The deal is done — Henan to buy 35% of Cargolux

Reports in the European media today indicate that the Grand Duchy of Luxembourg agreed to sell a 35% stake in all-cargo carrier Cargolux to Henan Civil Aviation Development & Investment Co (HNCA) for US$231 million. Full details are not available yet, but it appears the deal includes the following:

• Zhengzhou, the capital of Henan province in China will become a second hub for Cargolux, and the carrier will operate four weekly freighter flights between Luxembourg Findel Airport (LUX) and Zhengzhou’s Xinzheng Airport (CGO).

• HNCA, despite being a minority shareholder, will hold a blocking rights. That is, it will be able to veto any decision proposed by Cargolux’s Executive or Supervisory Board.

• Job guarantees demanded by the unions representing Cargolux’s workers are not written in to the agreement

• The agreement does not preclude the relocation of Cargolux business segments to Henan.

• The $231 million price tag includes an undisclosed amount for promoting Cargolux operations between LUX and CGO. And, in addition, a further $15 million is reported to have been set aside to compensate the airline for losses expected on the LUX/CGO route in its early operation.

In addition to the above, at least one source reports that a commercial agreement signed earlier this month requires Cargolux to station not less than one third of its fleet at CGO.

There are many in the industry who see this as a bad deal for Cargolux, forcing it to operate from not one, but two, sub-optimal hubs — a deal forced on the carrier by EU law forbidding government ownership. But Zhengzhou is one of the most important centers of IT manufacturing in the world. It has a population of over 8 million, is the economic and political center of Henan province, and is a major transport hub for central China. So there is potential for success as well as failure. We shall see.