Luxembourg: The wondrous Cargolux negotiators and their ticking time bombs

My Orchids. Sovereign Niche. Photo ET

Luxembourg: The wondrous Cargolux negotiators and their ticking time bombs

We had some quiet moments around Cargolux over the past year. Last year it officially booked a profit, which is encouraging, even if put into perspective, it might be a short-lived blessing that was based on lower fuel costs. In any case the profit rate was only about 2.5%. It is difficult in the air cargo business to make a profit at all. That’s why the government has to care when in Luxembourg one company, CV, is a key activity. Considering gross revenue, the margins are not very comfortable in case markets turn down, or someone comes along spoiling the party. But it is nice for now to show positive results. This week however put Cargolux again in the news.

Dirk Reich’s happy departure to smell the roses.

Dirk Reich resigned as CEO after just a couple of years at the helm. That gets everyone listening, mindful that there was a management exodus a short time ago. Management put a nice face on the events: Dirk Reich, the CEO, chose to retire. Publicly it was much insisted that it was his decision, before anyone doubted it. That actually made some doubt, because the language seems so carefully crafted. His replacement is Mr. Forson, the CFO. He was already the interim CEO before Mr. Reich was recruited. Obviously if now he is the only possible successor in the leadership’s view, he could have been hired instead of Dirk Reich, saving the cost of the executive search at the time.  But for some reason, he was found less qualified than Dirk Reich. So this time he is, and it is done without an executive search, which means he has learnt a lot, so much that the choice is unavoidable. Mr. Forson will preside over the struggles of Cargolux in the near future.

The bad news

Cargoforwarder exposed those struggles to come: the unfair competition from QR, a residual booby-trap left behind from the incredibly incompetent negotiation Luxembourg held with Qatar in 2011, and the ensuing 18 month alliance with QR. Most people remember the embarrassing deal for Luxembourg, selling 35% of CV for $117,5 million! A company counting 1.500 professionals at the time and 16 aircraft was valued at about $300 million, the list price of one aircraft. When finally that alliance was cancelled, the largely unknown collateral agreement granting QR 5^th Freedom rights was not canceled. CV still has reciprocal rights in Qatar, but opportunities there are scarce, mostly empty pallets. It is QR that holds the jackpot in Luxembourg. Opportunities abound, and QR is reported to plan to use its 5^th Freedom on 20 routes, with 24 weekly flights, competing with CV on all those routes but one. It practices dumping prices, down 75% from CV’s pricing. Something has to give. Either the granted rights have to be clawed back, or the dumping practices have to be banned and sanctioned with huge fines. CV did not even practice dumping, just a little coordination of pricing with others, and it cost about $250 million in fines. What is good for the goose is good for the gander. QR was known for its practices. When it was a partner with CV, it already raided CV’s customers in a bidding war on prices.

This time the assault on CV will be merciless. The CEO of QR has sworn revenge for the aborted alliance CV. The corporate culture there was summarized by his quote about the owner, “His Highness will kick ass!” From their due diligence and hiring away key personnel while acquiring 35% of CV, QR knows all of CV’s trade secrets. CV knows nothing about QR, except that their possibilities are endless, and their intentions have been announced: revenge. Never ignore a threat.

The Stockholm Syndrome

Alerted, the government, through the wisdom of Minister Bausch, laid out the battle plan for CV’s defense: Mr. Bausch surrenders, without canceling that agreement on the 5^th Freedom, that was however an integral part of the aborted alliance agreement. He is held hostage, he believes, by some Qatari billions in the Luxembourg economy: Precision Capital, BIL, and KBL. That is called the Stockholm syndrome, when the hostage sympathizes with the hostage taker. I would assess though that Qatar might need Luxembourg more than vice-versa. First of all as an element of their well-planned program to diversify away from Qatar’s finite oil and gas reserves. Second for the interesting opportunities offered in Luxembourg, not to forget a government that is really, really easy to negotiate with. Proof is, we won’t touch the 5^th Freedom and hope His Highness is very pleased.

The spiral

As a consequence of doing nothing, it is inevitable that CV will lose market share to QR. CV is headed for a downward spiral. We seem to be willing to sacrifice an airline in favor of Qatari banks in Luxembourg? There is no other explanation around this. If the reciprocal freedoms are not revoked, CV is going to be the sacrificial lamb to honor the Qatari golden calf.

The reality and the irony

And here is the perfect political storm: as the scheduled Cargolux crisis unfolds, Luxembourg gradually gets closer to the next elections in 2018. According to conventional wisdom, Mr. Bausch will not be part of the new government, dominated by the comeback of the Christian Social party. Interesting news came out in that respect during this week too: the Christian Social party has just designated/elected/nominated its leaders for the elections to come: Mr. Wiseler for the national elections, Mr. Frieden for the European elections. Well that suits us well. We’ll hear expert explanations on the announced disaster from the two specialists: Mr. Frieden did the QR deal almost all by himself while he was Minister of Finance, and Mr. Wiseler was Minister of Transportation. They are the two fathers of the problem, that stepfather Bausch seems unwilling to solve.

