One of the two companies that own NCL Corporation (NCLC), which again comprises Norwegian Cruise Line and NCL America, warns that they are not sure that NCLC will be able to meet its obligations after a yeasr from here. That is a bit scary, but before proceeding, here is the actual text issued by Genting Hong Kong:
"We believe our cash on hand, expected future operating cash inflows, additional borrowings under existing credit facilities and our ability to issue debt securities or raise additional equity, including capital contributions, will be sufficient to fund operations, debt payment requirements, capital expenditures and maintain compliance with covenants under our debt agreements over the next twelve-month period. There is no assurance that cash flows from operations and additional financings will be available in the future to fund our future obligations."
Well, you could say that who can tell the future - apart from the so called climate experts, who do not seem to show any degree of humility when it comes to the reliability of their 100 year weather forecasts.
Anyway, the future of NCLC could turn out choppy after the next 12 months, for which the company has the financing in place to take delivery of Norwegian Epic and to meet its other financial commitments as well.
The development of the US economy, for which NCLC depends on more than the other three cruise majors, is obviously a crucial factor to get falling yields back to a rising track. Indeed, there is indication that the worst is over for the global economy, which bodes well for NCLC's efforts.
The NCLC fleet now comprises only modern tonnage, which has hardly ever been the case before, and the beefed up Freestyle Cruising concept has strengthened the image of the NCL brand by differentiating it clearly from competing offerings. That is good news too.
But if - and indeed this is just an if at this point - NCLC failed to honour its obligations some time after the end of 2010, what then? If comparisons drawn from container and dry bulk sectors of cargo shipping are anything like justified as they most likely would be, it seems highly unlikely that NCLC would go bankrupt even in a worst case scenario. Why not? Well, for the same simple reason that has kept many a troubled container line and dry bulk shipping company afloat despite the fact that they have breached loan covenants and missed repayments of debt.
Banks do not want to became shipping companies, nor would they want to turn to a cruise line. Consequently, should NCLC run into trouble in the future, the likeliest way out would be a rescue package, e.g. in the form of a debt to equity swap. This would give NCLC's financiers a significant, perhaps even controlling interest in the company. However, it could continue trading as normal and at some point, after some restructuring, the banks could quite simply sell their shares.
Unlike container and dry bulk shipping, the cruise industry is highly consolidated and there is no structural overcapacity, which is a major worry - probably for several years to come - in both of the two sectors of cargo shipping.
With a modern, harmonious fleet NCLC should be able to capitalise well on a recovery of the cruise industry. It would be a great shame to see the worst case scenario to materialise. Anyway, one more question remains: how come the NCL group has never produced strong ,consistent profits like its competitors? It has suffered from some kind of an issue for too long.
Introduction of the SS Norway in 1980 has been hailed as triumph, but I would say it was a mistake of strategic importance. Unlike Royal Caribbean and Carnival Cruise Lines, NCL was not able to build a consistent fleet until it axed the last obsolete ships last year. You have to learn to walk before you can run, a fact that both Royal Caribbean and Carnival understood, but which NCL failed to grasp. This had a crippling effect on its prospects for two decades.
Then, in the middle of the current decade, came the NCL America adventure that was the biggest strategic failure of any major cruise company in the past 10 years, if indeed not more. Lots of capital and other resources were pumped into a project that failed on almost every account, leading to dramatic downsizing of the NCL America brand to just one from three ships. This again took up further resources at the Miami headquarters.
All these are matters of the past now. Today, NCLC has a good fleet, a strong brand and these should provide it with a platform on which to prosper.
Subscribe to:
Post Comments (Atom)
From a practical standpoint the Cruise industry is already an oligopoly so the sale of NCL would to a another cruise company would do little to the industry as a whole. NCL is a strong brand (Although considering the Epic, they don't have any real taste in ship design). I could be wrong, but it always seemed to me that NCL needs to be part of Carnival and/or RCI. Royal Caribbean seems to be the best option as it would put them on better competative ground with Carnival Corp and give them another unique offering in the market. RCI's not shown that they are very good with aquisitions, so we'll see what happens. My guess is that if NCL is acquired then Carnival will win.
ReplyDelete