LUXEMBOURG: GOL FACILITATES BAILOUT OF FLAGSHIP

C O N F I D E N T I A L LUXEMBOURG 000358 SIPDIS EUR/WE FOR V. BELON COMMERCE FOR ITA (J. LEVINE) COMMERCE FOR P. BUCHER BRUSSELS FOR FCS E.O. 12958: DECL: 12/02/2019 TAGS: EINV PGOV PREL BTIO BMGT BEXP EAIR ECON LU SUBJECT: LUXEMBOURG: GOL FACILITATES BAILOUT OF FLAGSHIP FREIGHTER AIRLINE CARGOLUX REF: KULLMAN-ROSENVACHER E-MAIL OF 12/02/09 Classified By: Acting POL/ECON Chief, Adam M. Center, for reasons 1.4 ( b) and (d) ¶1. (C) SUMMARY: Cargolux, Luxembourg's all-cargo airline, announced a capital increase of US$200 million - facilitated by the government of Luxembourg - and approved by company shareholders on 30 November. The announcement comes in the midst of a third consecutive year of significant losses. Cargolux's new ownership structure is complex, with stakeholders including Luxair (Luxembourg's commercial airline),the State Savings Bank (BCEE),the State Financing Agency (SNCI),as well as the government itself, with an 8% stake. In April 2009, Cargolux, Europe's largest cargo-only airline, reached a $119 million settlement with the U.S. Department of Justice in the wake of a price-fixing and anti-trust investigation. Through FCS information gleaned from a private U.S. equity firm based in New York, Post has learned of talks with Cargolux on a possible $70 million private U.S. investment. The GoL has not presented a unified front on possible U.S. (private) investment in its flagship freighter, with dueling Ministers and Ministries staking out different positions. For the moment, the Ministry of Economy appears to be carrying the day, with a leaning towards excluding potential U.S. investment. There may be room for movement, however, by reaching out - at the appropriate time - to the very U.S.-friendly Minister of Finance. END SUMMARY ¶2. (SBU) Following a third straight year of losses, Cargolux announced a major GOL-facilitated cash infusion to the tune of $200 million on 30 November. SAirlines' (the holding company for the now-bankrupt Swissair airlines) sale of its one-third share in Cargolux to multiple buyers enabled the bailout to emerge. Of the purchasers, Luxair became Cargolux's new majority owner, with an increased stake of 52.1% in the cargo airline. The State Savings Bank and the State Financing Agency each augmented their shares in the company through the purchase from SAirlines, to 13.1% and 12.8%, respectively. Finally, the GoL purchased the remainder of SAirlines' equity in Cargolux for US$34 million, giving the government a direct share in the airline for the first time, amounting to approximately 8%. ¶3. (C) Cargolux's new ownership structure is increasingly germane to the greater policy discussion, as news has emerged of a possible U.S. private investment in the airline. FCS Brussels learned through New York-based private equity firm Corinthian Capital that unnamed U.S. investors have engaged in talks with Cargolux over a possible US$70 million investment in the company. The investors' overtures to the GoL have reportedly met with mixed messages. While the Ministry of Finance, headed by the pro-U.S. Luc Frieden (the Prime Minister's trusted lieutenant),appears generally receptive to U.S. engagement, the Ministry of Economy has exhibited far less enthusiasm and has claimed ownership of the issue. ¶4. (C) COMMENT: The fact that two GoL Ministers are quietly dueling over this issue is a likely precursor to louder debate, if the U.S. investors' plan moves forward and reaches a wider audience within the GoL. While it appears the Ministry of Economy would like to prevent this from happening, we will need to decide in due time to what extent a gentle push or prod may be in our interests. While still reeling from the settlement with DOJ, Cargolux management (and most likely, its silent minority partner: the GoL) is likely wary of significant U.S. ownership of the company - even if that would provide a welcome lifeline. The question to the GoL: Can the dueling ministers reach a consensus that would open the door for possible U.S. investment and do they want it? The question for ourselves: if there is a bona-fide U.S. investor interested in Cargolux, would our advocacy - properly directed to the most receptive audience, of course - be warranted or effective? EVANS