My Orchids. Phalaneopsis "Shut Up". Photo ET
Cargolux:
How to play a bad hand?
As promised to some, translated from
feierwon.blogspot.com,
In the debate over the
sale of a 35 % stake in Cargolux, owned by the Luxembourg government, to a
Chinese entity in Henan Province, there seem to appear a number of
incongruities. Maybe those can be explained? This was not done until now.
However, it is arrogant to deny the debate and to hide issues from the Luxembourg
taxpayer, the employees of Cargolux and even the governing bodies of the
company, if not such experts as outside counsel. And to selectively ignore advice
that is not in favor, while retaining only those favoring the deal.
The public’s right to
know is well established: Cargolux is a matter of concern to all taxpayers, so to
everyone. Cargolux indeed is not like any other companies. It is almost 100%
owned by the state, when considering the parastatals. It matters to us. What
Cactus or any other private company however decides, is none of our business.
The
facts, the leaks and the rumors
Explaining the partnership
between Cargolux and HNCA is not easy. In any case explanations were not
communicated spontaneously, exhaustively, nor frankly. Or the partnership agreement
has serious shortcomings, and there is no other explanation than to admit that
either we were not up to the task, or at least that the agreement lacks consistency
and balance. Without direct and open responses, there will be more leaks, which
then obviously are not rumors. They are facts, hidden from the public for a
purpose, obtained by stealth, and most cannot be trivialized. But unanswered questions
about the dark corners of the partnership with HNCA, that leaks do not expose,
that vacuum will be filled by rumors.
Mr. Helminger tried to
address this lack of communication within the company in a letter to employees.
It lists the reasons to be optimistic about the HNCA parnership, including the
business plan over five years. But it ends with the warning that
"rumors" must stop to avoid ruining the chances of finding new management
professionals, and therefore ruining the chances of success for Cargolux . This
is a pre-emptive strike of the same kind as the one used by Mr. Schaus towards
the Executive Committee, which he called “dysfunctional ", thus potentially
endangering the great Chinese project. This is summed up in the simple slogan:
if the deal is successful, it will be thanks to us, if it fails, it will be
because of you. Unfortunately, such statements cannot reassure the world, as unintentionally
it is a subconscious statement exposing one’s own uncertainty about the success
of the project one defends.
But the preemptive
strikes had their effects, as trade unions have deliberately fallen silent since.
Just as did the two members of the Executive Committee, who chivalrously refused
to elaborate on the reasons for their resignations. It is true that those speak
for themselves. And so do leaks. Some media outlets have contributions that are
aligned with the thought that the debate must end. They mention an “offensive" by Mr.
Helminger to defend the project. Which more adequately would be called a “defensive”
that became necessary to try to calm the game. Still, it is a good starting
point to improve internal and public communication.
Rumors
and propaganda are equally harmful
Other initiatives to
calm the game are less fortunate. I do not know who inspired an article in “Wort”
( 1) , which for some unknown reason attacks the "myth" of a Cargolux "stand alone". So this
vision of a standalone Cargolux, according to the government, would be a fancyful
and impossible vision. And that’s why this idea of a partnership with HNCA is
such a great idea! It is interesting to see a newspaper, known to be an outlet
for an opposition party, come along and lend its support to the Chinese "
good solution ", using a product pitch that seems to have grown in the
garden of a biased Ministry. The mystery deepens as to the motivation of Wort,
although some continuity with the past is undeniable. The argument against the
standalone though is simplistic and defeats itself through its restricted
vision, and is awash in sophistry. This isn’t very clever, because people will
be wondering what lies behind these bold and wrong assertions, which provides
new grounds for rumors. Here are those assertions:
The standalone is not
possible, because the 2012 results are bad. 615,286 tons of freight is less
than the peak year of 2008, a record 788,286 tons. Unfortunately, this argument
is a demonstration against the partnership and in favor of the standalone. The
bad year of 2012 was one of a partnership with Qatar Airways, a demonstration that
the worst year was when CV was not a standalone. We hasten to ignore also the
year 2013. CV is standalone again, after the departure of Qatar Airways. After
the miserable year of 2012, 2013 will be a profitable year, as I am told. This
provides evidence that the argument that the standalone is not sustainable is misleading.
The opposite is rather true.
The second argument is
that the company lost 253 million euros since 2007, and that a capital increase
of 175 USD is necessary. Forgive me to remind you of a painful detail: the
total fines paid by Cargolux these past years totals over USD 250 million. Don’t
you see a relationship between the fines and those losses, and capital requirements?
