Cargolux at the crossroads

One month ago, on 28 September, Luxembourg-based all-cargo carrier Cargolux repudiated its Collective Work Agreement (CWA) with the unions representing its employees. The CWA was not due to expire until the end of this year, but Cargolux said the move was "In accordance with its rights under the current Collective Work Agreement."

In its statement on the matter, Cargolux said it intended to "commence negotiations with the unions representing employees in order to work towards achieving a level of labor cost and improvement in productivity that will put the airline into a better position." It also added: "A reduction in labor cost and improvement in productivity are only two of several initiatives to be undertaken by Cargolux in order to achieve sustainability in the long term."

Since the repudiation, speculation and rhetoric have been heating up, and as I write this on 26 October the affair appears to be on the verge of a cabinet-level scandal.

The underlying problem is that Cargolux, like many all-cargo carriers, is losing money, and needs both to cut costs and raise funds through outside investment. Qatar Airways, which took a 35% stake in Cargolux last year is widely reported to be keen to up its stake, either directly or through a Luxembourg-based subsidiary, to as much as 50%, but only on condition of a bigger say in how the operation is run. The unions fear that this would mean not only wage cuts, but also significant job losses – for example, the outsourcing of maintenance, either to Qatar or elsewhere. There is also fear that Qatar would demand a downsizing of the Cargolux fleet (down to as few as four freighters, according to one source), and also the movement of some of the remaining operations to Doha – meaning even more job losses.

The question, of course, is: What is the alternative? The remaining 65% of Cargolux is owned by Luxembourg, either directly or indirectly, and there is considerable pressure for the government to both guarantee jobs and wages, and pour in more money. But even if the government were willing to do this, it would have to be careful of running afoul of the European Commission, which would almost certainly receive complaints from Cargolux’s competitors about unfair state aid.

And, if that is not trouble enough, several European newspapers are now reporting accusations that the original sale of the 35% stake to Qatar was not handled properly -- that the Minister of Finance improperly arranged a deal that favored two private shareholders at the expense of the state-backed shareholders; and favored Qatar over other potential investors. At this point, the allegations are just that -- allegations with no real proof -- and given the heat with which this battle is being fought they may turn out to be unfounded or vastly exaggerated. But the affair is definitely getting messy.

This blog post has been expanded from an article in this week's issue of Cargo Facts Update. If you do not already subscribe to the weekly emailed Cargo Facts Update and the monthly print Cargo Facts newsletter, click here to learn more about them.