Exclusive – Cargolux Paves Way For Chinese Offshoot

‘Cargolux China’ is the name of a new cargo airline on the top of the to-do list of Cargolux (CV) and its Chinese minority shareholder (35%) HNCA. CFG was exclusively informed by CV’s CEO Dirk Reich about the main issues listed in a feasibility study that need to be addressed prior to the Chinese offspring taking to the air.

CEO Dirk Reich pushes ahead with plans to fast set-up ‘Cargolux China’  /  source: hs
CEO Dirk Reich pushes ahead with plans to fast set-up ‘Cargolux China’ / source: hs

The expertise, which is expected to be tabled until the end of this week, supplements the commercial accord reached between Cargolux and its partner HNCA about a year ago. In this paper both parties agree to set up a dual hub system by developing Zhengzhou Xinzheng International Airport in China’s Henan province into Cargolux’s second intercontinental gateway. Meanwhile, this mission is well under way as the four weekly roundtrips between both places illustrate. “In November we’ll up the frequency from four to six,” announced the manager in his meeting with CargoForwarder Global. He also added, more are to follow consecutively. 

The devil is in the details
The second major goal in the commercial agreement signed by both parties is the founding of a Zhengzhou-based joint cargo carrier. However, little is known about the project up to this point, except for the name of the future carrier – ‘Cargolux China’. Reich confirms that the decision, in favor of this project, has been made but he also points out that the devil is in the details. He expects the paper to deliver adequate answers to many pressing questions and to present viable solutions on how the ‘Cargolux China’ project shall be best accomplished. “IF” is not the question discussed between Cargolux and its partner HNCA but HOW and WHEN, he says. Mainly this means that the Board will have to decide on plans to either support the setting up of a small and rather prestigious cargo airline or opt in favor of more ambitious and far reaching plans that support setting-up an intercontinental player.

Maximum synergies
Which of these two models Dirk prefers he does not explicitly say but when reading between the lines it becomes crystal clear that he supports the bigger solution. Should the latter option be decided upon, which seems to be the more likely outcome, the future ‘Cargolux China’ will primarily serve transpacific routes, thus capturing additional overseas markets by avoiding any parallel traffic with its Luxembourg-based parent company. In addition, intra-Asian traffic and flights to Australia are on the list. “We intend avoiding any network overlapping and creating superior synergies,” emphasizes the Cargolux CEO.

Beijing supports the project
Dirk leaves no doubt that the Chinese offspring will be managed by his airline both operationally and administratively. This includes sales as well. The manager explains: “Cargolux will act as global GSA for the new carrier,” which is another hint that he is going for the big solution instead of the small one.
He confirms that the project is politically backed by Beijing, which doesn’t necessarily mean that the AOC will be admitted faster by China’s regulator. History shows us, just about every time frame for getting a license is imaginable, from six months, once the application has been filed, up to two years, he says.

747Fs, 777Fs of even 737Fs?
Another significant issue discussed in the feasibility study is the topic fleet. If the intercontinental project gets a green light, Boeing 747Fs or Triple Seven freighters will be selected, with a preference for Boeing’s big Jumbo. “This would enable a lot of technical and operational synergy between ‘Cargolux China’ and Cargolux since our entire fleet at CV consists of 747-400Fs and 747-8Fs,” states Reich. However, he does not exclude, getting some Boeing 737 freighters to offer the market regional feeder services, thus complementing the wide ranging trucking network offered to and from Zhengzhou. 
Asked about leasing or purchasing the future freighter fleet of ‘Cargolux China’ he clearly opts in favor of buying the assets.  

Pilot issue is critical
How to contract sufficient pilots to get the new carrier off the ground is another delicate aspect that needs to be solved. Manager Reich points out that the Chinese factor market for cockpit personnel is nearly empty.
Suitable solutions will be elaborated as soon as possible, he states.  

Landing in Germany
Asked about the load factor of the Zhengzhou flights Reich admits that they are still unbalanced. While on westbound routes the freighters are jammed they could well need additional tonnage in the opposite direction. “That’s why we began the search for suitable airports in Germany, particularly places like Cologne, Hanover or Nuremberg that offer unrestricted 24/7/365 traffic,” he states. He also says that up to one fifth of the entire tonnage transported by CV from Europe to Far East is contributed by the German market. “Against this background it makes a lot of sense to service one of the airports directly instead of trucking the loads from Germany to Luxembourg first before uplifting them, as we are doing now.”

No second Jade
Looking back at 2011 and Jade’s unfortunate fate, Dirk points out that the failing of the former joint venture of LH Cargo and Shenzhen Airlines is a clear warning to all followers how things should not be done to avoid paralyzing an airline or to go to pieces completely. He emphasizes that at the end of the day joint ventures only work out well if the shareholders act entirely in concert instead of wasting their energy by constantly quarreling about finances or which strategy to pursue best.
Turning to his airline and its financial partner Henan Civil Aviation Development and Investment Company (HNCA) Dirk says that there isn’t the slightest friction when it comes to accomplishing the goals listed in the business plan agreed on about a year ago. Instead, “we are pulling in one direction, without HNCA interfering in our daily operations,” he states. This fortunately also accounts for the projected ‘Cargolux China’ joint venture at the same time.

Heiner Siegmund

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Comments: 2
  • #1

    Odette Oliveira (Tuesday, 28 October 2014 14:38)

    Tuesday, 28 October 2014 14:37)

    Congrats!
    Your Cargolux report seems to have triggered a political earthquake here in Luxembourg. According to reactions in local online media that have quoted main contents of your article many obviously fear the outsourcing of Cargolux activities to the detriment of Luxembourg and jobs at Findel International. This public debate, initiated by your exclusive and much appreciated story, takes on almost irrational features. Pls see www.lessentiel.lu / www.wort.lu / www.tageblatt.lu
    Keep up the good work.
    Best, Odette Oliveira

  • #2

    Hubert HOLLERICH (Tuesday, 28 October 2014 15:09)

    With this business model, CV management and the Luxembourg Government, direct and indirect 65% share holder, act against the interests of Luxembourg. According to the government's program, logistics should be developed in Luxembourg and not destroyed. Bypassing Luxembourg's airport means a loss of market shares for Luxembourg. This will have a negative impact on the activity and employment in the Luxair Cargo Centre and in the road transport sector in Luxembourg. The creation of a new major airline in China means a relocation of CV activities. This leads to social dumping and the dismantling of the current CWA. Logistics in Luxembourg, a stillbirth?