Ambassadors International, the US based company that owns Windstar, has tried hard to sort out its house and exit all other businesses save for Windstar itself. Until recently, the listed company owned US flagged coastal cruising vessels, designed marinas and was involved in the event organisation business as well – hardly a mix that one could say offers obvious synergies.
This was understood by the Ambassadors management as well, but while focusing on Windstar may be the right way in the short term, in years to come Windstar itself is likely to face a problem that is common to many an operator of small, niche vessels: ageing fleet.
Windstar has three ships, the 5,350 gross ton Wind Spirit and Wind Star were built in 1988 and 1986 respectively, while larger 14,745 gross ton Wind Surf was originally built for club Med in France in 1990 and acquired second hand by Windstar. The two first-named shiop cost $34.2 million to build, while the larger vessel was also much dearer, costing $140 million to construct.
All these ships should have a fair bit of life in them. As a rule of the thumb, cruise liners are depreciated roughly over 30 years, but in fact their life cycle tends to extend well beyond that. Nevertheless, at some point all ships become due for recycling.
It is difficult to think that Windstar would be able to find a yard that can deliver adequate quality at an acceptable price should it want to replace the three vessels with anything similar. Capital expenditure tends to rise faster than revenue when a small company enters the newbuilding sector: this was shown in the case of Celebrity Cruises and Costa Crociere in the latter half of the 1990s.
So, is Windstar a lost case? At least for quite some time into the future it should not be. However, in the long term it faces a problem that many small operators of niche cruise vessels are facing too yet none of which appears to have found a solution and that is the economic dilemma of fleet renewal.
Perhaps Yachts of Seabourn, the luxury brand owned by Carnival Corp & PLC offers an indication which way to go: their latest trio of ships carry 450 passengers, more than twice the figure of their original threesome, while their 30,000 gross ton size is three times that of the older ships.
So far so good – but then arises the question if the product remains the same if you increase the size of your ships by so much. And the answer is that it most likely does not.
Tuesday, 26 January 2010
Friday, 1 January 2010
A new dimension in Somali piracy
If I had to pick one area where the international comminuty has failed to act, my number one choice would be the issue of Somali pirates. Oh yes, there are warships of various nations there pretending to protect shipping. However, due to the impotence of politicians in Europe in particular, these patrols are little more than a joke.
And yet, this whole issue could be assuming a new dimension. Media reports say that a Chinese admiral has aired the thought that the country acquire a naval base in the region as its warships have had to spend up to four months at sea to provide protection for merchant vessels flying the Chinese flag in the absence of a base.
But let us look at the European Union's deplorable failure first. A Dutch warship captured a number of Somali pirates, but nobody wants to take them for a trial, so they may have to be released. The German navy, whose actions seem have been the most lethargic, does not even chase pirates, but only take action if alerted to do so.
No wonder the pirates feel free to roam the north western part of the Indian Ocean as they please. The worse that seems to happen if captured by an European warship is that their weapons are dumped in the water and they are allowed to go. Things might be very different if the rules of erngagement were relaxed to allow captains opf wartships to seek and destroy pirate vessels and send the pirates themselves to the depth with their vessels.
Of course, in this age of quangos backed by the soft political left, this would be unthinkable: the human rights of the pirates come first. As usual, the left seems to pay little attention to the sufferings of victims of crime, in this case piracy, as it lavishes understanding on criminals themselves.
But let us not forget the Chinese admiral. This is not the first time that China is reported to be looking for a naval base in the region and Pakistan has been cited as a candidate country that might provide it with one. If this were to happen, eyebrows would certainly be raised in the corridors of power in New Delhi.
At the moment, the US, UK and France have permanent naval presence in the Arabian Gulf and Gulf of Aden, the two first-named countries have bases in Bahrain, while the French have one in Djibouti. In addition, the Western Fleet of India, which is based in Mumbai, is a force to be reckoned with. In the next few years, the Indian navy will receive two new aircraft carriers to replace a single, ageing vessel of this type, in addition to other types of ships.
