Hope for Wartsila Marine’s future is fading, according to senior executives, who said there is little chance that the Finnish government is willing to subsidize shipbuilding in that country, which would be required if Wartsila is to compete with rival European yards.
Wartsila has contracts worth more than $1.4 billion, but its losses by the time they are completed are expected to be in excess of $250 million.
Wartsila’s future may well be decided on November 2 when options, including liquidation, will be put forward in a special shareholders’ meeting.
In the meantime, discussions are also said to be underway which could lead to Finland’s remaining shipbuilders, Rauma-Repola and Hollming, taking over some of Wartsila Marine including its orders for cruise ships.
The discussions were reported late last week, when Rauma-Repola announced that it was negotiating with the Finnish government to establish a new company. Sources close to Rauma-Repola and Wartsila confirmed that such talks were underway about the establishment of a new shipbuilding company which would acquire part of the modern facilities of Wartsila Marine at Turku and build some of the backlog of ships.
Ships on order include three 70,000-ton cruise ships for Carnival Cruise Lines and luxury car ferries for Redereit Ab Slite, Effoa, Sf Line, Johnson Line and Birka Line.
Shipowners are now trying to establish their rights to the ships under Finnish bankruptcy laws and have sent “plane loads of lawyers” to Helsinki for discussions with the receivers.
According to sources close to Wartsila, in 1987 the yard was literally forced to accept unprofitable contracts to maintain employment. It also anticipated a new Soviet five-year plan to be introduced by 1990 and looked forward to the elimination of subsidies for rivaling European yards as Europe becomes one community in 1992.
The unprofitable contracts were said to be part of a plan that would maintain Wartsila’s position as a leading shipbuilder while awaiting changing market conditions and resulting new orders. However, the Soviet orders did not materialize following the collapse of an oil barter trade and a switch in Soviet policy to buy from several other countries for the first time. At the same time, it is said to be highly uncertain that shipbuilding subsidies will be eliminated at rivaling yards. Thus, Wartsila Marine’s future prospects began to appear dim.
Sources said that Wartsila managed to outlive shipbuilding industries in the other Scandinavian countries because it specialized. But as governments in Germany, France and Italy transferred subsidy arrangements from cargo ships to passenger vessels, yards in these countries began to contract more cruise ships, despite Wartsila’s reputation as the top class cruise ship builder. In addition, efforts to acquire cruise ship building contracts were also underway in Spain and England.
The Finnish government has refused to provide direct subsidies to its shipbuilding industry.
Shipbuilding losses were reported already in 1987 when Wartsila Marine emerged as a new company after Wartsila’s shipbuilding division was merged with Valmets. In spite of its size and fat orderbooks, the new giant nevertheless did not prove seaworthy.
Only two months ago, a consortium was made up consisting of the Finnish government and the private sector, promising to continue operating the financially troubled yard. As the losses have continued to escalate, however, the rescue team came apart in disagreement over the company’s restructuring.
Two weeks ago it became apparent that the losses would exceed $250 million, while speculation put them at more than $400 million. The board saw no other solution than to ask for liquidation, which would enable it to renegotiate newbuilding and supplier contracts. It was then intended that the company would continue operations, but on a streamlined and profitable basis. But the negotiations never got going. Instead, attention focused around the government’s promises to cover losses exceeding $150 million. At the same the the Finnish government expressed criticism that it had been misled by Wartsila Marine claiming that the accelerating losses must have been apparent to company management before it asked for government aid.
The government has also blamed the participating banks for cutting off the cash supply thus disabling the day-to-day operations of the shipbuilder. The bankers, on the other hand, point to the government, saying that they were providing nearly $60 million in operating funds but that the bankruptcy was unavoidable when the government would not guarantee for the yard’s losses.
In the meantime, more than 6,000 persons have been dismissed and many more will be affected through Wartsila’s suppliers.
Wartsila’s bankruptcy has become a political issue and a liability for the Finnish government. It is highly unlikely that it can agree to subsidies – in effect asking the Finnish tax payer to subsidize such companies as Carnival which repeatedly has announced record revenues and record profits.