Lux Leaks II

My Orchids. Dendrobium "Transparency". Photo ET

Lux Leaks II

A promise is a promise. There is a Lux Leaks II, but of course. This one is special in many ways:

1. It destroys the perception that tax rulings in Luxembourg are over-generous.
2. It also shows that there must be a serious problem of discrimination, if not corruption, as the rulings in this case were not favorable, but rather quite harsh!
3. It is indeed my own application for a ruling to not pay taxes on moneys stolen from me. My quest for a favorable tax ruling was roundly rejected, but have a look at the background. I leak some of the essential documents hereafter. Though they are in French.

I need to pay Euros 7516.70 in arrears,
taxes on moneys stolen from me

The third paragraph explains why I can't win:
he doesn't care about the substance,
and  seeing who I was, I didn't make it into his circle of friends

The director signs with a smiley

The story:

In 2002-03 I was associated in business with other individuals in Luxembourg, but I reside in the US. As some associates left, I did too by the end of 2003, as things were not transparent. More than a year later, I was actually led to file criminal charges for embezzlement and misappropriation of corporate assets.

In 2007 the Tax Administration claimed tax arrears, on revenue I never saw, I never knew of, and that obviously was misappropriated by the former partners. As being forced to pay taxes on stolen money does not sound right, I was advised by the Tax agent to apply for a “RULING”! It is in this case called “une demande gracieuse”. It is available in cases of hardship and obvious unfairness.

My Ruling

I diligently applied, about 50 pages of documents in support of the hardship. It took about 5 months to get an answer, from a guy named Guy Heintz, the boss of the organization. Not by Marius or a similar  level of employee. My application to avoid taxation on moneys stolen from me, with criminal proceedings still going on against the perpetrators, was roundly rejected with the argument that “a remission is only possible if, objectively according to the matter under consideration, or subjectively in the person of the taxpayer, the collection of the tax appears to constitute a hardship incompatible with the principle of equity”. So Guy Heintz’s conclusion was that a tax levied on revenue stolen from the taxpayer before the taxpayer even knew of it is objectively is OK. He also has the right to discriminate personally, “subjectively”, depending on who the taxpayer is. Even a recourse to the Luxembourg Ombudsman could not sway his decision. I have to conclude that this was a vengeful malicious decision aimed at my person. I ended up paying more tax on zero revenue than the high net worth individuals and the international corporations catered by PwC, Marius, and Guy Heintz’s operation in general. As an insider of Luxembourg institutions, including 5 Ministries, I know exactly that these types of administrative “flexibility” can play both ways. It is the typical Luxembourg corruption, a corruption through influence. But you can lose and get lynched when you are on the wrong side of the equation. Corruption through influence doesn’t show up on Transparency International’s radar.

I still wait for the end of the criminal case that I filed more than 10 years ago. Though there is a final judgment on the substance: the two accused were found guilty on several counts and sentenced to 1 and 2 years in jail, but on probation, given the excessive but typical delays in the Luxembourg judiciary haven. They also have to return the misappropriated funds, estimated at 950,000 euros. Though yet another delay is going on: the convicted cannot return the moneys, because the sentencing language is not clear, according to them! However now I may be able to sue them in civil court, and hope for a conclusion in several years maybe. Madoff and Landsbanki victims, please make a note of this. You are not yet even halfway through.

Please find here the narrative of the criminal case, as reported by PaperJam:

Grande vie et business parallèle

Le «médecin de la finance» suspendu pour un an

Democracy in Europe is Really a Party

My Orchids. Phalaneopsis "Tax Rulings". Photo ET

Democracy in Europe is Really a Party

Several decades ago Henry Kissinger asked this illuminating question: “Who do I call if I want to talk to Europe?” The Treaty of Rome signed on March 25, 1957 by Belgium, Germany, France, Italy, Luxembourg, and the Netherlands, was “to lay the foundations of an ever-closer union among the peoples of Europe”. After almost 60 years of integrative wandering towards that union, another US diplomat, Victoria Nuland, Assistant Secretary of State for European and Eurasian Affairs, summarized in a 2013 leaked phone call the European Union’s international irrelevance with a resounding four letter word. I tend to agree on the substance with Ms. Nuland’s evaluation of the EU’s geostrategic relevance.

