Cargolux delayed, but that is welcome!

    My Orchids. Phalaneopsis Crimson Glory. Photo ET

Cargolux delayed, but that is welcome!

No, nothing about a flight. But the so urgent sale of 35% of Cargolux to HNCA has to wait a bit. Well, who wasn't aware of that?

In early October we all learned about a so successful negotiation, that was about to be completed, and the heavenly deal would be completed right away. I guessed HNCA was ready to buy 35% of CV for a multiple of QR's $117.5 million. By the way, in early October we also knew that there were elections coming up on October 20.

So people were asking: "what's the rush?"

Well, they were going to get an answer in an information meeting, scheduled for last Monday. But the meeting got canceled, and no one knows why. That's great, because now, with that official retreat from transparency, we can speculate that the reason may be: it's really not such a good deal, or,  it is so bad that you cannot even trust the next government with just staying quiet about it, mostly if there is a change in government.

So on Thursday a "Comité Mixte" was to meet, and actually on Friday the Board was ready to rubberstamp the deal on the table. Rubberstamp is the politically incorrect way to say that the agreement would be submitted to the Board's approval. Those two things fell flat also.

As of today, Mr. Wiseler, (who somehow became the top dog after Mr. Frieden) wrote a letter to Mr. Bettel, assumed to be the next Prime Minister. I told you there would be elections. Somehow Cargolux weighed on those by the way. But it is nice that Mr. Wiseler writes a letter to the future government. It is the right thing to do.

So if the proposed partnership with HNCA is so overwhelmingly great, I don't doubt that Mr. Bettel already answered giving it his unrestricted support. And then Zhengzhou, here we come. Unless the shareholders after that tell their boss, the government, to get a checkup. 

Talks with four potential candidates over Cargolux stake - Lloyd's Loading List

    My Orchids. Oncidium. Photo ET

Talks with four potential candidates over Cargolux stake - Lloyd's Loading List

This very good article reports and summarizes the present thinking at Cargolux: trying to replace the Luxembourg government, holding 35% of CV, as a shareholder by another investor.

Talks with four potential candidates over Cargolux stake - Lloyd's Loading List

Comments:

1. Apart from what seems the government's wish to find a buyer for its 35% share, there is no urgency to find such a buyer. I would dismiss the argument that assumes that the European Commission would want this to happen asap.

2. Allowing for external pressure from the European Commission is bad for decision making. We hopefully still remember Mr. Frieden's fire sale to QR, the lowest bidder.

3. It will be difficult to trust an airline partner after QR almost cannibalized CV.

5. Selling the Luxembourg governments shares doesn't add a cent to CV's capital base. Only acquiring NEW shares would achieve this. Although that is obvious by itself, those who didn't know this should have learnt from the QR debacle.

6. So the Unions shouldn't know what is going on in those negotiations? CV however is not the standard private company, where this would be defensible. It is owned by the government, and CV is a pillar of its newly proclaimed national logistics strategy. The government should actually be interested to share the state of those negotiations with the unions. For the simple reason that the QR debacle had been "negotiated" by management and government representatives who now again don't want to share information. But wouldn't it be prudent for our negotiators to let those who saved them and the company before, know firsthand where things are going? That could spare another painful U-turn later. They can be asked to keep the secret, though my aunt Léontine will tell me all about what's going on anyway in the days to come.

PwC's Cargolux report is great literature

    My Orchids. Ghostly Angraecum. Phot ET.

PwC's Cargolux report is great literature

(Version française cliquez ici)

It is said that it is always the victor who writes History when the war is over. I'd similarly observe that he who pays for an "independent" report, is writing the report. Mr. Frieden paid € 200,000 for a report on Cargolux. And indeed, the end product just presented is exactly what the government had ordered. The customer is satisfied. But this is not an investigation, let alone a criminal investigation, it is probably an exercise in "damage control" and it is also history-fiction.

1. The report is a tale of 1001 nights

It's a beautiful story sewn with white thread, where well-known events in Cargolux' past, disparate and random elements, were woven together into one single oriental rug, well smoothed out around the corners . Part of the fiction would have it that a cohesive Cargolux-government team  superbly motivated, but under pressure from the Brussels Commission to accept another shareholder, had identified Qatar Airways as THE ideal strategic partner for Cargolux. Thanks to senior negotiator Mr. Frieden's superior negotiating talents, the big fish was finally pulled heroically on board in 2011, against all odds. The other parts of the fiction are  the embellished elements which have been under suspicion for years: the notion of THE strategic partner and the perilous justification of the privileges attached to BIP's and Luxavantage's preferred stock.

