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