As for Luxembourg in the meantime, it will be accused of once again abusing its sovereign rights by letting in the cannibals that ruin European air cargo corporations. The usual abuse through its niche policies. But that could be the solution: as we don’t have the “cojones” to claw back the air agreement from Qatar, let’s Brussels force us to do so. Brussels was invoked time ago to sell to QR in the first place. So our friends can be only mad at Brussels.

“Five Presidents” EU’s Jean-Claude Juncker Drunk in Public, Slaps Leaders

My Orchids. Oops! Too much mushroom

“Five Presidents” EU’s Jean-Claude Juncker Drunk in Public, Slaps Leaders

So I thought: what else is new?

An online paper called Heatstreet (never heard about it) on June 3^rd reported: “Last night, sensational video emerged showing Juncker obviously drunk in public, hopping from foot to foot and slapping other EU leaders. A second member of the “Five Presidents”, Donald Tusk, stands next to him looking uneasy.”

I grabbed my popcorn to get ready for another show of Juncker’s new protocol also called alcohol. But it was the same old stuff. Though always fun to watch.

The author, Louise Mensch (in New York Yiddish that means something good), was maybe drunk too, because she only had this video “emerge” last night. I don’t know where Louise stands on Brexit, but let me guess: she is all for it. But here is another threat: Juncker will slap your Whisky with an import tax. And he doesn’t care: his is tax exempt. Could you manage to remain sober with all those tax exempt bottles and cigarettes?  

There is however an excuse: everybody does it. Our investigative reporters went into the European Zoo, and here is what is happening there: 

Something personal: Morganne's project

My Orchids. Phalaneopsis

My grand-daughter Morganne, 14 years old, did a project on peer pressure as a Public Service Announcement. I know a powerful message when I see one. She got this one right.

Luxembourg’s painful crucifixion of Alain Deltour, the Luxleaks whistleblower.

My Orchids: Phalaneopsis "Bureau 6".
Photo ET

Luxembourg’s painful crucifixion of Alain Deltour, the Luxleaks whistleblower.

In the life of a nation there are on occasion kinetics developing, that lead to an unescapable climax, though everyone would be happy to see it go away. In the ongoing Luxleaks case in Luxembourg courts, Antoine Deltour, his colleague Raphael Halet, and a French journalist, Edouard Perrin, have to answer for their “crimes”. It is the trap Luxembourg authorities stepped into, as the country, in an abandonment of its sovereignty, virtually outsourced tax rulings to a ruling mill operated by PwC in partnership with the tax man’s Bureau 6.

Antoine Deltour and Raphael Halet copied confidential if not secret information from their employer PwC about the tax rulings practice in Luxembourg. Edouard Perrin brought the scoop to French television. Antoine Deltour who started the turmoil faced a sentence of Euros 10 million for damages to PwC, and 10 years in prison. In my opinion, Luxembourg can never win the moral argument when it comes to tax fraud and evasion, tax optimization, and secrecy. So it does in this case. The Luxembourg laws on the book are going to be defeated by public (world) opinion.

Caught between a rock and a hard place, Luxembourg decided to go along with the case without delay, applying Luxembourg laws pertaining to banking secrecy and corporate property. Which is remarkable in a country where delaying justice is a national cancer. It very often results in the pure and simple drop of a case. In that environment the Luxembourg government elected to intervene (we would deny it) in favor of a speedy resolution. It could have delayed it opportunistically. The whistleblower cannot refer to any law protecting the whistleblower, because there aren’t any. Maybe in 5 -10 years under an OECD or UN standard and mandate?

How to get out of the nightmare that has developed into a worldwide story not to Luxembourg’s glory? By soothing the sensitivities. PwC came down by Euros 9,999,999.00 to Euro 1.00 in damages. The Attorney general came down from 10 years in jail to 18 months, possibly on probation. The defense lawyers indicated that they could live with an 18 months jail term on probation. A sentence Alain Deltour will wear proudly like a decoration in a country and European Union indeed that venerates Edward Snowden.

FYI: Bureau 6 is that secret door at the end of the hallway. Go there. The Luxleaks story is over. It’s anyway about Panama Papers now.

The Panama Papers

My Orchids. Phalaneopsis White. Photo ET

The Panama Papers

The opening salvo about the Panama papers hit the news over the weekend. Eleven million and a half of records about a quarter million offshore clients hit the sunlight, compliments of a hacker who got access to a major law firm’s systems. Of course, it wasn’t really a surprise: it was known that the International Consortium of Investigative Journalists (ICIJ) had its hands on something big. The surprise is that it is really big, bigger than all the “Leaks” that came before.

The leak is about a life’s work at the Panama based law firm Mossack Fonseca, with their total of about 240,000 companies created over the years. The firm’s reaction is of course that a crime was committed against it. The manuscript is the same than it was for the defense in Luxleaks and others before: everything is legal, the anonymous whistle blower committed a crime, and other tax havens do the same. It is a difficult and long term a losing proposition:

1.      There are probably many wealthy individuals who chose or were advised to set up a Panamanian company. If it is transparent, and is not strictly for tax evasion purposes, but for tax “optimisation” and asset protection, then no crime was committed. It is however that kind of publicity that a tax haven and its prominent wealthy client really don’t want. Public opinion will be unforgiving. Mostly among the well-known 99% who cannot afford similar privilege and tax breaks.  

