separates financial crime from legitimate business, which includes low tax jurisdictions as opposed to tax hells.  In the European context, the question is: are tax policies a matter of subsidiarity, or of central dirigisme, and/or to what extent?

Cargolux: The Deal with HNCA

My Orchids. Cattleya, a closer look. Photo ET

Cargolux: The Deal with HNCA

Earlier in 2013, no one in Luxembourg would have known the name HNCA. The Acronym stands for Henan Civil Aviation Development & Investment Co., Ltd, created in June of 2012. HNCA has three shareholders: Henan Coal Chemical Industry Group, Henan Transport Investment Group and Zhengzhou City Real Estate Group. Citing from a speech translated into neo-Chinese English: "Zhang Mingchao, Chairman of HNCA, spoke that the HNCA had the glorious mission of developing the civil aviation of Henan province. The Company will keep learning, innovating, optimizing operation, and make more contribution to the construction of Zhengzhou Airport Economic Comprehensive Experimental Zone and Henan Province."

I had a look at the "Commercial Cooperation Agreement" between HNCA and Cargolux in the form of the "Updated draft of 30 September 2013, changes as per meeting HNCA Cargolux 10 December 2013". It has 13 pages, cover page included, and 5 pages of attachments !

The fact that such a short, poor document saw little improvement over the last 10 weeks, is reason enough that I would be embarrassed to bring such a document to a meeting.

Apart from the very little remediation to the text, my analysis fills me with doubt about the negotiation skills of those who did this, the poverty of the language which allows for many questions and opens the door for conflicts in the future, and to open legal questions, which I would ask my lawyer. I have to believe and hope that CV's lawyers saw those considerable questions, which they didn't want to detail publicly?

1. Negotiation 101

HNCA exists since mid 2012. Its mission is to focus on the " Zhengzhou Airport Economic Comprehensive Experimental Zone and Henan Province." Did you read "Experimental"? It says further that "The Company will keep learning, innovating...". 

No one at this stage can say that the parties don't negotiate in good faith. There is an exciting project: creating an airport, now encroached by several towns, expand it from 1 to 4 runways, create a JV with CV for another all cargo airline in Zhengzhou, together with all the infrastructure on the ground, including maintenance and pilot training. Nothing of these exists today. As a young adventurer, not risking my own money, I would go for it in a minute. And as a broker, I would sell it as a nice story for a nice fee to anyone who would listen.

But does this accomplish the "glorious mission" to guarantee CV's future? No one knows from this Agreement exactly what was agreed to. But essentially, not much has changed when it comes to CV's extremely low valuation. It was essentially pre-determined by the undervalued and unfortunate Qatar Airways deal. Now, for the neutral outside observer, there is maybe a very stupid seller, and a sophisticated buyer. But it doesn't impede the next steps, if both sides are happy with the price. The very impatient seller, the Luxembourg government, seems very happy. The only problem there is, it isn't the seller's money, it is the tax payer's money.

As for the rest, CV will be a strategic asset for HNCA in the grandiose adventure of creating a market, an airport with 4 runways, with infrastructure, a new airline with its own maintenance and pilot school, and other unnamed JVs. If that is the exciting project where we want to see CV's future, and where HNCA sees CV as a strategic asset, the overwhelming question is, why didn't CV become a shareholder of HNCA? There was enough valuation in CV (the real value of CV) to get a reciprocal share for CV in HNCA, for no money down. But the opportunity to get reciprocity and a fair valuation for CV was missed. Who negotiated this? A pertinent question, as there was and is no real urgency.

2. The "Commercial Cooperation Agreement" is barely an Executive Summary.

If you buy or sell a one family home in an Anglo-Saxon jurisdiction, the contract can easily have 180 pages. Selling 35% of CV, I understand, can be done in 18 pages, cover page included. It is indeed much easier to read. As I'm not a lawyer, I appreciate that fact, but I would ask my lawyer, if I hadn't fired him yet for such a disappointing performance, the following questions:

Page 2: Define in more detail voting rights and mandatorily convertible bonds

Page 4: Is import + export cargo 30,000 tons or 60,000 tons?

Page 5: If cargo volume through CGO doesn't reach 200,000 tons after 36 months, what happens?

Page 5: With so many JVs considered, why isn't there cross ownership CV-HNCA?

Page 5: There is much uncertainty as the Luxembourg government deals with a non-sovereign Provincial government. What if rules change, CAAC doesn't cooperate or the Chinese government comes out as bad cop undoing what the good cop Henan Province seemed allowed to do?

Page 6: Are 4 flights binding? Who covers the losses? CV is a commercial venture, not a government agency. Page six actually overflows with dictates of a planned economy for a venture that has to care for the bottom-line in a market economy: increase flights, additional "traffic rights", scaling up flights, subsidies and their guarantee over time, etc. But: CV has no veto right, as again, reciprocity would have demanded.