If Somali pirates prompt China to obtain a naval base in the Gulf of Aden or Arabian Sea, the issue that has so far worried merchant shipping will assume an aspect of far wider, political context. The pirates would give China a perfect excuse to seek permanent presence in the region, which would certainly raise concerns in India and perhaps elsewhere too. At the moment, the Chinese navy does not possess overseas bases.
As far as the pirates are concerned, the time has come to blast them from the waves by gunfire and accept that there will be even a high number of casualties amongst them as a result. When the Royal Navy cleared the seas from this peril in the 19th century, it was not done by lectures about human race but by pure force.
And yet, this whole issue could be assuming a new dimension. Media reports say that a Chinese admiral has aired the thought that the country acquire a naval base in the region as its warships have had to spend up to four months at sea to provide protection for merchant vessels flying the Chinese flag in the absence of a base.
But let us look at the European Union's deplorable failure first. A Dutch warship captured a number of Somali pirates, but nobody wants to take them for a trial, so they may have to be released. The German navy, whose actions seem have been the most lethargic, does not even chase pirates, but only take action if alerted to do so.
No wonder the pirates feel free to roam the north western part of the Indian Ocean as they please. The worse that seems to happen if captured by an European warship is that their weapons are dumped in the water and they are allowed to go. Things might be very different if the rules of erngagement were relaxed to allow captains opf wartships to seek and destroy pirate vessels and send the pirates themselves to the depth with their vessels.
Of course, in this age of quangos backed by the soft political left, this would be unthinkable: the human rights of the pirates come first. As usual, the left seems to pay little attention to the sufferings of victims of crime, in this case piracy, as it lavishes understanding on criminals themselves.
But let us not forget the Chinese admiral. This is not the first time that China is reported to be looking for a naval base in the region and Pakistan has been cited as a candidate country that might provide it with one. If this were to happen, eyebrows would certainly be raised in the corridors of power in New Delhi.
At the moment, the US, UK and France have permanent naval presence in the Arabian Gulf and Gulf of Aden, the two first-named countries have bases in Bahrain, while the French have one in Djibouti. In addition, the Western Fleet of India, which is based in Mumbai, is a force to be reckoned with. In the next few years, the Indian navy will receive two new aircraft carriers to replace a single, ageing vessel of this type, in addition to other types of ships.
If Somali pirates prompt China to obtain a naval base in the Gulf of Aden or Arabian Sea, the issue that has so far worried merchant shipping will assume an aspect of far wider, political context. The pirates would give China a perfect excuse to seek permanent presence in the region, which would certainly raise concerns in India and perhaps elsewhere too. At the moment, the Chinese navy does not possess overseas bases.
As far as the pirates are concerned, the time has come to blast them from the waves by gunfire and accept that there will be even a high number of casualties amongst them as a result. When the Royal Navy cleared the seas from this peril in the 19th century, it was not done by lectures about human race but by pure force.
Wednesday, 9 December 2009
P&O Cruises' right move
P&O Cruises say they will introduce the 2001 built Royal Princess of 30,300 gross tons on the UK market as Adonia in 2011, the same year as the currently smallest unit of the fleet, the 44,588 gross ton Artemis that was built in 1984, bows out to assume a new lease of life in Germany.
This is good news - on two accounts. Firstly, it means that the largest cruise brand in the UK will retain one small ship in its fleet of seven ships. Next April, the company will introduce the 115,000 gross ton Azura that is currently under construction in Italy: this is a slightly modified version of the 2008 built Ventura and the second Post-Panamax ship in the P&O Cruises' fleet. The news about the sale of Artemis suggested that the company might opt for operating large vessels only, while the decision to introduce Adonia means that this will clearly not be the case.
Secondly, the time is right for Artemis to go. When built as the original Royal Princess of Princess Cruises in 1984, the ship was hailed as revolutionary as a quarter of its 600 cabins had a private balcony. Indeed, the ship set a benchmark in design of layout that is used in most vessels under construction even today, a quarter of a century later.
