Cargolux and Cargolexodus: wandering in the desert

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?