The Zhengzhou project is well on track and making good progress, assures Cargolux’s CEO Dirk Reich. This he said when being confronted by CargoForwarder Global with the outcome of the feasibility study and the numerous financial risks for Cargolux named therein together with new market opportunities indicated in the paper.
The study conducted by experts of German analyst Roland Berger (see also first Cargolux article in this issue) is an integral part of the Commercial Agreement, concluded by Cargolux and Chinese
public investor HNCA in December of 2013. Based on the findings, both parties wanted to gain a clear view if their intended Zhengzhou-based offspring would be commercially viable - a necessary
requirement for deciding if further supporting or rather skipping the project.
This analysis has been tabled now, Dirk Reich confirms.
Rumors are spreading
However, despite the fact that the contents of the study were presented to only a handful of Cargolux managers and worker’s representatives, there is some whispering and speculation spreading in Luxembourg, Dirk confirms. He regrets that maybe the findings could be misunderstood and in this interview tries to explain to us his view on this
More tons, more cash
When asked about initial losses indicated in the study incurred by the start-up “Cargolux China” he speaks of an amount of “roughly 100 million US$” within the first three years. This, however, excludes financial support guaranteed by Cargolux’s Chinese partner HNCA together with local authorities, based on uplifted volumes.
According to the Commercial Agreements each Zhengzhou-operated cargo flight carrying more than 50 tons of cargo on board is subsidized by the state authorities with €30,000 euros by the local state authorities.
Reich adds to this that including the financial support provided by Henan’s authorities the incurring losses of the Joint Venture airline would be less than US$ 50 million bottom line within the first three years.” Four years after launching the new Zhengzhou-based carrier or latest at its fifth year of existence the new airline will be in the black, Dirk reasons.
Turning directly to the Roland Berger study Reich says: “some of the figures mentioned therein could easily be misinterpreted because they are based on current volumes transported by Cargolux to and from Zhengzhou.” Dirk goes on to say: “These data have been extrapolated by the analysts in a model calculation over a period of 10 years just to deliver an impression and overview.” In other words: they should not be taken too seriously.
New Boeing 747-8Fs are coming
Turning to fleet aspects he announces that operations will start with 3 Boeing 747-8Fs. These aircraft will not be transferred from Cargolux’s fleet to “Cargolux China” or whatever the carrier’s name will be, but consist of additional equipment, directly provided by U.S. manufacturer Boeing. The launching flight he expects to take place in Q4 of 2016 or some months later in 2017, depending on how fast an AOC will be obtained from China’s Aviation Administration – CAAC.
Reich confirms that the freighters will mainly be operated on transpacific routes, but also serve some intra-Asian courses. Domestic Chinese flights he excludes categorically.
As to the capital structure of the upcoming cargo airline he speaks of 51% to be held by HNCA and 25 % by Cargolux. Who else will jump into the boat will be revealed this spring. All he says is that 2 Chinese stakeholders have already internally announced their decision to join the team.
This would then give Chinese partners 75% and Cargolux 25% holding in the venture. The above along with the present HNCA 35% ownership of CV will be seen by many as China and not Luxembourg is in the driving seat.