However, while the cabins on Artemis are better than on virtually any other ship built at that time and certainly if compared to vessels of the same size, the public rooms have always been a weak spot of that ship.
When introducing Artemis, P&O Cruises wanted a ship that has a small ship feel after it had sold the Victoria of 28,891 gross ton in 2002 that had started life as Kungsholm in 1966. In terms of size, Artemis was not at all a bad choice. However, with just a show lounge forward, a secondary lounge in the stern and a two deck atrium with an admittedly very nice bar midships on its principal deck of public rooms, it never had any feling of cosiness. Rather, the large but low public rooms have an awful lot in common with cruise ferries built for Baltic trades at the same time by the same Finnish yard that produced Artemis.
Adonia, meanwhile, is one of the eight R-class vessels built in France for the now defunct Renaissance Cruises at the turn of the millennium. The interiors in general and the public rooms in particular, by the Scottish architect McNeece, are hugely superior to those on Artemis. Perhaps inspired by the film Titanic that was released when these ships were on the drawing board, McNeece created elegant fin-de-siecle interiors that had not been seen on a new ship for decades. In fact, the style that sought inspiration from historic country houses and grand hotels of the Victorian era had gone out of fashion already in 1927, when the French Line introduced Ile de France, one of the first and certainly one of the grandest ships with Art Deco interiors.
Adonia has the feeling of cosiness that P&O Cruises want to offer: the choice of public rooms is better, they are of far superior design, including an outstandinly elegant library that has a dome that gives it double deck height. Add gym and spa facilities that are surprisinly extensive for a ship of that size, this should be precisely the right kind of ship P&O Cruises need for this particular segment of the market.
The decision to introduce Adonia is a welcome one: I am personally interested in sailing on this ship in due time.
This is good news - on two accounts. Firstly, it means that the largest cruise brand in the UK will retain one small ship in its fleet of seven ships. Next April, the company will introduce the 115,000 gross ton Azura that is currently under construction in Italy: this is a slightly modified version of the 2008 built Ventura and the second Post-Panamax ship in the P&O Cruises' fleet. The news about the sale of Artemis suggested that the company might opt for operating large vessels only, while the decision to introduce Adonia means that this will clearly not be the case.
Secondly, the time is right for Artemis to go. When built as the original Royal Princess of Princess Cruises in 1984, the ship was hailed as revolutionary as a quarter of its 600 cabins had a private balcony. Indeed, the ship set a benchmark in design of layout that is used in most vessels under construction even today, a quarter of a century later.
However, while the cabins on Artemis are better than on virtually any other ship built at that time and certainly if compared to vessels of the same size, the public rooms have always been a weak spot of that ship.
When introducing Artemis, P&O Cruises wanted a ship that has a small ship feel after it had sold the Victoria of 28,891 gross ton in 2002 that had started life as Kungsholm in 1966. In terms of size, Artemis was not at all a bad choice. However, with just a show lounge forward, a secondary lounge in the stern and a two deck atrium with an admittedly very nice bar midships on its principal deck of public rooms, it never had any feling of cosiness. Rather, the large but low public rooms have an awful lot in common with cruise ferries built for Baltic trades at the same time by the same Finnish yard that produced Artemis.
Adonia, meanwhile, is one of the eight R-class vessels built in France for the now defunct Renaissance Cruises at the turn of the millennium. The interiors in general and the public rooms in particular, by the Scottish architect McNeece, are hugely superior to those on Artemis. Perhaps inspired by the film Titanic that was released when these ships were on the drawing board, McNeece created elegant fin-de-siecle interiors that had not been seen on a new ship for decades. In fact, the style that sought inspiration from historic country houses and grand hotels of the Victorian era had gone out of fashion already in 1927, when the French Line introduced Ile de France, one of the first and certainly one of the grandest ships with Art Deco interiors.
Adonia has the feeling of cosiness that P&O Cruises want to offer: the choice of public rooms is better, they are of far superior design, including an outstandinly elegant library that has a dome that gives it double deck height. Add gym and spa facilities that are surprisinly extensive for a ship of that size, this should be precisely the right kind of ship P&O Cruises need for this particular segment of the market.
