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!