In connection with the choice of Qatar Airways as THE best strategic partner, the term "at the time" is used. This is probably an excuse for the rapid and scandalous failure of the strategy that was so great "at the time." Remember the increase in traffic, tonnage, destinations, revenue, employment to justify THE startegic partner?  However a good strategy to merit its name is not limited to a short moment in time and space. It should stand the test of time, and therefore it has to be a well thought-out plan for the long-term. The strategy of a partnership with Qatar Airways failed, because it wasn't good at any time. The question is, who were those strategists behind the Cargolux decision to engage in this way? Just to make sure to never recommend them to anyone.

The twisted story of BIP Group's beautiful exit as a Cargolux shareholder also became a revised fairy tale: in this variable geometry transaction , BIP's and Luxavantage's preferred shares enjoyed another privilege on top of  being preferred. They were singled out to have earned a 40% capital gain. This was explained at the time as a dividend only available to BIP and Luxavantage. This looked indeed like a magic move, not easy to explain. Don't worry you'll get it. The new explanation is that those shareholders,  determined to leave the company,  were actually deprived  of  the fantastic gains in shareholder value that the arrival of Qatar Airways would bring to Cargolux. In other words, the shareholder who withdraws does not participate in future gains, and therefore loses an opportunity. He must be immediately compensated for that potential loss!  Luxembourg has invented a new form of investment: if you invest zero, so at zero risk, in a company which is projected to pay big dividends, you will be deprived of those gains. That's so old school! According to this new thinking, you'll have to be immediately compensated for your loss of future earnings!

What the report does not say about BIP's withdrawal is that it was not even necessary from the Cargolux point of view, and a waste of the company's resources. But that goes beyond the imagination and the scope of the mission of PwC's report. Despite of a perceived European obligation that the government had to withdraw as a shareholder, which is now an obsolete argument after years of shareholding, fact is that no one had to sell shares to make Qatar Airways a 35% shareholder. It was not even desirable. Logic would have dictated to create new shares for Qatar Airways, to the level representing the 35% coveted. All existing shareholders would have been diluted. But  Cargolux would have had an immediate shot in the arm of $117.5 million, providing a real and alas also the only benefit to the company from the transaction. BIP could have sold its shares to an outside buyer without resorting to the much criticized metamorphoses of preferred shares. Or given the new argument of extraordinary future gains that were forecast "at the time", why not stay invested? I was surprised by the omission of this alternative in an investigation by one of the Big Four, but it is true that the client only wanted a photographic novel where pictures from "at the time" are stitched together. It could not capture the picture of the ghost of an idea that was never contemplated "at the time" by the customer.

The great mystery that was not illuminated by the lights of the report is how come that 35% of Cargolux were valued at only $135 million in 2011. It is a ridiculously low amount  Who did this valuation? It must have been the strategists from before.

Then there is the Wicked Witch in Brussels, the Commission, which is said to have put the Luxembourg government under pressure to sell, because it could be accused of subsidizing Cargolux. Can we ignore these "pressures", please? I would without any hesitation. Elsewhere so many European rules are ignored by France, Germany and others. Examples are the permanent violations of budget deficits regulations, or changing Schengen, or treating many other rules with benign neglect, making them effectively obsolete. It seems that the Cargolux subsidy rule is effectively obsolete too at this moment. And what about foreign governments owning large stakes in European companies. Example at random: Qatar acquired or saved or subsidized Luxembourg's BIL at 90% and KBL at 100%. Why would a bureaucratic Brussels regulator prevent the Luxembourg government from saving one of its core economic activities, air cargo? European subsidiarity principles are weak indeed!

2. The report is an exercise in "damage control"

In any case, the report is an attempt in damage control. To be effective, one should not violate some basic rules.

The first rule is that you cannot undo what was done, you cannot go back. The report moves against this rule, as it revises some former explanations and a posteriori stitches together disparate events in a causal sequence. The appearance is descriptive rather than analytic.  The report paints an idyllic and syncretic view of the new Cargolux, pleasantly describing a large picture, and conveniently avoiding too much analysis. That's impressionism! Which allows for the  superficial conclusion you must have: convey the impression through a reputable third party, without too much analysis or contradiction, that the Cargolux affair was smoothly conducted in the interest of all. You may need to spin the report a bit on the news cycle and the thing goes away.

This violates another rule: avoid falling into the trap of arrogance. We are right there: here is the report, now let's move on. Arrogance always sets the scene for violating another rule: if truth is not served, obstruction and obfuscation are generally worse than the incriminating facts. Hiding things and erasing evidence is not a good idea. Most often this attitude is more expensive and dangerous than presenting the facts openly, all the facts at once, the way things happened. Because the truth will eventually prevail. Do not forget that at the origins of this report were serious questions about the genesis of relations with Qatar Airways, possibly misconduct. If the perception remains that the public has not received all the information in all honesty, the damage control will be seen as an operation of obscuration.