The decision to introduce Adonia is a welcome one: I am personally interested in sailing on this ship in due time.
Monday, 7 December 2009
On the secular religion of global warming
This afternoon, I happened to listen to a news broadcast of a commercialradio station in the UK. In a report on the UN conference on global warming that starts in Copenhagen today, they interviewed a female delegate, who sobbed in tears that she hopes for concrete results from the conference for the sake of her children.
If proposals already made by IMO, the UN's maritime organisation, will go through as planned, from 2016 onwards, ships trading in a region that starts at the mouth of the English Channel and covers the North Sea and the Baltic, must switch to use bunkers with lower sulphur contents than what are used today. That will cost almost twice as much as the current bunkers. In my native Finland, this will add 700 million euro to the annual transport costs of the industry. Clearly, the female delegate should see concrete results from efforts to tackle global warming well within her lifetime.
Of course, 700 million euro is a cheap price to pay if the other alternative is the destruction of all life an earth due to global warming. However, that is far from sure. While I shall not dwell much deeper in why I do not believe in global warming as it is presented to the public, I shall dwell a bit on the implications of these alleged changes.
This weekend, a British government minister called skeptcis of global warming "flat earth people," i.e. reactionaries who cannot see the light of truth. From my univerisity days I recall that skepticism should lead all science. Not here: theories backing global warming have become a subject that are beyond criticism. A fundamentalist doctrine has been adopted by Her Majesty's government, which at the same same time is deploying 500 more of Her Majesty's forces to fight fundamentalism of another kind in Afghanistan.
If the proposals tabled by IMO do take effect as planned, then ports like Hamburg, Rotterdam and Antwerp may see significant drop in business, while ones like Liverpool and Lisbon that are outside the region in question could benefit even significantly.
So, why have things gone this deplorable way? I do not have a complete answer to this, but what I can say is that the media has helped a great deal. As the example of the female delegate in Copenhagen shows, reporting facts has not mattered to the media for a long time. Rather, what stirs up emotion is news.
Computer generated images of disasters caused by global warming are very televisual. And as the internet is causing the break up of audiences in the more traditional form of the electronic media and sharp falls in newspaper sales, no wonder they look for topics that grab the public's attention and stir up emotion. Fear is a strong emotion and fits this purpose very well. It, quite simply, helps the media houses to remain in business.
Swine flu is another example of this. It too has a maritime link: both Richard Fain and Micky Arison counted the cost of the outbreak as cruise passengers took fright and did not turn up. And again, the media carried reports that reminded the public of the Spanish flu that killed millions in 1918-19.
We have not seen such death rates in case of the swine flu and it may well be that we never will. But the media has had a field day with this topic as well.
These are interesting times, to say the least! While I do not believe in global warming as it is presented by theorists, I do believe that people have a need for some kind of religion. Since the 16th century, science gradually eroded the position Christianity had enjoyed in the minds of Europeans for the previous 1500 years.
Global warming has become a matter that falls into the category of religion rather than that of science. A commuter that cycles to work past a wind farm is a prophet of salvation, while another commuter, this time in a SUV driving alone in his car past a conventional power station, is a prophet of the devil.
Theory of global warming has turned from science to a secular religion. Why? Because there is money in fear - of global warming, swine flu, the millennium bug, the prophesies of the Club of Rome...
If proposals already made by IMO, the UN's maritime organisation, will go through as planned, from 2016 onwards, ships trading in a region that starts at the mouth of the English Channel and covers the North Sea and the Baltic, must switch to use bunkers with lower sulphur contents than what are used today. That will cost almost twice as much as the current bunkers. In my native Finland, this will add 700 million euro to the annual transport costs of the industry. Clearly, the female delegate should see concrete results from efforts to tackle global warming well within her lifetime.
Of course, 700 million euro is a cheap price to pay if the other alternative is the destruction of all life an earth due to global warming. However, that is far from sure. While I shall not dwell much deeper in why I do not believe in global warming as it is presented to the public, I shall dwell a bit on the implications of these alleged changes.
