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| My Orchids. Oncidium "EXODUS". Photo CV |
Cargolux and Cargolexodus:
wandering in the desert
There is something
biblical to the Cargolux story. The company now has been wandering for more
than 4 years in the desert. And it has seen its share of the Ten Plagues: the
worldwide price-fixing affair has bedeviled the company for years, and it is
not over yet. The short-lived partnership with Qatar Airways was a monumental blunder
that allowed a critical competitor to gain knowledge, clients, and
international rights through a significant stake of 35% in the company for a
ridiculous valuation of USD 117.5 million. A pittance for the cannibalism
opportunity QR exploited ever since, and it is still ongoing.
The beginning of the QR
adventure in 2013 saw some divine intervention, when private CV shareholders
were allowed to sell out at a higher valuation than the crowd, a new form of
Golden Calf. The Exodus from QR also saw the Exodus of significant managers, some
even joining QR. Then, in 2014, the new Luxembourg government, even before it
was sworn in, jumped head first into the partnership with HNCA concocted by the
former (failed) government of Mr. Juncker. The deal is condemned to succeed after
all the ups and downs.
But where and who is
Moses to lead CV out of the desert, and to talk to the Unions. The biblical Moses was stuttering, and so is CV’s management. The government says, CV is a private
company. False. The Board votes a budget, which includes another Exodus to
Italy. Management lets everyone believe that it decided to decide nothing. The
unions however see the writing on the wall, and have made their position clear.
The government is in Pontius Pilatus mode, though it is indirectly the largest
shareholder, and definitely also should look after its well-advertised focus on
logistics. Without CV’s tonnage, how can logistics be the Promised Land?
CV has been quite
resilient though through 2014. Sometimes facts and numbers don’t serve the catastrophe
message. It is more difficult to cry bankruptcy when you made some money. So a
future catastrophe has to be painted, seven meager years, justifying wage
reductions and aircraft Exodus. No doubt, CV has to be creative to get to the
Promised Land too.
The Exodus to Italy
Though the official line
is that nothing is decided, the Cargolux Board has decided to finance the
Exodus to Cargolux Italia. Additional aircraft are needed to make it profitable
says CEO Reich. However there is at least another option: if the Italian
subsidiary is not profitable after 6 years in existence already, close it down
and repatriate whatever operations possible to Luxembourg. Why weaken the
Luxembourg operation to salvage a money losing Italian one?
The Exodus to China
I have recently witnessed
two major initiatives on the spot in China: first a reversal of a policy of
cheap money and loans to regional entities, for a more centralized distribution
of investments. Which will impact the Henan Province like it does all others. The
second is a vigorous campaign initiated by President Xi Jinping to eradicate
corruption, menacing according to the President “the survival of the State and
the Communist Party”. The Chinese Communist Party reported that it has punished
72,000 of its members for “graft” issues in 2014. That is a cold shower on the
adventurous corrupt. These two major policies, anti-corruption and centralized
lending will have as a side-effect slower regional projects, as money becomes
scarcer and officials try not to step over the line and become suspect.
Cargolux China has already been delayed by several months, and the amounts of
subsidies needed have to be considered in this new environment. There is no
immediate Exodus here.
The continuing Exodus to
Qatar
Luxembourg seems to have
its thing with Qatar. Last week saw an official delegation presided by the
Crown Prince of Luxembourg and led by Mr. Gramegna, Minister of Finance
visiting Qatar again. Rightfully, critical voices point their fingers at the poor
situation of Qatar’s labor force, which is 94% foreign. According to the
International Federation for Human Rights (FIDH), “working conditions for
migrant workers in Qatar amount to forced labor with acts of debt bondage,
confiscation of passports by employers, overcrowded and unsanitary labor camps,
the absence of employment contracts and arbitrary salary deductions." Was
this part of the Luxembourg delegation’s discussions? I doubt it as the visit
was in line with former demonstrations of interest in Qatar, when then Minister
Jeannot Krecke said: “If we cling to our principles, we’ll lose the business.”
But if we forego our duty
to stand up for human rights, then we should have at least brought up our
immediate material interests which are violated by the obvious unfair
competition that Cargolux suffers from QR to this day. I take as a witness a recent report by three US airlines, denouncing USD 42 billion (!) in subsidies to
Qatar Airways, Etihad Airways and Emirates: “The US carriers together with
workers' groups issued a 55 page report detailing how "unfair"
subsidies given to Gulf rivals Qatar Airways, Etihad Airways and Emirates have
allowed them to wrest market share from the US industry.”
And Further: “"The
multi-billion dollar subsidies... have allowed Qatar Airways, Etihad Airways
and Emirates to rapidly expand their fleets and international routes,
distorting the commercial marketplace to the severe detriment of US employment,
the US economy and the US airline industry”. Or better, read Luxembourg
employment, the Luxembourg economy, and Cargolux.
So we fall for the glitz,
and show up in great pomp? A visit and a protest to the famous European
Commission that sanctioned CV, and harassed the government on “subsidies” to CV
and a protest to the World Trade Organization would have been more opportunistic
than the oh so opportunistic economic delegation to Qatar. One day the
reckoning will fall upon us from that partnership, again.
Isn’t it remarkable that
despite QR’s and others’ dumping practices, CV had honest results last year?