However the operation deserves some respect for staging a diversion. We must pay tribute to a good play when there is one. While presenting  the report we also got the news of the Luxembourg Government's brave response to the European Commission's recommendation (them again), to introduce a toll on Luxembourg highways. This tactics of creating a diversion is often described as "setting fire to the kitchen to hide the fire in the garage." Mr Juncker also applied it when shouting "Fire" by disclosing old illegal tape recordings by Luxembourg's spy agency, the SREL, in order to distract from Cargolux and National Stadium affairs. In our case, the attention immediately turned from Cargolux to the highway tolls, monstrosity that does not even exist, but would highly infuriate even the most docile citizen. However, I would have chosen rather a Friday afternoon to make both announcements to maximize the capabilities of the Luxembourg public's forgetfulness over the weekend.

3. The report is not an investigation either

Remember that initially several members of Parliament were demanding a Parliamentary inquiry on the Qatar Airways deal. However, the House of Representatives voted along party lines to let darkness prevail. And the light was not. There was no criminal investigation either. For there to be an investigation in either case worthy of that name, there needs to be sworn testimony, contradictory hearings and seizure of documents and other evidence and this preferably before anyone can destroy them. But our elected representatives preferred to vote right away that there was no scandal, before gathering the facts. It was the equivalent of the old military firing order, but in reverse: "Fire, Aim, Ready!"

In conclusion, Mr. Frieden has received a medical certificate of complacency. i.e. of good health. He was an actor, sponsor of the report, payer, witness, I guess editor too, investigator and presenter. The whole orchestra. For Cargolux and its employees who are fully aware of their History, there is only one lesson: beware, and draft your own report. 

Cargolux-Qatar Airways: an investigation report

    My Orchids. White Knight Upside Down. Photo ET

Cargolux-Qatar Airways: rapport sur le deal

paperJam has news: the long awaited audit on that memorable transaction with QR needed to be audited independently, according to a Parliamenry decision dated December 19, 2012. On Monday, Mr. Frieden, central figure to the deal will receive the results of that audit he had commissioned from PwC.

Honni soit qui mal y pense.

Spying case in Luxembourg: cherchez la femme

My Orchids: Listening Devices in the Shadows. Photo ET

Spying case in Luxembourg: cherchez la femme

The President of the Eurogroup, who now is a serious candidate for Prime Minister of the Grand Duchy of Luxembourg, a job that has been vacant for several years, recently spent a few hours in Luxembourg for a first training session for his future job. The candidate preferred a "freestyle" test for the first practical session, choosing as a topic an issue initiated by himself two weeks ago: a spying matter where facts and fictions are jean-claudying into one another. But the intent in choosing that subject was really a deception. It was "head fake" designed to hide the lingering fiasco at Cargolux and the true emergency that's the need for its rescue. The feint was also to obscure the real problems and suspicions surrounding the Cargolux case, as well as similar situations in other recent cases. There will even be an Inquiry Commission to investigate the spying nebula, but there won't be any such commission for the economically more serious and more immediate problems and questions surrounding Cargolux, even less for the little older case of the National Stadium at Livange.

Attention! One feint may hide another.

Indeed, my "cherchez la femme" was a double feint, a pretext to attract the reader. You have to admit that it was successful, as you made it up to here. My intent was to break the spell of the spy story and bring you back to the urgent realities. If you thought I would make some juicy revelations about Bond girls, that's not yet. The spy story is a political fiction, but if it is going to keep a life by itself, it needs girls anyway, and we'll eventually find one. So keep posted.

My real goal is to refocus attention on the serious urgency of the moment, the fire in the country's economic bulk of the roof, and the heat Cargolux is taking. Without forgetting to have the Great State Commissioners account for the disaster they commissioned.

Cargolux: let's take the same and start all over again.

Cargolux' catarrh due to the cooling of the relations with Qatar needs to be taken to the emergency room.. A second opinion is needed. But are we seeking a second opinion from the same old doctors who formerly prescribed QR? This is apparently what happens. Ministers Frieden and Wiseler briefed Parliament about their new approach, a treatment in two phases. Though there is no diagnosis yet. But everyone seems reassured. For the moment, the patient does not respond at all, because its decision-making organs are blocked due to the continued participation of QR, still a shareholder.

