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?

Happy ending for an Iranian Account held at Clearstream, Luxembourg?

My Orchids. Cattleya "Sheherazade" Photo ET

Happy ending for an Iranian Account of USD 1.6 billion, held at Clearstream, Luxembourg?

In 1983 Iranian backed terrorists blew up a US Marines base in Beirut, killing 241 American servicemen, and injuring many. Of the injured, 13 died in the days after the attack. 58 French soldiers were also killed in a second attack.

Under the “Terrorism Insurance Program established under the Terrorism Risk Insurance Act of 2002”, families of those killed or injured filed civil law suits against Iran. Victims were awarded 2.65 billion from Iran as the sponsor of the attacks carried out by Hezbollah. 

In 2013 already, Clearstream turned over USD 1.8 billion belonging to Iranian Bank Markazi. Another USD 1.6 billion owned by Banca UBAE were the object of this week’s ruling by District Judge Katherine Forrester in New York. Her conclusions were that Clearstream’s 2013 settlement released it from new claims in this matter. She also dismissed three other classical arguments, that would put a case into US jurisdiction: Clearstream has offices in the US, accounts were held in USD, and funds had transited through JP Morgan. Those are indeed top considerations when in administrative sanctions, foreign financial institutions are submitted to US “long-arm” policies. An early example for this would have been in the 1990ies Bank Leu in Luxembourg, convicted of money laundering, though it had no presence in the US, no accounts, but cashed drug related checks in USD, transactions that hit the jurisdiction through correspondent banks.

The victims’ families have vowed to appeal. Based on earlier long-arm strategies, it might be successful. However somehow time is of the essence for them. Under international sanctions against Iran, Clearstream had to freeze the account. At this moment the account remains in Clearstream’s custody. However, this might change in a relatively near future, as the US has deployed vast efforts and possibly concessions to Iranians to achieve an anti-proliferation agreement on its nuclear development program. Lifting sanctions, thereby un-freezing the Iranian foreign accounts could become part of a package deal. 

Starbucks Luxembourg will be so much more!

My Orchids. Phalaenopsis "Latte with Sprinkles". 
Photo Got Milk?

Starbucks Luxembourg will be so much more!

Officially, Luxembourg’s Prime Minister Xavier Bettel will visit the West Coast of the US and promote “DigitalLuxembourg”.

That’s for the official story. Everyone knows that software engineers cannot function without Starbucks coffee. This blog though, I hope renowned for its in depth contributions to the public’s information, found at least some trace of the unspoken collateral diplomacy going on. Patti Payne, may I quote here your article from February 12th,2015 (Patti is a Columnist at the Puget Sound Business Journal):

“Philanthropist Cynthia Stroum, a former U.S. Ambassador to Luxembourg who was appointed by Barack Obama in 2009, will host a dinner for the Prime Minister of Luxembourg Xavier Bettel and his official delegation on Monday at Seattle's Wild Ginger.

Prime Minister Bettel will be joined by Seattle Mayor Ed Murray as well as two local business leaders. Bettel was Mayor of Luxembourg before becoming the prime minister.

"I continue to have great relationships in Luxembourg," says Stroum, who stepped down from the job in 2011 amid reports of a confrontational management style by some staffers, "and continue making connections and links between the two countries."

Of course we in Luxembourg remember Cynthia Stroum and her incomprehensible sudden departure from her post as Ambassador. We have looked with incredulity at a so-called investigation by the Inspector General, taking issue with her management style. And not to forget the queen size mattress, and 24 bottles of wine. I came to the conclusion that most countries subjecting their Ambassadors to the same criteria would run out of Ambassadors.

That’s how things go. When a President rewards his supporters with a diplomatic post, and then drafts a Secretary of State who was a former opponent for political calculation, somehow that might backfire on the early supporters. In any case, Luxembourg didn’t seem to make a great case out of the episode. They still call her Madam over there.

The parallel diplomacy with Luxembourg maintained by Cynthia Stroum at least document her excellent contacts there. It is a nice occasion to finally close another project she had in her mind during her official tenure: Starbucks Luxembourg. Ms. Stroum as a venture capitalist has been an early investor into the Seattle based company. The Luxembourg project will be a success, and much more: success is the sweetest revenge, if one is needed.