However things did get accomplished over the past six decades. Most visible is the Union’s geographic expansion, the EU growing from six to twenty-eight members. Remarkably, there seems to be no master plan. A nascent Constitution, elaborated by a “European Convention” under the leadership of former French President Valéry Giscard d’Estaing was roundly defeated by the French and Dutch voters in 2005. Instead, by 2007 a reform of the existing old treaties was adopted, a sort of Ersatz Constitution without some of the key provisions of the initial project.

The main uncertainty ever since the signing of the Treaty of Rome has been: what is the ultimate goal of the ever closer union? According to the newly minted President of the European Commission, my fellow Luxembourger Jean-Claude Juncker, “we don’t want to become the United States of Europe”. Children would never say what they don’t want to be when they grow up. They spell out what it is. And Europe is what it is, a work in progress, on organic growth guided by mutation, and happenstance, without a blue print. Unless the US model is the stealth blueprint for the EU’s free flow of people, goods, capital and services.

Having failed to deliver a plan for the future, the impatient among us might want to consider a shortcut. Why not just copy the US Constitution? It has all the ingredients of a good fundamental law. It has been debated intelligently in the “Federalist” papers, it is rooted in “We the People”, and it has proven to be a valid set of principles for the world, defining how people can live together. In order to make my point, let’s have a demonstration ad absurdum. Imagine that for a moment the US Constitution is replaced by the present European mode of operation.

First, the US would not have wanted to become the USA. It would be a union of 50 sovereign States. Each State would have instead of a Governor either a King or a Queen without power, or a President with wide power or no power. But let’s simplify and assume the 50 Governors wield the power, and meet in a (European style) Council, the supreme decision making body, which has an unelected President, who has no real power beyond arranging for cars and catering, and printing the agenda.

The 50 Governors would speak in about 45 different languages, and would need at least 2,000 translators.  Thirty States would have adopted the dollar, the others would have opted out or been prevented from joining the dollar for economic reasons. That leaves 20 States using pounds, crowns or francs. Persons could travel freely between 43 States, the 7 remaining ones would have border controls. In summary, when traveling from NY to CT you might pass a border control, change currency and learn another language!

As there would be no USA, there would be no US Armed Forces, no projection of power abroad, no federal taxes, though a hefty contribution by the States to the Union’s budget. There would be a unicameral Congress, the House of Representatives with a subordinate role to the Council of Governors. Wyoming would have 6 seats in the House instead of 1 now, and California 38 instead of 53 now. The Senate would not exist. Sales taxes would range from 15% to 33%. These for Americans shocking realities are daily life in the EU. The lack of political will and vision translates into a lack of checks and balances, and a tremendous loss of opportunity for Europeans.

In that atmosphere of expediency Jean-Claude Juncker has been selected / chosen / coopted, and some say elected President of the European Commission, the Union’s non-elected government. He had been Prime Minister of Luxembourg for 18 years, moonlighting for about 8 years in a parallel job as President of the Euro Group, the 17 member states using the Euro. In 2013 a triplet of scandals in Luxembourg brought him down. He was then designated by his peers of the European People’s Party to be their top candidate in the elections for the European Parliament of May 2014. However he was not a candidate on the electoral lists, a baffling innovation in the democratic process. But he claimed victory as he had been anointed the incarnation of the strongest party. He is thus the first political avatar winning an election without being a candidate, and to be the chosen one to the European Commission’s Presidency.

He still got the European Council’s nod, and a confirmation vote from the European Parliament. Several forces had opposed him, most prominently British Prime Minister David Cameron. Jeroen Dijsselbloem, Juncker’s successor at the Euro Group said on Dutch Television that “Jean-Claude Juncker was an inveterate smoker, and drinker”. More politically problematic was his public consecration of lying as a policy tool. When caught lying in 2005, he declared that: “When it becomes serious, you have to lie.”