This weekend, a British government minister called skeptcis of global warming "flat earth people," i.e. reactionaries who cannot see the light of truth. From my univerisity days I recall that skepticism should lead all science. Not here: theories backing global warming have become a subject that are beyond criticism. A fundamentalist doctrine has been adopted by Her Majesty's government, which at the same same time is deploying 500 more of Her Majesty's forces to fight fundamentalism of another kind in Afghanistan.
If the proposals tabled by IMO do take effect as planned, then ports like Hamburg, Rotterdam and Antwerp may see significant drop in business, while ones like Liverpool and Lisbon that are outside the region in question could benefit even significantly.
So, why have things gone this deplorable way? I do not have a complete answer to this, but what I can say is that the media has helped a great deal. As the example of the female delegate in Copenhagen shows, reporting facts has not mattered to the media for a long time. Rather, what stirs up emotion is news.
Computer generated images of disasters caused by global warming are very televisual. And as the internet is causing the break up of audiences in the more traditional form of the electronic media and sharp falls in newspaper sales, no wonder they look for topics that grab the public's attention and stir up emotion. Fear is a strong emotion and fits this purpose very well. It, quite simply, helps the media houses to remain in business.
Swine flu is another example of this. It too has a maritime link: both Richard Fain and Micky Arison counted the cost of the outbreak as cruise passengers took fright and did not turn up. And again, the media carried reports that reminded the public of the Spanish flu that killed millions in 1918-19.
We have not seen such death rates in case of the swine flu and it may well be that we never will. But the media has had a field day with this topic as well.
These are interesting times, to say the least! While I do not believe in global warming as it is presented by theorists, I do believe that people have a need for some kind of religion. Since the 16th century, science gradually eroded the position Christianity had enjoyed in the minds of Europeans for the previous 1500 years.
Global warming has become a matter that falls into the category of religion rather than that of science. A commuter that cycles to work past a wind farm is a prophet of salvation, while another commuter, this time in a SUV driving alone in his car past a conventional power station, is a prophet of the devil.
Theory of global warming has turned from science to a secular religion. Why? Because there is money in fear - of global warming, swine flu, the millennium bug, the prophesies of the Club of Rome...
Monday, 16 November 2009
Uncertainty over NCL group's finances beyond 12 months' time
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.
"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.
Friday, 13 November 2009
Something is fundamentally wrong with Finnish shipbuilding
Something is badly wrong with Finnish shipbuilding: it appears to plunge from one crisis to another, both in good times as well as bad ones.
Throughout the years, the yards there have been able to build spectacular vessels, the latest example of which is Oasis of the Seas. However, what the various owners of the three yards that are all owned by STX Europe today have not been able to do is to run them smoothly.
Two decades ago, in the autumn of 1989, a company called Wartsila Marine Industries (WMI) went bankrupt. It owned the yards in Helsinki and Turku. It had a huge orderbook, including two 58,000 gross ton cruise ferries for partners of Silja Line and three 70,000 gross ton Fantasy class cruise ships for Carnival Cruise Lines.
The Soviet trade that had kept the yards busy was on the wane and just two years after this, the Soviet Union itself would collapse. Against this background , the management of WMI had taken orders, such as the Carnival one, knowing fully well that they can only make money if they can significantly increase productivity.
Nothing of that sort would happen, indeed militant unions preferred to carry out their old practises by extending workers' weekend by endless short strikes. This combined with an unworkable target to raise productivity was largely to blame for the collapse of WMI.
Early in 1990, a new company was erected on the ruins of WMI, mainly by Martin Saarikangas, who became its ceo and Ted Arison, founder of Carnival. It was based on a conversion of debt to equity: the customers of WMI that had claims against the company simply swapped the claims for shares in the new company. The move was a brilliant one, if not unique in similar situations in other industries.
In the early 1990s, the shipping company shareholders of Masa Yards, as the new company was called, sold their shares to Kvaerner, the Norwegian engineering group that was rapidly expanding its portfolio of shipyards. Throughout the decade, Kvaerner Masa-Yards (KMY) was a highly successful builder of cruise liners.