I don’t know though if the moment is ripe to ask Mr. Bettel for a special tax ruling. Unless it is over tasting Seattle Fran’s irresistible smoked salt caramels in chocolate!

Starbucks (left) in artist's rendering at Centre Hamilius. Photo Codic

Lux Leaks II

My Orchids. Dendrobium "Transparency". Photo ET

Lux Leaks II

A promise is a promise. There is a Lux Leaks II, but of course. This one is special in many ways:

1. It destroys the perception that tax rulings in Luxembourg are over-generous.
2. It also shows that there must be a serious problem of discrimination, if not corruption, as the rulings in this case were not favorable, but rather quite harsh!
3. It is indeed my own application for a ruling to not pay taxes on moneys stolen from me. My quest for a favorable tax ruling was roundly rejected, but have a look at the background. I leak some of the essential documents hereafter. Though they are in French.

I need to pay Euros 7516.70 in arrears,
taxes on moneys stolen from me

The third paragraph explains why I can't win:
he doesn't care about the substance,
and  seeing who I was, I didn't make it into his circle of friends

The director signs with a smiley

The story:

In 2002-03 I was associated in business with other individuals in Luxembourg, but I reside in the US. As some associates left, I did too by the end of 2003, as things were not transparent. More than a year later, I was actually led to file criminal charges for embezzlement and misappropriation of corporate assets.

In 2007 the Tax Administration claimed tax arrears, on revenue I never saw, I never knew of, and that obviously was misappropriated by the former partners. As being forced to pay taxes on stolen money does not sound right, I was advised by the Tax agent to apply for a “RULING”! It is in this case called “une demande gracieuse”. It is available in cases of hardship and obvious unfairness.

My Ruling

I diligently applied, about 50 pages of documents in support of the hardship. It took about 5 months to get an answer, from a guy named Guy Heintz, the boss of the organization. Not by Marius or a similar  level of employee. My application to avoid taxation on moneys stolen from me, with criminal proceedings still going on against the perpetrators, was roundly rejected with the argument that “a remission is only possible if, objectively according to the matter under consideration, or subjectively in the person of the taxpayer, the collection of the tax appears to constitute a hardship incompatible with the principle of equity”. So Guy Heintz’s conclusion was that a tax levied on revenue stolen from the taxpayer before the taxpayer even knew of it is objectively is OK. He also has the right to discriminate personally, “subjectively”, depending on who the taxpayer is. Even a recourse to the Luxembourg Ombudsman could not sway his decision. I have to conclude that this was a vengeful malicious decision aimed at my person. I ended up paying more tax on zero revenue than the high net worth individuals and the international corporations catered by PwC, Marius, and Guy Heintz’s operation in general. As an insider of Luxembourg institutions, including 5 Ministries, I know exactly that these types of administrative “flexibility” can play both ways. It is the typical Luxembourg corruption, a corruption through influence. But you can lose and get lynched when you are on the wrong side of the equation. Corruption through influence doesn’t show up on Transparency International’s radar.

I still wait for the end of the criminal case that I filed more than 10 years ago. Though there is a final judgment on the substance: the two accused were found guilty on several counts and sentenced to 1 and 2 years in jail, but on probation, given the excessive but typical delays in the Luxembourg judiciary haven. They also have to return the misappropriated funds, estimated at 950,000 euros. Though yet another delay is going on: the convicted cannot return the moneys, because the sentencing language is not clear, according to them! However now I may be able to sue them in civil court, and hope for a conclusion in several years maybe. Madoff and Landsbanki victims, please make a note of this. You are not yet even halfway through.