Not transparent either were Luxembourg’s tax rulings when Mr. Juncker was Prime Minister. Large companies had an orgy in tax avoidance in Luxembourg. One week in his new job, Mr. Juncker faced a new crisis when the International Consortium of Investigative Journalists ICIJ published details about Luxembourg’s tax rulings. The disclosures were based on documents stolen from PwC. Mr. Juncker survived a censure vote instigated last week by Europhobes in the European Parliament based on Luxembourg’s tax rulings. Mr. Juncker went from silent to denial, to “others do it”, before gradually sliding towards an alternate position: he vowed a major initiative by his Commission to make tax rulings transparent and reportable.

At the Commission, Mr. Juncker can now write his own job description, as the contours of his duties are in an impressionistic haze. He might surprise more than one if History repeats itself. I’m suggesting that in the Middle-Ages the Prince-Electors of the Holy German Empire would often choose Luxembourg Princes to become Emperor, as they were perceived as weak and creating no harm. Charles IV however defeated the low expectations and became one of the most powerful emperors ever, unifying power in his hands as King of Bohemia and Holy German Emperor during a reign of 32 years (1346-1378). Are we following this medieval template? Mr. Juncker is already the 3^rd Luxembourger to hold that Presidency in a list of 12. Will he be Charles V?

For the moment, he is touting a 315 billion euros investment package. This could be his first tour of magic, as the money is not available. The European Investment Bank is cited and others including private investors. This exhibition of mostly notional capital to kick start the European economy sounds like Maynard Keynes spending Milton Friedman’s money. A real party, but BYOB. Bring Your Own Billions. 

More good news for Cargolux

Wing Wave by the Red Barron, Stuka instructor. Defying aerodynamics

More good news for Cargolux

It sounds like good news: 10,000 tonnes lifted from and to Zhengzhou. The occasion was euphoric and celebratory, and a big event took place in a hangar at Findel airport.

Usually such an event requires a light tone, more suitable for my sister blog peckvillchen.blogspot.com. But it is in Luxembourgish and only Mr. Bausch and the Chinese Ambassador would understand.

Both were there, Mr. Bausch being the one recognizable easily, wearing a Tibetan scarf. Which signals that Global Warming just reversed into Global Cooling. The other guest then obviously was the Chinese Ambassador, who ignored the provocation of the Tibetan scarf.

For the occasion, a big screen had been printed, which signals also that Cargolux is trying to master new communication skills: You name it, we print it. However, I found the event a bit awkward. It coincided with a number of other little announcements, such as the “Dangerous Goods Awareness Award”.

That sounds a bit trivial, and out of proportion, like announcing ceremoniously my Jet Blue Badges. If you get on a Jet Blue flight, you can earn such a badge, and share the news with your friends on social media! I earned so far: the “True Believer Badge”, the “FLL, NY”, and the “Boston Badge”, or even more beautiful, my “Eat your cake & fly”, the “Happy Legs”, and the “High Five” badges.

I nominate Mr. Bausch first of all for the “Cargolux is a private company Badge”, and the “Cancelled Zhengzhou flight Badge”. And CV for the “First USD in Profits Badge”, when we get there. Because, when a venture is a success, no one is going to ask: “How much did it cost?”

N.B. The picture above shows the new skills available at CV: close combat air support training, as demonstrated in Seattle. The Red Baron, famous for bone-rattling short landings and 7g turns is supposed to be at the helm here.

Cargolux, the good news

My Orchids. Cattleya "Looking Good" Photo ET

Cargolux, the good news

Cargolux followed its wing wave with a release of interesting numbers: records breaking tonnage, revenue and block hours. The good news is, business is there.

A probable help for the new records is the increase in the number of aircraft. The report doesn’t say though if the results show a profit, which in light of the Zhengzhou flights started by mid-year, expected to be unprofitable for a while, would be interesting to know.

The airline made a net profit of $8.4 million in 2013 on revenue of $1.99 billion, which is a very thin margin indeed.

Luxembourg’s tax evasion, tax avoidance, tax optimization, tax minimization, tax rulings history.

