Cargolux flying in the face of uncertainty?
Auspicious and speedy success is promised for the Chinese New Year. For European cargo carrier Cargolux, that may seem a distant prospect as it battles to start up its new commercial partnership with China’s HNCA.
The new partnership apparently claimed a casualty on Jan. 23 when Robert van de Weg, the airline’s senior vice president sales and marketing, and a member of the company’s executive committee, resigned. Cargolux said van de Weg, a 14-year company veteran, resigned “due to differences with the Board of Directors regarding Cargolux’s strategy for the future.”
It now emerges that there were few serious bidders for the offering. Early tagged frontrunners, such as Nippon Cargo Airlines, Silk Way Airways and Volga-Dnepr, apparently quickly fell by the wayside.
Which has led to some suggestions that as HNCA was the only real game in town, it
was able to push through a deal from which it gains greatly and which Cargolux benefits little. It also seems that the Luxembourg government’s agenda was driven by embracing closer trade ties with China, rather than seeking commercial gain for its national carrier.
Certainly, HNCA’s own agenda points to using Cargolux as a vehicle to promote Zhengzhou, the capital of Henan province and a major source of global IT production, as a major trade gateway. To that end, it wants Cargolux to effectively develop a second hub at Zhengzhou’s Xinzheng International Airport and operate at least four flights a week to the carrier’s home hub. The initial target is to carry 20,000 tonnes a year between the two points. Xinzheng Airport would later be used to develop transpacific freighter services.
To achieve that objective, it is claimed, that HNCA wanted Cargolux to position at least one-third of its fleet, around six aircraft, at the China gateway. This, it is said, would be a precursor to establishing a separate joint-venture cargo airline.
Despite only being a minority stakeholder in the Luxembourg carrier, HNCA appears to have secured blocking rights on the Cargolux Board, allowing it to veto any business decisions not to its liking. It has also, it seems, been able to duck the issue of job guarantees demanded by Cargolux union representatives.
Not surprisingly, there is now wide resistance to the deal from the airline’s union workers, and it is said, some disquiet among management. The Luxembourg government has sought to calm union concerns by buying back into the airline with the acquisition of an 8.41 percent stake from Luxair, the carrier’s main shareholder. This leaves Luxair with a 35.1 percent stake and, crucially, a tactical single share advantage over the HNCA holding.
Even so, Luxembourg’s Chamber of Employees has more recently condemned the proposed agreement between Cargolux and HNCA as nothing short of disastrous for both carrier and the duchy. It argues that to achieve the anticipated threshold of 200,000 tonnes a year between Zhengzhou and Luxembourg, it will require the carrier to deploy at least six aircraft on the route, presumably diverting capacity away from more viable parts of the network. The CSL also questions the dual hub strategy anticipated in the agreement and the legal voracity of starting a joint-venture airline between the two entities.
On a broader front, the carrier’s forwarder-driven customer base has also expressed unease at the prospect of a globally-mapped cargo carrier being required to direct so much capacity and effort to the benefit of a single destination. Others question whether the airline now needs so desperately to seek a new equity partner. The carrier reported a 27 percent year-over-year increase in traffic volumes for November 2013, with 27,000 tonnes uplifted and achieving revenues in excess of US$200 million (146.5 million euros), easily its best trading month ever.
Added to which, it has already begun to rain on Luxembourg’s Chinese New Year parade. No sooner was the ink dry on the tentative agreement with HNCA than Chinese forwarding major Navitrans announced that it was initiating a twice-weekly freighter service between Zhengzhou and Liege, Belgium. The flights are being operated on behalf of Navitrans by TNT Airways, using B747-400F equipment. The company says it expects to uplift volumes of 20,000 tonnes a year on the route into Europe, carrying smartphones and tablets, essentially Cargolux’s target traffic.