Please find here the narrative of the criminal case, as reported by PaperJam:

Grande vie et business parallèle

Le «médecin de la finance» suspendu pour un an

Democracy in Europe is Really a Party

My Orchids. Phalaneopsis "Tax Rulings". Photo ET

Democracy in Europe is Really a Party

Several decades ago Henry Kissinger asked this illuminating question: “Who do I call if I want to talk to Europe?” The Treaty of Rome signed on March 25, 1957 by Belgium, Germany, France, Italy, Luxembourg, and the Netherlands, was “to lay the foundations of an ever-closer union among the peoples of Europe”. After almost 60 years of integrative wandering towards that union, another US diplomat, Victoria Nuland, Assistant Secretary of State for European and Eurasian Affairs, summarized in a 2013 leaked phone call the European Union’s international irrelevance with a resounding four letter word. I tend to agree on the substance with Ms. Nuland’s evaluation of the EU’s geostrategic relevance.

However things did get accomplished over the past six decades. Most visible is the Union’s geographic expansion, the EU growing from six to twenty-eight members. Remarkably, there seems to be no master plan. A nascent Constitution, elaborated by a “European Convention” under the leadership of former French President Valéry Giscard d’Estaing was roundly defeated by the French and Dutch voters in 2005. Instead, by 2007 a reform of the existing old treaties was adopted, a sort of Ersatz Constitution without some of the key provisions of the initial project.

The main uncertainty ever since the signing of the Treaty of Rome has been: what is the ultimate goal of the ever closer union? According to the newly minted President of the European Commission, my fellow Luxembourger Jean-Claude Juncker, “we don’t want to become the United States of Europe”. Children would never say what they don’t want to be when they grow up. They spell out what it is. And Europe is what it is, a work in progress, on organic growth guided by mutation, and happenstance, without a blue print. Unless the US model is the stealth blueprint for the EU’s free flow of people, goods, capital and services.

Having failed to deliver a plan for the future, the impatient among us might want to consider a shortcut. Why not just copy the US Constitution? It has all the ingredients of a good fundamental law. It has been debated intelligently in the “Federalist” papers, it is rooted in “We the People”, and it has proven to be a valid set of principles for the world, defining how people can live together. In order to make my point, let’s have a demonstration ad absurdum. Imagine that for a moment the US Constitution is replaced by the present European mode of operation.

First, the US would not have wanted to become the USA. It would be a union of 50 sovereign States. Each State would have instead of a Governor either a King or a Queen without power, or a President with wide power or no power. But let’s simplify and assume the 50 Governors wield the power, and meet in a (European style) Council, the supreme decision making body, which has an unelected President, who has no real power beyond arranging for cars and catering, and printing the agenda.

The 50 Governors would speak in about 45 different languages, and would need at least 2,000 translators.  Thirty States would have adopted the dollar, the others would have opted out or been prevented from joining the dollar for economic reasons. That leaves 20 States using pounds, crowns or francs. Persons could travel freely between 43 States, the 7 remaining ones would have border controls. In summary, when traveling from NY to CT you might pass a border control, change currency and learn another language!

As there would be no USA, there would be no US Armed Forces, no projection of power abroad, no federal taxes, though a hefty contribution by the States to the Union’s budget. There would be a unicameral Congress, the House of Representatives with a subordinate role to the Council of Governors. Wyoming would have 6 seats in the House instead of 1 now, and California 38 instead of 53 now. The Senate would not exist. Sales taxes would range from 15% to 33%. These for Americans shocking realities are daily life in the EU. The lack of political will and vision translates into a lack of checks and balances, and a tremendous loss of opportunity for Europeans.

In that atmosphere of expediency Jean-Claude Juncker has been selected / chosen / coopted, and some say elected President of the European Commission, the Union’s non-elected government. He had been Prime Minister of Luxembourg for 18 years, moonlighting for about 8 years in a parallel job as President of the Euro Group, the 17 member states using the Euro. In 2013 a triplet of scandals in Luxembourg brought him down. He was then designated by his peers of the European People’s Party to be their top candidate in the elections for the European Parliament of May 2014. However he was not a candidate on the electoral lists, a baffling innovation in the democratic process. But he claimed victory as he had been anointed the incarnation of the strongest party. He is thus the first political avatar winning an election without being a candidate, and to be the chosen one to the European Commission’s Presidency.

He still got the European Council’s nod, and a confirmation vote from the European Parliament. Several forces had opposed him, most prominently British Prime Minister David Cameron. Jeroen Dijsselbloem, Juncker’s successor at the Euro Group said on Dutch Television that “Jean-Claude Juncker was an inveterate smoker, and drinker”. More politically problematic was his public consecration of lying as a policy tool. When caught lying in 2005, he declared that: “When it becomes serious, you have to lie.”