My Ochids. Phalaneopsis "Tax Joy". Photo ET

Luxembourg’s tax evasion, tax avoidance, tax optimization, tax minimization, tax rulings history.

Luxembourg in legalistic terms will no longer be a tax evasion center in a couple of years. Which practically means that the announced death of such a haven puts it out of business the day you announce its death. The Mom and Pop tax evasion, the elderly couple and the Belgian dentist driving into Luxembourg with a bag of cash is over. From time to time you just hear the sad story of the elderly couple trying to repatriate their undeclared cash by hiding it in their underwear, well knowing that the tax evasion loophole closed on them, and that the customs agents are vigilant. Those who make it home safely with their cash are lucky, those who run into a customs control at least had hope until the trap closed, but they’ll survive and keep some of the cash after fines. Victims of the unscrupulous players like those clients of Landsbanki and Madoff unfortunately can save the trip. There is nothing to take home. That is a summary of the sad fallout of those tax schemes.

These days as the story goes, Luxembourg’s efforts to shed the stigma of the tax haven are defeated by yet another tax haven bis, the one of the financial engineering, the Double Irish, the Dutch Sandwich and mostly the Luxembourg Tax Rulings. Luxembourg’s position on tax rulings can be explained as being perfectly legal, at least considering the variations in constructions that typically are used. Even other countries do it, but those are only amateurs. And though the tax ruling practice can be explained legally, no one is willing to buy the schemes. They just look too unfair to the public, and you cannot win that argument. President Obama, who has still high standing in Europe, likes to light a fire under Ugland House, a building in the Caymans where 18,000 companies are domiciled for tax evasion/avoidance/optimization. Though many countries use all kinds of tax incentives, these practices, concentrated in their vast numbers in a few jurisdictions cannot survive without severe changes, which will be imposed through OECD agreements: here comes BEPS, Base Erosion and Profit Shifting. The name says it all. It will be the end of corporate tax strategies and the end of gaps and international loopholes.

Though warning signs were plenty, Luxembourg did not prepare for those inevitable changes. A negligence given that close to 40% of the State budget is generated by its financial center. A negligence also given the present storm around this issue and the new President of the European Commission for whom "the chickens come home to roost", as in this NYT article: 

Jean-Claude Juncker, Top E.U. Official, Faces Rising Furor Over Luxembourg Tax Revelations

Luxembourg is only the 16th most prosperous country.

My Orchids. Phalaneopsis "Pale Performance". Photo ET

Luxembourg is only the 16^th most prosperous country.

Unbeknownst to us, comes along another international evaluation of countries’ performances. This time it is alarming, because the “Legatum 2014 Prosperity Index” would like to see us number 16 only. It cannot be. It is the ultimate offense.

Dear Legatumators: We are number one for GNP per capita, we are the richest, we are number one in aid to the “developing” world, giving 1% of GNP. We have the biggest funds and the mostest banks. We are the biggest of the small countries. We'll get the most expensive Tramway. What are you talking about? Our feelings are hurt! Where did you go wrong?

Ah, OK, I see. You went fishing for variables that pull us down, such as entrepreneurship, education, governance and social capital. Next year we’ll be prepared. We got a new government.

Dr. Félicien M. Steichen, MD on Wikipedia

My Orchids. Photo ET

Dr. Félicien M. Steichen, MD on Wikipedia

In 2011, I had the sad mission to honor Dr. Félicien Steichen as a friend, a good neighbor, a doctor and a great scientist in the Luxembourg Business Journal. 

Letter to a Great Luxembourg Scientist, Dr Félicien M. Steichen, MD, 1927-2011

Dr. Steichen passed away at age 83, after a life filled with the passion of bringing innovative medical solutions and life-saving technologies to the world, his students and his own patients. His son François has brought an important contribution to his father’s legacy to my attention: an extensive biography with references to his extensive work on Wikipedia.