2.      Then there is the corrupt world of world leaders, sometimes from the poorest countries stealing from their people. The Presidents for Life, the dictators, the kleptocrats, and the professional politician who is for sale. In that tango it takes at least two, the corrupted and the corrupting party, without forgetting the enabler, banks, law firms, advisors, and all the other “willfully blind”. Most of the latter are not in Panama. They are in this case in the order of performance: in Hong Kong, Switzerland, the UK, and Luxembourg.

3.      Then there are the proceeds from other crimes. Criminal organizations, grand theft, human trafficking, and extortion. Even a tax haven cannot prosper for long, catering to that sort of clientele. Eventually political pressure will put it to an end.

There will be no business as usual in Panama anymore. Of course the country has to clean up to preserve its financial center. Mossack Fonseca will have some explaining to do. The excuse “are we supposed to verify if the client is honest?” doesn’t sit well. Ask us in Luxembourg. The only good news is that previous leaks elsewhere went by without any real sanctions so far. But Panama Papers will entertain the world for some time.

As for Luxembourg, it is not off the hook. There needs to be some explaining too. There is no longer the lone exception of the famous “Panama Charly”. Hopefully all enablers that suddenly put Luxembourg into fourth position among the business providers, have their orchid-white vest on.

https://www.youtube.com/watch?v=U10bR4IOkV4

A great Luxembourg artist shames the Musée d’ Orsay to the naked Truth.

My Orchids. Phalaneopsis" Olympia". Photo ET

A great Luxembourg artist shames the Musée d’ Orsay into the naked Truth.

Indecent exposure: artist arrested for nude pose in Paris museum

She did it again, and yet for those philistines in Paris, her art is still not accessible. Hopefully the encounter with the judge tomorrow will finally recognize her talent.

The true art world is of course upset. She didn’t do anything else as what Olympia did. She just lay there, impersonating a modern Olympia, and recorded the pubic, errh, the public’s reaction with a handheld camera. A living piece of art in progress. 

Those interested in Luxembourg cultural delicacies certainly will enjoy a poem in original Luxembourgish in honor of Deborah's first performance in the Summer of 2014 at the same Musée d’ Orsay. Her fans note with awe and great satisfaction that her performance has boldly moved into the Winter. True creation always is sacrifice.

Luxembourg Parliament Speaker Highlights Iran’s Key Regional Role

My Orchids. Paphiopedilum "Sheherazade". Photo ET

Luxembourg Parliament Speaker Highlights Iran’s KeyRegional Role

News ID: 972777 Service: Politics

 January, 16, 2016 - 16:33

TEHRAN (Tasnim) – The President of Luxembourg’s Chamber of Deputies highlighted Iran’s constructive role in the region and in the battle against terrorism, stressing that confronting the phenomenon requires all-out international cooperation.

Tasmin News Agency

Luxembourg Parliament Speaker Highlights Iran’s Key Regional Role

News ID: 972777 Service: Politics

 January, 16, 2016 - 16:33

TEHRAN (Tasnim) – The President of Luxembourg’s Chamber of Deputies highlighted Iran’s constructive role in the region and in the battle against terrorism, stressing that confronting the phenomenon requires all-out international cooperation.

Luxembourg is ready to cooperate with the Islamic Republic on fighting terrorism, Mars Di Bartolomeo said Saturday during a joint press conference with his Iranian counterpart Ali Larijani in Tehran.

Stressing that terrorism is a global issue and that Iran cannot uproot it single-handedly, he called for all-out cooperation against it at the international level.

He also hailed last year’s nuclear deal between Iran and six world powers, saying “this opportunity ought to be seized” and efforts should be made in line with restoring peace and security across the globe.

His visit to Iran came a couple of months after the European country’s Foreign Minister Jean Asselborn made a trip to Tran in late November 2015, during which he met senior Iranian officials including his counterpart Mohammad Javad Zarif and President Hassan Rouhani.

Luxembourg, officially the Grand Duchy of Luxembourg, is a landlocked country in Western Europe. It is bordered by Belgium to the west and north, Germany to the east, and France to the south.

The European state was one of the countries that played host to the nuclear talks between Iran and the Group 5+1 (Russia, China, the US, Britain, France, and Germany), which ended in a comprehensive nuclear deal back in July 2015.

Iran and the Group 5+1 (also known as E3+3 and P5+1) on July 14 reached a conclusion on a 159-page nuclear agreement that would terminate all sanctions imposed on Tehran over its nuclear energy program after coming into force.

Afterwards, the 15-memebr United Nations Security Council passed a resolution that endorsed the JCPOA.

According to the UNSC Resolution 2231, all previous UNSC sanctions imposed on Iran over its nuclear program will be terminated when the JCPOA takes effect.