The two ministers said the first phase would be a maneuver that would release the 35% of shares held by QR into an escrow. Nothing to do with the one provided by ING in 2011 for the sale of CV shares to QR. This time  the ministers insist, it will be "clean and correct." I read those comments reported by the press as an admission that in 2011 the occult escrow operation with ING might not have been clean or correct? But let's for the moment just acknowledge that we have a temporary solution, even if it is born out of this obsession with confidential escrow agreements.

The devil is in the details.

The good news of the redemption of QR shares is good news only if Qatar is actually aware of this, and  is okay with it. There were at least three ways to proceed with the redemption of QR's shares. But a choice has already been made. So here we are with the fait accompli of option three, which is a hybrid between the other two possible redemption methods: a direct sale a or sale to a third party.

As our ministers did not elaborate on the details, we should remember that generally the devil is in the details. In this escrow operation, what are the terms? I guess that QR remains the beneficial owner pending a final sale. In the meantime, does CV have operational freedom? That's essential, without saying that no other clauses detailing the expectations on both sides are not important to avoid procrastination and last-minute surprises when a "closing"  should happen. I'm afraid that none of this is certain by just remembering the previous agreements signed by our ministers, agreements that were completely unbalanced in favor of QR. Did we protect ourselves this time? We are assured and like to believe that transparency will prevail, and certainly will transcend past Luxembourg amateurism. At least this time around, well advised witnesses will be able to watch and make noise, enough to protect the naive from themselves.

However, the negative results of  past amateurism and the incomprehensible deal of 2011 are: CV's present value lies below its real market value, QR cannibalized  CV, and ultimately CV lost some of its excellent reputation. This accumulation of bad news will haunt the current recovery. In addition the turn-around effort is handed over to the losers of the first round, without even asking for any accountability for the first fiasco they created.

The devil will be especially present in the crucial detail of anew valuation for CV, after it underwent two horrible years of damage. This will be a large gap to bridge between buyers and sellers, unless the sellers go again for the lowest bidder. Before choosing the solution of acquiring QR's shares in escrow, there could have been more than a half-dozen ways to pluck this duck. But now there are fewer choices left. We will watch the skills of our negotiators, who in the first transaction had sold to the lowest bidder (!).

By now the range for a valuation of 35% of CV lies somewhere from under the$ 117.5 million paid by QR (after considering incurred damages) to over $ 175 million (HNA's opening bid in 2011). This will be tough, but CV is intrinsically beautiful, with a worldwide tradition. The government cannot and shouldn't avoid providing strong guarantees and even intermediary direct investments to enhance CV's credibility. Mere formality one might think: the government has done so in much higher ratios for banks. What is good for the goose is good for the gander.

What comes first, a partnership or recapitalization?

The Qatari partnership was a mere ownership transaction, without any capital contribution. Hopefully our sorcerer's apprentices never mistook that partnership for a capital contribution. It is clear that the deal served the purpose of allowing the private investors BIP and Luxavantage to exit Cargolux. The result is that in its quest for new capital, CV lost two years. After a surge in revenues in 2010 producing profits, the bleeding resumed as the QR relationship developed..

The reality is that a partnership does not exclude a capital injection, as shown in HNA's offer for a partnership in 2011. Its bid was not only higher than QR's. It was accompanied by a loan of $ 200 million at quite favorable conditions well.  Luxembourg's State corporatism, i.e. bureaucratic decision makers, showed contempt for the Chinese equation that didn't satisfy who knows what needs. Yet among the senior professional staff at CV, there must remain enough collective memory to revive the former vision, positivity, certainty, boldness, it's "You name it, we fly it" mentality, and who could tie up with their former selves and make the company great again.

Actually the new guard at the helm is typical for state corporatism in Luxembourg. Here you have Cargolux, created over 40 years ago. Viewed with skepticism at first, it proved a surprising success. And presto, the Luxembourg "system" snapped it up and put its faithful servants of state corporatism in command, who, incompetent, must turn to partners, consultants, uncles, meandering mechanisms and other hesitation waltzes, thus hiding their inability to understand the problems and to make timely decisions. The State for its part would justify its lack of action and transparency on the grounds that it cannot interfere in the affairs of a "private" company, that it actually owns. This is the sad state of state corporatism.

With the new transparency policies, we will all be at the forefront to follow the future exploits of our ping-pong duo Frieden-Wiseler. (Ping-pong does not infer any bias in favor of any partner). We already know that the public will pay attention and not be silent. What's more, our aspiring Prime Minister promised a Code of Conduct before the end of this year, which would of course apply to the main actors in our drama! I would even add an Inquiry Commission about the former QR deal, because what good is a small code of ethics, if the big questions about the legality of our officials' past actions are not to be investigated?