Here we go to the Wikipedia page Félicien M. Steichen

Update:
There is a more modest version of this on the Luxembourg language Wikipedia

Cargolux in the Press

My Orchids. Phalaenopsis "You Name It". Photo ET

Cargolux in the Press

Cargoforwarder, a leading newsletter for the cargo business, carried a favorably disposed interview with Dirk Reich, CEO of Cargolux. There were the good news: Zhengzhou flights are full. The bad news are: return flights are almost empty. But that was to be anticipated from the beginning of the partnership.

The solution, it is said, is to include German airports on flights to Zhengzhou to increase German cargo at more competitive prices by reducing trucking costs, as 20% of freight comes from Germany. The vigilant employee organizations should listen to this: reducing trucking costs by getting closer to the German client shipping cargo to China. What about cargo shipped from China to German clients? How close has that airport to be?

We also get a progress report about the new joint-venture airline to be set up in Zhengzhou. It got a name, Cargolux China. The question no longer is if but when the JV will be operational.

On October 28^th, Cargolux corrected or explained the misleading misunderstandings and misquotes away:

Luxembourg, 28 October 2014 - Due to some misleading statements in the media, Cargolux would like to point out the following.
As foreseen in the cooperation agreement between Cargolux and its shareholder HNCA, a feasibility study for the set-up of a joint venture cargo airline, based in Zhengzhou, is currently undertaken. At this point, the airline does not exist; its set-up depends on the outcome and evaluation of the feasibility study that is expected to be finished next month. Only then will the Cargolux board and management decide on future actions.

In addition, Cargolux is studying the possibility of adding intermediate stops in Germany or other countries on its flights from Luxembourg to China, in order to optimize loads on these eastbound services. No flights from Luxembourg will be replaced by flights from Germany or other countries, all Cargolux China flights will continue to operate to and from Cargolux’s hub at Luxembourg Findel airport.

Unfortunately some more intrusive questions of the day were skipped. Such as:

• Despite the low load factors on return flights from Zhengzhou, are those flights profitable? We know they were not meant to be profitable, and a $15 million fund was set aside to subsidize the operation. Another newsletter, the LoadStar poses similar questions.  
• Cargolux had some unwelcome publicity from the wing wave incident involving President Operations Captain Marcel Funk, Vice President Operations Captain Wieger Ketelapper, and First Officer Benedikt Stock. Though this is not a strategic issue, it is of interest to see how the new CEO is handling obvious risky behavior. During the wing wave, bank angles were probably exceeding 30 degrees and very close to the ground. It was obviously a very broad interpretation of the Cargolux Spirit, all the more when a manager is at the commands, and there were previous incidents. Good news here are that the FAA seems to ignore this incident, and that CEO Reich seems to have enforced a strict application of the “Just Culture” concept.

Which brings us to the two other good news of the month: Cargolux is not a private company anymore, and will fly to Tokyo in the near future!?

Reversing former affirmations that Cargolux is a private company, Minister Bausch traveled to the International Air Cargo Forum and Exhibition 2014 in Korea in support of the company, and mostly to Japan to sell the idea of a direct Cargolux connection to Tokyo. Nice trip. He made it to the Japanese Vice-Minister of Transportation, probably a career civil servant,  who promised he would analyze the question. Our man understood that we made progress, a good step forward. Translation for Mr. Bausch: that means NO! It only can’t be said that way in Japanese diplomatic culture.

Which reminds me of an anecdote: In 1984 a delegation presided by then Crown Prince Henri and led by then Secretary of State Paul Helminger traveled to Japan. Nice trip too. In Mr. Helminger’s bags were two “Grand Officier de l’Ordre du Mérite”, that were bestowed upon two Japanese Senators for their invaluable help in securing landing rights for Cargolux in Tokyo. The ceremony went well until one of the Senators in his speech expressed his deepest thanks for the high Luxembourg distinction, and also his regrets that the announced landing rights unfortunately could not be confirmed. CV was offered Fukuoka as a destination instead, as a positive refusal. So good that almost 30 years later the government as a majority shareholder through Mr. Bausch forced a breakthrough.

Bad Karma at Deutsche Bank?

My Orchids. Oncidium "Double Blossom". Photo ET

Bad Karma at Deutsche Bank?