Page 7: 3.7. The Dual Hub Strategy Fund needs "Unanimous decisions". Good luck.

Page 7: 3.8. "Reasonable cooperation" means "best efforts" only?

Page 7. 4.1. "Reputable international consulting firm". What can that be? At what cost?

Page 8. 5. CV could have had cross ownership in HNCA, at no other cost than the value of 35% of CV. Or at least get a better price.

Page 9: 9 is boiler plate language. Just mentioning that there was no excruciating effort in that paragraph.

Page 10: This agreement is under the laws of England and Wales. Future JV's under Chinese laws. Dispute resolution will be through arbitration in Hong Kong (HKIAC), a place not known for its strong pro-Luxembourg bias. It is not impartial territory.

Page 11: 11. Waiver of Sovereign Immunity. But of course: the good cop - bad cop plays out. Luxembourg and the Province of Henan waive their rights. Beijing does not. It is not involved for now. Later it will.

Page 12: 12. Just standard clerical discipline: Fill in the following missing address for HNCA:

HNCA: No.8 Shangwuwaihuan Road, 
Zhengzhou City, Henan Province, China
Zip Code：450000
Phone: 0371-87519086
Fax:0371-87519086

Page 12: 13.1. We are talking millions in fees, legal etc. Does any third party get commissions? How much? Are those commensurate with service levels provided? Not to a politically exposed person?  Beware of international and Chinese anti bribery laws. CV doesn’t need new fines, jailed managers, if not executed ones.

3. Conclusion. Manage risk. Start over again.

All in all, the Agreement is a poorly written document, barely a draft Executive Summary maybe, and an ill-conceived, -negotiated, and poorly defined undertaking. I guess Shearman & Sterling, which is a sterling law firm, was only minimally involved in the production of this document, and even worse, was not involved in advising what the deal could be and should be. They would certainly love to answer my  questions from a lay man and they have many more of their own.

There is also some more intangible political risk, as was the case with Qatar. We are not partnering with a Swiss or German entity. In this case we partner with one of a newly assertive super power, which leaves the political risk at the level of politics, preferences, and pragmatic choices for Luxembourg. Locally in Zhengzhou, CV will be associated with a project that will cover probably about 30km2 or more, going from the present one runway small airport to a multiple of four. It will have an important impact on zoning, and encroaching populations will have to be displaced, villages razed. This displacement may not become a major political issue though, as the local culture provides for a more docile acceptance for general interest projects, than it would in Luxembourg.

Maybe it is not too late to make corrections and fill in the blanks in the hollow Agreement, blanks about which I hope there is at least a consensus between both sides over answers, that there are common assumptions and at least verbal commitments at this stage. HNCA has shown a positive attitude, and will be glad to learn and understand. In particular, that there is no mention, no declaration, no formal guarantee to alleviate the rightful concerns of the Luxembourg employees, tax payers and other stakeholders when it comes to their future.

Cargolux in a Chinese deal

My Orchids. Cattleya. Photo ET

Cargolux in a Chinese deal

 Cargoforwarder summarizes the latest newsquite accurately. In a nutshell, the new government has made the decision to go ahead with the planned deal with HNCA. It also gave the employees most of the guarantees they wanted, though not yet in writing. One sticky point was remaining for OGBL, the largest union: the 35% ownership for HNCA comes with an effective veto right in the decision making, and the union sees there the potential for irreparable harm.

This is indeed a matter of trust, that usually doesn't come as a free gift, but is something that builds gradually. Before that, one has to get the legal ducks in a row.

So by now the decision to go ahead is more of a political decision than a commercial one at this stage. Alarms went off when in the background of the agreement, TNT emerged as a competitor with a piece of the local market, several months ahead of CV's flights. It went against the assumption that in the local Henan economic practice, that should not have happened. Is it therefore that another piece of the market, the X-Box has been allocated to CV? It helps to complain, isn't it?

Two more things:

- the contract is expected to be signed by February - March. So, tell me again, what was the rush attempting to get this signed even before the elections? The delay is welcome, because the legal counsel has a list of details to iron out.

-this one makes me chuckle: one reason for the pressure to rush this, was the argument that the government could not hold on to its shares, because of the nasty looks from Brussels. The government however will stay on as a 10% shareholder. So either the former government lied, and there was no need at all for it to get out of CV. Or Brussels still has that nasty look, but the new government has decided that it doesn't care. In that case, good for them! What is good for Fortis-BIL is good for Cargolux.

