HNCA bid for Cargolux stake fades as the government stumbles in election

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The likelihood of investment from Henan Civil Aviation Development and Investment Company (HNCA) into Cargolux became more remote this week, after unions stalled a board meeting aimed at discussing the tie-up.

Sources in Luxembourg indicated that there was little appetite for the deal among the carrier’s management and staff, but the government was keen to sew-up the share sale.

HNCA’s key role is to boost the development of Zhengzhou Airport and build up cargo airlines’ presence, as it is situated in a busy manufacturing region. One source told The Loadstar it was dangerous for an airline to commit itself to one particular airport outside main hubs, and that the deal could have proved fatal for the carrier.

While many at Cargolux are said to be keen to end the uncertainty over which new shareholder will take the government’s 35% stake, this week’s elections in Luxembourg have, essentially, postponed the decision following the Christian Democrats’ failure to secure a majority. It is thought that there will be both a new minister for transport and finance at the end of the year, once a coalition government is agreed. Until then, no key decisions on Cargolux’s future can be taken.

Along with some of Cargolux’s management who are against a tie-up with HNCA, the OGBL union also has concerns about possible outsourcing of jobs and operations to China, despite a government pledge that it would not happen and a similar promise in a draft commercial agreement.

Hubert Hollerich, central secretary for the civil aviation department at the OGBL, told The Loadstar: “We are very sceptical about the deal with the Chinese. There are too many questions. And nobody knows what other offers are on the table. The board was meeting only to vote on HNCA – and even the management of Cargolux came to the conclusion that there was no necessity to have a new shareholder right now.”

The union stalled the vote on a technicality. The staff representatives had not received the proper documentation on time, allowing them to block the meeting.

The OGBL added that it was “happy” to have the government as the shareholder. “We don’t want to change anything.”

Among the carrier’s management, however, there are believed to be two schools of thought.  One source close to the airline said: “Some think Cargolux can be turned around without a new shareholder, if it can raise additional money alone.”

But now the government no longer has the power to make a decision, there is little anyone at the carrier can do.

The HNCA group sent a delegation to Luxembourg in the summer to tour the cargo facilities and meet government ministers. It hopes to build Zhengzhou, which is already served by AirBridge Cargo and Cathay Pacific, into a “mega hub”, but some observers have cast doubt on the plan.  The city’s exports lag behind those at Chongqing and Chengdu, and exports are dominated bv one manufacturer – Foxconn. In addition, wages in the area are said to be rising fast. The other hi-tech centres boast several manufacturers.

Other companies thought to have expressed interest in the government’s 35% stake in Cargolux include HNA, parent of Hainan Airlines; Centurion Cargo; and Volga Dnepr Group.