However, a new crisis emerged in the turn of the millennium, when KMY was building a quintet of 137,000 gross ton Voyager class cruise liners for Royal Caribbean International (RCI). In line with industry practise, RCI would pay 80% of the contract price on delivery of each vessel. However, KMY would have to pay its staff, contractors and suppliers at a quicker pace, which meant that the company and the entire Kvaerner group then faced a huge need for working capital. The situation became so bad that KMY actually sold some of the building contracts to banks to get some cash.
As the new millennium progressed and the working capital crisis disappeared from the agenda, a new crisis started to build up at what was now called Aker Yards Finland (AYF). Kvaerner had exited shipbuilding after the working capital fiasco and a disastrous acquisition of Trafalgar House, then e.g. parent of Cunard Line.
The Aker group, which already owned the yard in Rauma, acquired KMY and for some time, everything seemed to go quite well. Then, roughly in the middle of the decade, AYF started to take on huge numbers of orders for ferries, mainly from Tallink but also from Brittany Ferries and Color Line. At the same time, it was building the final Voyager class and later the extended version of that design that was to be known as the Freedom class ships for RCI.
Early in 2007, Aker chairman Kjell Inge Rokke, a former fisherman turned billionaire, offloaded the Aker group's 40% stake in Aker Yards (AKY), which was the Oslo-listed parent of AYF. Soon STX stepped in, first by acquiring Aker's 40% and in the following year, making a full bid for AKY, whose portfolio of cruise ship yards also included the former Chantiers de l'Atlantique yard in France.
The years 2007 and 2008 were not good for Aker Yards: their orderbook was too big and both the yard itself and its suppliers and contractors struggled to keep up with delivery dates and in the case of many ferries, failed to meet them. The group booked heavy one-off charges against these problems.
Rumours started to circulate that Yrjo Julin, the Finnish head of AYF, had been encouraged by Rokke to fill the orderbooks and thereby boost the share price of AKY so that he could get the highest possible price for his shares.
Last year, the situation started to change quickly: ship after another was delivered without new orders being won apart that for two 49,000 gross ton ferries for P&O Ferries. Today, the Turku yard only has Allure of the Seas and the Rauma one the two P&O Ferries' newbuildings on its orderbook.
To sum up: why does the Finnish shipbuilder, whatever its name, go through these seemingly endless difficulties in both good times as bad?
Surely e.g. Meyer Werft in Germany needs to look at working capital and try to maintain a stable workoload throughout an economic cycle as well. Yet we have not heard of any of such problems from the quarters of that company.
Could it be that Finland is a nation of engineering to such a degree that apart from getting the physical product right, other aspects of the business matter little?
As a native of that country that has lived out of there for the past 12 years, it sounds like a credible explanation to a certain degree.
Throughout the years, the yards there have been able to build spectacular vessels, the latest example of which is Oasis of the Seas. However, what the various owners of the three yards that are all owned by STX Europe today have not been able to do is to run them smoothly.
Two decades ago, in the autumn of 1989, a company called Wartsila Marine Industries (WMI) went bankrupt. It owned the yards in Helsinki and Turku. It had a huge orderbook, including two 58,000 gross ton cruise ferries for partners of Silja Line and three 70,000 gross ton Fantasy class cruise ships for Carnival Cruise Lines.
The Soviet trade that had kept the yards busy was on the wane and just two years after this, the Soviet Union itself would collapse. Against this background , the management of WMI had taken orders, such as the Carnival one, knowing fully well that they can only make money if they can significantly increase productivity.
Nothing of that sort would happen, indeed militant unions preferred to carry out their old practises by extending workers' weekend by endless short strikes. This combined with an unworkable target to raise productivity was largely to blame for the collapse of WMI.
Early in 1990, a new company was erected on the ruins of WMI, mainly by Martin Saarikangas, who became its ceo and Ted Arison, founder of Carnival. It was based on a conversion of debt to equity: the customers of WMI that had claims against the company simply swapped the claims for shares in the new company. The move was a brilliant one, if not unique in similar situations in other industries.