Not transparent either were Luxembourg’s tax rulings when Mr. Juncker was Prime Minister. Large companies had an orgy in tax avoidance in Luxembourg. One week in his new job, Mr. Juncker faced a new crisis when the International Consortium of Investigative Journalists ICIJ published details about Luxembourg’s tax rulings. The disclosures were based on documents stolen from PwC. Mr. Juncker survived a censure vote instigated last week by Europhobes in the European Parliament based on Luxembourg’s tax rulings. Mr. Juncker went from silent to denial, to “others do it”, before gradually sliding towards an alternate position: he vowed a major initiative by his Commission to make tax rulings transparent and reportable.

At the Commission, Mr. Juncker can now write his own job description, as the contours of his duties are in an impressionistic haze. He might surprise more than one if History repeats itself. I’m suggesting that in the Middle-Ages the Prince-Electors of the Holy German Empire would often choose Luxembourg Princes to become Emperor, as they were perceived as weak and creating no harm. Charles IV however defeated the low expectations and became one of the most powerful emperors ever, unifying power in his hands as King of Bohemia and Holy German Emperor during a reign of 32 years (1346-1378). Are we following this medieval template? Mr. Juncker is already the 3^rd Luxembourger to hold that Presidency in a list of 12. Will he be Charles V?

For the moment, he is touting a 315 billion euros investment package. This could be his first tour of magic, as the money is not available. The European Investment Bank is cited and others including private investors. This exhibition of mostly notional capital to kick start the European economy sounds like Maynard Keynes spending Milton Friedman’s money. A real party, but BYOB. Bring Your Own Billions. 

More good news for Cargolux

Wing Wave by the Red Barron, Stuka instructor. Defying aerodynamics

More good news for Cargolux

It sounds like good news: 10,000 tonnes lifted from and to Zhengzhou. The occasion was euphoric and celebratory, and a big event took place in a hangar at Findel airport.

Usually such an event requires a light tone, more suitable for my sister blog peckvillchen.blogspot.com. But it is in Luxembourgish and only Mr. Bausch and the Chinese Ambassador would understand.

Both were there, Mr. Bausch being the one recognizable easily, wearing a Tibetan scarf. Which signals that Global Warming just reversed into Global Cooling. The other guest then obviously was the Chinese Ambassador, who ignored the provocation of the Tibetan scarf.

For the occasion, a big screen had been printed, which signals also that Cargolux is trying to master new communication skills: You name it, we print it. However, I found the event a bit awkward. It coincided with a number of other little announcements, such as the “Dangerous Goods Awareness Award”.

That sounds a bit trivial, and out of proportion, like announcing ceremoniously my Jet Blue Badges. If you get on a Jet Blue flight, you can earn such a badge, and share the news with your friends on social media! I earned so far: the “True Believer Badge”, the “FLL, NY”, and the “Boston Badge”, or even more beautiful, my “Eat your cake & fly”, the “Happy Legs”, and the “High Five” badges.

I nominate Mr. Bausch first of all for the “Cargolux is a private company Badge”, and the “Cancelled Zhengzhou flight Badge”. And CV for the “First USD in Profits Badge”, when we get there. Because, when a venture is a success, no one is going to ask: “How much did it cost?”

N.B. The picture above shows the new skills available at CV: close combat air support training, as demonstrated in Seattle. The Red Baron, famous for bone-rattling short landings and 7g turns is supposed to be at the helm here.

Cargolux, the good news

My Orchids. Cattleya "Looking Good" Photo ET

Cargolux, the good news

Cargolux followed its wing wave with a release of interesting numbers: records breaking tonnage, revenue and block hours. The good news is, business is there.

A probable help for the new records is the increase in the number of aircraft. The report doesn’t say though if the results show a profit, which in light of the Zhengzhou flights started by mid-year, expected to be unprofitable for a while, would be interesting to know.

The airline made a net profit of $8.4 million in 2013 on revenue of $1.99 billion, which is a very thin margin indeed.