CV has operated very well this year. Without those old fines, the numbers would
add up nicely. We would be talking about future financing needs only, if any,
of 300-400 million. There are investors ready to move in for this, including in
Luxembourg, right now.
Based on these two
false arguments, one would make us believe the wrong conclusion that there is
no alternative to the Joint Venture with the Chinese group. That’s an extreme
lack of logic. The conclusion would be correct, but the result of a fallacy? Well,
let’s elaborate a bit on that fallacy: it is suggested that if the Joint Venture were not pursued, the Luxembourg
state would have to pay in case of the standalone’s failure. But let’s calm down.
In reality the state would also have to pay in the event the JV crashes. Which
of the two options is riskier, the partnership or the standalone? In the case
of Qatar Airways, it was the partnership with Qatar Airways, not the stand alone.
See how the year 2012 worked out, with its poor results!
The final argument is
that the various consultants Clifford Chance, UBS and even Arendt &
Medernach (!?) could not provide better visions for Cv’s future. Add even
Robert Schaus. I would oppose to those two leading experts , Robert Van de Weg
and Peter Van De Pas, and Shearman and Sterling, and even Akbar Al Bakr , CEO
of Qatar Airways, whom I quote as saying in 2011 : " ... Cargolux, a sound
, healthy and profitable company and a leading all- cargo carrier ..... "
. He spoke of the standalone.
The most tremendous
contradiction in this demonstration is that it explodes under its own
arguments: standalone, no, JV with Chinese group, yes! But in fact, in this
case stand alone and JV are virtually the same. Cargolux will operate for at
least three years as a virtual standalone, which only benefited from a Chinese
cash investment. The only differences from another capital investment are
multiple obligations that CV has to honor, as a result of an after all very
small Chinese investment. Those obligations are bound to trigger losses and lost
opportunities to which we have acquiesced in advance. In a nutshell, that
amounts to a very costly new shareholder. Even considering the remedy to these
planned (!) losses through a USD 15 million relief fund. What a pessimistic prospect!
The most worrying aspect is that politicians, who never have even run a
lemonade stand, and who consider advice selectively, are making these decisions
on behalf of the taxpayer, and affect the future of a multi-billion company and
its nearly 1,500 employees.
Omission
that would make the difference
Why is there so much
mystery around simple and legitimate questions of price, veto and other conditions
generally very in favor of the Chinese side? Maybe we as taxpayers should
demand that a debate in those circumstances should be held before the Chamber
of Deputies. I refer to Article 99 of the Constitution that says ... any
significant financial commitment of the State must be authorized by a special
law." Although this article refers to real estate transactions, the only transactions
conceivable when this was written a century and a half ago , when nobody
thought to acquire or sell other securities, such as shares of an airline, it
nevertheless indicates that it would have been wise to seek the debate in Parliament
and to back the transaction by a special law. The Budgetary Act of 8 June 1999,
in Article 80 confirms the merits of such a cautious approach: " Must be
permitted by law: sub. d) - any other financial commitment, including state guarantees,
the amount of which exceeds the sum of Euros 7,500,000 (seven million five hundred
thousand)" This was done for the granting of a guarantee of 3,000. 000,000
of FLux (€75,000,000 million) for the SES before the launch of Luxembourg’s first
satellite Astra (1A) in 1988. In case there would be a secret part to a
contract with a Chinese official entity (they are all official entities in a
planned economy), the Constitution would say . . "Secret treaties are
abolished" Tell us all there is. Such a special law would have shed the
light on the project, allowed for necessary amendments, and by a clean vote
would have ended all discussions. Memo: This is a note to the dossier "Revision
of the Constitution."
I would conclude for
the rest, that there will be no new divorce of the kind with Qatar Airways. Technically,
the Chinese government as the ultimate authority could still refuse approval
for the signed project. But HNCA’s contract is too good to give it up. The
Luxembourg Government on the other hand has lost its freedom of action by
signing up with a Province under Beijing rule. CV is left to assume, and to
prepare the first money losing flights to Zhengzhou. An idea for the internal PR
effort: on every flight, take a dozen Cargolux employees along to visit Zhengzhou.
This would round the corners, and make them happy like Ulysses, who made a nice
voyage.... And those who still complain, will not be part of the journey, if I
understand the new line correctly.