In the early 1990s, the shipping company shareholders of Masa Yards, as the new company was called, sold their shares to Kvaerner, the Norwegian engineering group that was rapidly expanding its portfolio of shipyards. Throughout the decade, Kvaerner Masa-Yards (KMY) was a highly successful builder of cruise liners.
However, a new crisis emerged in the turn of the millennium, when KMY was building a quintet of 137,000 gross ton Voyager class cruise liners for Royal Caribbean International (RCI). In line with industry practise, RCI would pay 80% of the contract price on delivery of each vessel. However, KMY would have to pay its staff, contractors and suppliers at a quicker pace, which meant that the company and the entire Kvaerner group then faced a huge need for working capital. The situation became so bad that KMY actually sold some of the building contracts to banks to get some cash.
As the new millennium progressed and the working capital crisis disappeared from the agenda, a new crisis started to build up at what was now called Aker Yards Finland (AYF). Kvaerner had exited shipbuilding after the working capital fiasco and a disastrous acquisition of Trafalgar House, then e.g. parent of Cunard Line.
The Aker group, which already owned the yard in Rauma, acquired KMY and for some time, everything seemed to go quite well. Then, roughly in the middle of the decade, AYF started to take on huge numbers of orders for ferries, mainly from Tallink but also from Brittany Ferries and Color Line. At the same time, it was building the final Voyager class and later the extended version of that design that was to be known as the Freedom class ships for RCI.
Early in 2007, Aker chairman Kjell Inge Rokke, a former fisherman turned billionaire, offloaded the Aker group's 40% stake in Aker Yards (AKY), which was the Oslo-listed parent of AYF. Soon STX stepped in, first by acquiring Aker's 40% and in the following year, making a full bid for AKY, whose portfolio of cruise ship yards also included the former Chantiers de l'Atlantique yard in France.
The years 2007 and 2008 were not good for Aker Yards: their orderbook was too big and both the yard itself and its suppliers and contractors struggled to keep up with delivery dates and in the case of many ferries, failed to meet them. The group booked heavy one-off charges against these problems.
Rumours started to circulate that Yrjo Julin, the Finnish head of AYF, had been encouraged by Rokke to fill the orderbooks and thereby boost the share price of AKY so that he could get the highest possible price for his shares.
Last year, the situation started to change quickly: ship after another was delivered without new orders being won apart that for two 49,000 gross ton ferries for P&O Ferries. Today, the Turku yard only has Allure of the Seas and the Rauma one the two P&O Ferries' newbuildings on its orderbook.
To sum up: why does the Finnish shipbuilder, whatever its name, go through these seemingly endless difficulties in both good times as bad?
Surely e.g. Meyer Werft in Germany needs to look at working capital and try to maintain a stable workoload throughout an economic cycle as well. Yet we have not heard of any of such problems from the quarters of that company.
Could it be that Finland is a nation of engineering to such a degree that apart from getting the physical product right, other aspects of the business matter little?
As a native of that country that has lived out of there for the past 12 years, it sounds like a credible explanation to a certain degree.
Wednesday, 4 November 2009
Life after Oasis
The cruise industry has made a lot of noise about the introduction of Royal Caribbean International's (RCI) Oasis of the Seas, which at 225,000 gross tons is by far the largest cruise liner ever built. Obviously, the industry has every reason to tout the new ship - a sister will enter service late next year - not only because of its size, but also due to the many new features it introduces.
Still, it is also obvious to ask what next? In addition to Allure of the Seas, the second Oasis class newbuilding, the Royal Caribbean Cruises Ltd (RCCL) group has three 122,000 gross ton newbuildings due for its Celebrity Cruises brand. Meanwhile, the Madrid-based Pullmantur subsidiary of the group seems to live a life of its own: ships are moved from one market to another and the future of the Croisieres de France brand remains in doubt, at least as far as rumours are concerned.
