Wartsila Marine Financial Status Update

Wartsila Marine’s financial woes have been given a temporary respite as the yard is working with the Finnish government and financial institutions to reach a long term solution.

Wartsila Marine, which recently threatened with bankruptcy unless the government would help it compete with European yards receiving EEC subsidies, has reached an agreement with the Finnish Export Guarantee Board, The State Guarantee Board of Finland, The Wartsila AB, Finnish Export Credit, The Union Bank of Finland and Postipankki securing the financing of the company’s activities.

While the agreement secures financing during the building time of the ships on order and under construction, the parties have entered negotiations on the long term prospects of the company’s activities.

A spokesperson for Carnival Cruise Lines said that the construction of its three vessels was proceeding according to schedule and Wartsila’s financial problems “will not affect us at all.”

Too Important

Wartsila Marine, which employs some 6,500 people and is probably Finland’s largest source of foreign exchange, incurred losses of $148 million in 1988 up sharply from $49 million in 1987, despite a $2 billion orderbook.

Among the Nordic countries, all of which once were major shipbuilders, only the Finnish yards remain strong in the world market. Yards in Norway and Sweden have either closed or turned to the offshore oil industry, and while cruise ships were delivered from Danish and Swedish yards in the early eighties, none of these yards are presently building or even seeking cruise ships contracts.

According to sources, it is unlikely that Wartsila Marine will close its doors, however. The company is too important to the Finnish government, with 6,500 employees and as a major earner of foreign exchange. A closing would also affect all the Finnish service and supply industries which support it and several of which are geared to the cruise industry.

Sources speculate, however, that if the Finnish government helps Wartsila, it may also have to help the other yards, including Rauma-Repola, which operate under the same competitive disadvantages.

In the long run, this may mean a state­ controlled merger of all Finnish shipbuilding.

Hard Pressed

Wartsila blames its difficulties on several sources, including the subsidized foreign competition; low profit margins on contracts previously entered into; and difficulties ensuing from the 1986 merger with Valmet.

Wartsila, which has received little or no support from the Finnish government for export orders, claims that the high government subsidies in the EEC countries have distorted its competitiveness for new orders from Western and Soviet markets.

Sources said that Royal Caribbean Cruise Line and Princess Cruises were able to build ships for “$100 million less” than they were in Finland. Sources also said that recent cost cutting efforts and the company’s uncertain future had forced many experienced executives and new talent to leave. Alleged management errors were also noted, especially in the sale of the Windstar sail cruise concept to the competition. (The Windstar sailing cruise ship concept had originally been developed by Wartsila.)

While Wartsila is regarded as one of the world’s leading shipbuilders, especially of cruise ships, enjoying a reputation for quality an efficiency, sources close to the company said there is a limit as to how far production efficiency and cost cutting can offset Far Eastern prices and European subsidies.

Wartsila’s present orderbook, which runs through 1991, includes three cruise ships for Carnival and five Baltic cruise ferries. While $250-million cruise ships are spectacular orders, they are said to be marginally profitable, and in Wartsila’s case, Carnival has a reputation for driving a hard bargain.

Industry executives expect Wartsila to rebound from its present difficulties and maintain its position as a leading cruise ship builder.

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