Zerohedge.com gives an overview over Deutsche Bank’s various outstanding liabilities, under the headline: „ Another Deutsche Banker And Former SEC Enforcement Attorney Commits Suicide”.

The author starts evoking a wave of suicides among top bankers in 2014, among them 2 senior executives of Deutsche Bank, William Broeksmit in London in January, Charlie Gambino just recently in New York. From there a possible reason is found in the multiple points of risk and the overall situation of DB, which prompted the bank to increase its litigation reserves to €3.1 billion and contingent liabilities for fines at an extra €3.2 billion.

Business-Friendly Bureaucrat Helped Build Tax Haven in Luxembourg

My Orchids. Phalaneopsis "Fine Print Ruling". Photo ET

Business-Friendly Bureaucrat Helped Build Tax Haven in Luxembourg

The WSJ put its fingers on the crucial Luxembourg issue of the moment: tax avoidance. Of particular interest must be the revelation that for so long tax rulings have been a one-man show ….

Luxembourg has to navigate these waters too, after years of being under pressure to give up its tax evasion strategies, now is the time to address the pressure on tax avoidance schemes that often also involve Ireland, the Netherlands, BVI and Panama. This is happening at a time when the lines between tax avoidance, tax evasion and indeed money laundering fade away.

Luxembourg’s line of defense is going to be denial, claim legitimate application of all laws and agreements and subsidiarity.

I’m almost amused that so much generosity has been applied to multinationals in one meeting. Time ago I was victim of a financial crime in Luxembourg. More than 10 years of legal proceedings still are not over. I still finance the criminals' lifestyles. However, in the meantime, the Luxembourg tax man found revenue that was stolen from me, and I never knew. I was taxed on the stolen money!  I was invited to ask for a tax ruling, for forgiveness of the Euros 7,500 (not billions) in taxes through a "demande gracieuse". But my request for a tax ruling to forgive tax on stolen money took months, probably half a dozen people conspired on the about 50 pages of documents, and …..it got rejected! Of course crime pays for the Luxembourg tax man! He is a tax robber at his moments.

Andy Schleck, winner of the Tour de France 2010, ends his cycling career

My Orchids. Phalaenopsis "Yellow Jersey". Photo ET

Andy Schleck, winner of the Tour de France 2010, ends his cycling career

In a Press conference today, Andy Schleck confirmed the rumored information that he was ending his cycling career as a professional. The reason for this premature retirement is his well-known accident and the ensuing knee surgery. However, many efforts to overcome the injury obviously failed. Andy Schleck is 29. It is not known what comes next. There is a 50-50 chance that a political party will show up and entice him into a political career. There you only need sharp elbows though.

Andy Schleck was declared winner of the Tour de France 2010, after Alberto Contador was convicted for illegal substance use.

U.S., U.K. Regulators Push to Settle Deutsche Bank Libor Case This Year

My Orchids. Phalaenopsis "Libor". Photo ET

U.S., U.K. RegulatorsPush to Settle Deutsche Bank Libor Case This Year

The Wall Street Journalreports about the sequel of the well-known Libor affair. By coincidence, this might be a good on the job training for Luxembourg’s former Minister of Finance/Justice etc. Luc Frieden to handle a hot potato, as he just joined Deutsche a month ago, in a much commented abandonment of his elected position as a Member of Parliament. A position as a member of the opposition, for which he declared himself unfit was unbearable according to recent interviews: there was only one choice, member of the government or nothing. 

A Cargolux winkie-winkie with consequences?

My Orchids. Phalaneopsis "Three Licenses". Photo faa

A Cargolux winkie-winkie with consequences? 

The City of Zhengzhou, the second aircraft that Cargolux named after the partner city in China, has not only become a one of a kind twin in the CV stable because of the name. It also had already a vast social media presence, where images from its takeoff were circulated, showing a vacillation to the left and then to the right in a supposed goodbye winkie-winkie.

This maneuver close to the ground is reminiscent of a failed demo of an A 320, Air France flight 296 on June 26h, 1988, where at a show, a risky demo close to the ground failed and the aircraft crashed, and three people died. Fortunately in this case, the story eventually had a happy landing.

