A lopsided deal, detrimental to Cargolux and to the whole Luxembourg logistics industry

Based on the information available to them, and after consultations with experts from the Chambre des salariés, it would appear to OGBL representatives at Cargolux that the commercial agreement between Henan Civil Aviation Development & Investment Co. (HNCA) and Cargolux is one-sided, to say the least.

Dual or single hub strategy?

According to the commercial agreement, the government is preparing to conclude the sale of government shares in Cargolux (more than one third of the current total) to HNCA in China. However, in return, this new shareholder has asked for the establishment of a commercial agreement dubbed a dual hub deal, one of which will be aimed at developing air freight from China, using the help and know-how of a highly experienced company, which happens to be Cargolux, the number one all cargo company in Europe.

The agreement seems so imbalanced that it looks more like a “single hub strategy”. No real willingness to cooperate to promote local and national long-term development anywhere other than China is apparent in this deal.

Cargolux is required to serve the interests of HNCA and Henan Province, seemingly with no consideration for the airport and the European hub in Luxembourg.

While, clearly, entering the Chinese market may result in a positive impact in the short term, the deal seems to have been struck at the expense of a strategic long-term approach, at least for Cargolux.

HNCA, an investment company that has as its purpose and objective the development of civil aviation in Henan Province, hardly seems to be the “industrial” partner so highly sought after by Cargolux. No industrial guarantee for the European hub and Cargolux appears to transpire from this deal. Might the idea then be to morph this jewel of the logistics industry into a financial holding company deriving its income from future joint ventures, and riding the crest of a wave of rapid expansion of air cargo from Henan?

A one-sided deal

The agreement is based on the one hand on statements of general intent by HNCA, devoid of any legal value, and on the other hand on concrete and financially binding obligations to be borne by Cargolux.

Cargolux is also committed to developing joint ventures in China, with or on behalf of HNCA, in various economic fields, by agreeing to put its know-how and staff (and potentially even its equipment) at HNCA’s disposal, with all the consequences that this will result in for Cargolux’s operations and financial situation.

Cargolux employees may ultimately lose their jobs in Luxembourg, once the Chinese partners have acquired, via the joint ventures, the know-how, and possibly the staff and equipment, that could also enable them to compete with Cargolux.

Parts of the Luxembourg economy, dependent on the activities of Cargolux, may also, in turn, suffer disastrous consequences following ulterior dismantling of Cargolux’s operations.

In addition, subjecting the trade agreement and joint ventures to laws and jurisdictions outside Luxembourg involves substantial risks for Cargolux.

For complete transparency in this vital issue to the Luxembourg economy

OGBL does not have access to all the documents exchanged, which further goes to show that transparency is far from absolute in this matter.

However, given the information available to OGBL, and the strategic interest that Cargolux represents for the Luxembourg economy, OGBL feels bound to draw attention to the potentially dire consequences that the signing of the commercial agreement with HNCA may have for Cargolux and, more generally, for the country as a whole.

Published by the OGBL Civil Aviation Union
on 13 January 2014