But let us go back to RCCL proper: an industry source says that talks are in progress over a possible third Oasis class ship as well as a fourth 158,400 gross ton Freedom class unit for RCI. An option for the fourth ship has been held at STX Europe in Finland for a long time.
What will hapeen in case of these two depends on two things, the source says. First one is price and the second one is what kind of risks RCCL shareholders are willing to take. The global economy appears to be regaining some health again, which is obviously good news. This combined with the hope that Oasis of the Seas will prove to be the success it is expected to be would obviously reduce the level of risk involved with a third order.
A fourth Freedom class vessel might incorportate some features from the Oasis class to breath newlife into the design that dates back to the middle of the decade, wehen it was first unveiled as "Ultra Voyager," with a reference to the previous series of newbuildings of RCI.
Independence of the Seas, which was introduced in 2008, has operated an extended summer season from Southampton in the UK since delivery and starting in 2010/11, will remain in britain year-round. This indicates that a ship of this size can be employed with a greater choice of base ports than an Oasis class vessel. Assuming that the industry regains a path of solid growth in the future, an Oasis class vessel in Southampton could become possible.
The banking industry died first and committed suicide next as it gambled with sub-prime mortgages and financed other asset deals at hugely inflated prices, which then led to the infamous crash in 2007-08. Against this background, it may well be that RCCL will have to turn to the bond market rather than to its banks when it comes to raising - at least part - of the finance it needs to take delivery of Allure of the Seas.
In addition, Finnvera, the Finnish export credit institution that provided already part of the funding for Oasis, may well have to dig into its pockets for a second time. RCCL has financing in place for all the Celebrity Cruises' remaining newbuildings.
RCCL builds truly fine ships for both Celebrity and RCI. However, one question needs to be asked: are these in themselves excellent vessels cannibalising sales of cruises on other classes of ships of these two brands?
Still, it is also obvious to ask what next? In addition to Allure of the Seas, the second Oasis class newbuilding, the Royal Caribbean Cruises Ltd (RCCL) group has three 122,000 gross ton newbuildings due for its Celebrity Cruises brand. Meanwhile, the Madrid-based Pullmantur subsidiary of the group seems to live a life of its own: ships are moved from one market to another and the future of the Croisieres de France brand remains in doubt, at least as far as rumours are concerned.
But let us go back to RCCL proper: an industry source says that talks are in progress over a possible third Oasis class ship as well as a fourth 158,400 gross ton Freedom class unit for RCI. An option for the fourth ship has been held at STX Europe in Finland for a long time.
What will hapeen in case of these two depends on two things, the source says. First one is price and the second one is what kind of risks RCCL shareholders are willing to take. The global economy appears to be regaining some health again, which is obviously good news. This combined with the hope that Oasis of the Seas will prove to be the success it is expected to be would obviously reduce the level of risk involved with a third order.
A fourth Freedom class vessel might incorportate some features from the Oasis class to breath newlife into the design that dates back to the middle of the decade, wehen it was first unveiled as "Ultra Voyager," with a reference to the previous series of newbuildings of RCI.
Independence of the Seas, which was introduced in 2008, has operated an extended summer season from Southampton in the UK since delivery and starting in 2010/11, will remain in britain year-round. This indicates that a ship of this size can be employed with a greater choice of base ports than an Oasis class vessel. Assuming that the industry regains a path of solid growth in the future, an Oasis class vessel in Southampton could become possible.
The banking industry died first and committed suicide next as it gambled with sub-prime mortgages and financed other asset deals at hugely inflated prices, which then led to the infamous crash in 2007-08. Against this background, it may well be that RCCL will have to turn to the bond market rather than to its banks when it comes to raising - at least part - of the finance it needs to take delivery of Allure of the Seas.
In addition, Finnvera, the Finnish export credit institution that provided already part of the funding for Oasis, may well have to dig into its pockets for a second time. RCCL has financing in place for all the Celebrity Cruises' remaining newbuildings.
RCCL builds truly fine ships for both Celebrity and RCI. However, one question needs to be asked: are these in themselves excellent vessels cannibalising sales of cruises on other classes of ships of these two brands?
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