To Catch a Thief

To Catch a Thief

“The world is full of good people who do bad things, mon cher!” (Hercule Poirot, Agatha Christie's famous Belgian detective)

This  post  is in self-interest: My wife Francoise-Marie is a sculptor and painter. And it so happens that her work gets into various places in the world. And sometimes gets stolen.

Five years ago, the family of Kentucky Fried Chicken Founder, Colonel Harland Sanders, acquired a bronze sculpture, "The Ballerina" to accompany Margaret Sanders' poem "My Darling" on her Grave memorial at the Louisville Cave Hill Cemetery, in Kentucky. It is famous for its art and atmosphere. But alas, "The Ballerina" was stolen, about a month ago. The sculpture is a limited edition. This was # 2 out of seven, signed "Françoise-Marie". Born in Belgium, she appeals to the Hercule Poirot in you to catch the thief. 

Again the world is full of good people who do bad things. Proof, another theft occurred during a Traveling Exhibition with Cercle Artistique de Luxembourg in France, several years ago. Françoise-Marie's bronze sculpture "LaPenseuse" or "The Thinker" was stolen in the City of Metz. It was one of a limited edition of 7. It was never found. 

Every morning, a small part of humanity gets up with no good intent, the insurance guy would say.

Margaret Sanders' Poem on the Memorial:

My Darling

You think I am of the earth Earthly

But really I am like a ballet dancer

Poised briefly with just the tip of one toe

To the earth

But so attuned I catch the music

Hear naught of anything else

And go dancing on and on

To interpret the music that I hear

God plucks the chords of the harp

For my dancing

But one day I shall lift my toe

From the earth

And you shall find me

Only in the music you hear

For then I shall go

Just music

BY MARGARET SANDERS

Luxembourg: ‘The faces of the Gambia government’ | Presseurop.eu: European news, cartoons and press reviews

My Orchids. Phalaenopsis.  Eighteen Blooming Faces. Photo ET

Luxembourg: ‘The faces of the Gambia government’ | Presseurop.eu: European news, cartoons and press reviews

My American friends impatiently pressed me for information about the new Luxembourg government, sworn in today. Let me make it easy to begin with. The picture above is a sort of metaphor  for the new government: there are 18 flowers for 18 members of the government. You don't see 18 orchids? It's just political elbowing, I know. When it comes to group pictures, the shortest are always pushed  back into the second row.

What has Gambia to do with the Luxembourg government? Of course I know that you know that Luxembourg is not in Africa, and that Gambia is not in Europe. Now remember three colors: red, blue, and green. Remember those well, because there will be a quiz in a moment. Those three colors are the colors of the flag of the Republic of the Gambia. And there lies the key to explain why some people refer to the new Luxembourg government as the Gambia government.

Here is why. The new Luxembourg government is a coalition of three parties, which each have an official color, which put together are the colors of The Gambia's flag. A wise guy concluded that such a coalition should be called the Gambia government. Silly isn't it? Now, the Luxembourg three party coalition is formed by the Socialist Party, color red, the Democratic Party, color blue, and the Green Party. And here is the quiz: what is the color of the Green Party?

I'm glad to have contributed to the deepening of your understanding of Luxembourg and The Gambia.

Here are the details, names and pictures for that new government. But before, what again is the color of the Socialist Party??? Good!

Luxembourg: ‘The faces of the Gambia government’ | Presseurop.eu: European news, cartoons and press reviews

Cargolux Zhengzhou Freighters Already Getting Direct Competition

My Orchids: Brassia. Two competing ones. Photo ET

Cargolux Zhengzhou Freighters Already Getting Direct Competition

Cargoforwarder reported the opening of a competing service from ZhengZhou to Liege, Belgium, just North of Luxembourg, operated by TNT. Liege is a hub for TNT, so Liege makes sense. (Luxembourg over the years has consistently denied other carriers landing rights, mostly DHL and TNT).

What needs a little more explanation is the fact that HNCA, CV's future partner, doesn't seem to be either able or willing to prevent this service from happening. A good faith opening bid for this particular business should have gone to CV.

In time we should get an explanation, and maybe CV management has already figured out why the bride is left at the altar. It seems to be a commercial deal brought together in partnership with other players on the ground in China, not under control of HNCA.

Which brings in doubt some fundamental assumptions people will have regarding the centrally controlled economy, and in particular the exclusiveness of the CV-CGO deal, that seems to be implied in the negotiation with the local Provincial government of Henan, that was designated by the central government of the PRC as an economic zone focused on cargo and logistics.

Here might be the explanation: Mr Deng Xiaoping's economics of one country two systems. Did the more agile free market rush to get a competing solution off the ground with TNT? If that's the case, there is no real exclusive, HNCA has no control over competing free marketers. In that case, the planned JV can only prevail with important incentives and privileges.