Not for everyone it seems. Rumor has it that the US FAA is investigating, and that Cargolux grounded three pilots.

First Sukuk issued in Luxembourg

My Orchids. Oncidium "Sukuk". Photo ET

First Sukuk issued in Luxembourg

According to sukuk.com:

“Luxembourg’s Sukuk represents the first ever European Monetary Sovereign to issue Sukuk. The order book being only twice over subscribed indicates less than stellar demand and is to be contrasted to the UK’s recent Sovereign which was ten times over subscribed.”

There were 29 bidders.

As the first ever issue, the sukuk listed on the Luxembourg Stock Exchange, has of course test balloon value. It ddidn't fall flat, but it wasn't stellar either, compared to the London threshold. If the Luxembourg government hoped for more interest, what would explain the “less than stellar” interest? It can only be two categories of reasons: a lack of marketing, or some level of lack of confidence in the issuer/euro/financial center/Euro Zone.

Prescription in view of next number two: drum up marketing, talk up the 

relatively good issue number one, and prepare for a better roadshow.

At multilingual Cargolux, “Divide et Impera” prevails over “L’ Union fait la Force”

My Orchids. Cattleya. Photo ET

At multilingual Cargolux, “Divide et Impera” prevails over “L’ Union fait la Force”

It is a bit of a Tower of Babel out there at Cargolux. Unions no longer seem to present a united front. That is the case formally. Though on substance they still pursue very similar objectives: job guarantees and opposition to the scaling back of salaries and benefits.

Management through Mr. Reich now comes to the conclusion that Cargolux is on track to have a $50 million loss in 2014. Only 2 months ago, CFO Forson denied that the first half of 2014 produced a loss of close to $25 million. Let’s just believe that those 2 statements from 2 top managers are accurate, and conclude then that most of the loss will necessarily be incurred in the second half of 2014.

The facts then are very disturbing:

- The losses at Cargolux will mostly occur when all reports show healthy growth in the air cargo world. News services such as cargofacts, worldacd, and theloadster all report healthy demand and growth in air cargo. Only Cargolux obviously seems to be left out of the trend.

- The losses also occur after the departure of too many seasoned managers, a situation brought up inthis blog earlier in the year. Don’t successors match up?

- The projected losses also have a surprising side, as the CFO recently had sounded optimistic in an interview to cargofacts. Is the present contradiction to that optimism negative posturing in view of CWA negotiations? The government, indirect majority shareholder, says nothing, expressing that way its silent approval? A rehearsal of more things to come in the public sector?

The recent moves to divide and conquer can only be part of a strategy to dismantle present employment agreements and privileges, in an effort to reduce costs and losses. Cutting costs is obviously one category of tools in the toolbox to get the finances in order. But among them, pay cuts cut into the employees’ morale and productivity, and undermine Luxembourg’s social peace. 

Increasing business, and certainly not losing business is the more elegant tool to erase losses, and it doesn’t cut into morale. Good performance boosts morale. But this strategy takes top performing managers, who are difficult to replace once they have left. The margins in the air cargo business are too small to allow for average performance only. In the case of Luxembourg, the problems will always be compounded by trucking costs.

According to recently disclosed plans, there is a possibility to almost double the number of aircraft as a way to achieve profitability. Hidden but assumed is that such a plan might include outsourcing to Cargolux Italia or the already named Smartcargo, or even as a concept, to the new JV in Zhengzhou as the intermediary steps in a “rejuvenation” of Cargolux into a bigger, leaner and meaner Cargolux. One understands that in order to translate such a contradiction of terms, bigger and leaner, into reality, the detour through outsourcing is necessary, a gradual process of the salami tactics. The almost 100% increase in aircraft into a low cost operation hopefully erasing at a minimum the present losses of core Cargolux.

In summary the plan seems to be to cut salaries through outsourcing, reduce payroll at present CV through attrition, increase the number of aircraft, and pray.

One always needs a plan. Then realities catch up, and nothing will play out totally as planned. The good surprise would be that management succeeds in increasing business, the other variable to play with for getting finances in order!