NCL to Purchase Orient Lines

Industry consolidation continues as Norwegian Cruise Line (NCL) has announced that it has signed a letter of intent to purchase Orient Lines in a combined cash and stock transaction valued at approximately $80 million. The purchase includes the 800-passenger Marco Polo.

NCL said it will market Orient Lines as a separate brand with its existing management and staff.

Thus, NCL once again becomes a multiple-brand operator with its NCL fleet, Orient Lines, the recently announced Norwegian Capricorn Line, a joint Australian venture, and with company executives suggesting that more acquisitions may be in the pipeline. NCL also owns the Aida which has been chartered back to the original German owner, Deutsche Seereederei. So a European venture may also be in the works.

In addition, NCL is also planning newbuildings and an IPO in the U.S. “before the end of the year,” according to Geir Aune, CEO of NCL Holding, parent company of NCL.

$80 Million

The Orient Lines transaction includes a cash portion of $8 million, plus $46 million in 10 million shares in NCL Holding, and assumption of $26 million of debt, according to Aune.

That makes the principal owner of Orient Lines, Gerry Herrod, one of the major shareholders of NCL. Herrod, who formerly owned Ocean Cruise Lines and Pearl Cruises, will also remain chairman of Orient Lines and will assume a seat on NCL’s board of directors.

The 20,500-ton Marco Polo was built in 1965 as the Alexandr Pushkin and was rebuilt by Orient Lines over a two-and-a-half year period, from 1991 to 1994, at a cost of $83 million, according to Herrod, who said the ship has a life expectancy of at least another 15 years.

“She was built under the aegis of being a cruise ship,” Herrod said. “In reality she was a spy ship and built tough enough to sail anywhere.”

In a prepared statement, Kristian Siem, chairman of NCL Holding, said that the acquisition of Orient Lines fits the company’s plans for globalization, increasing capacity and opening up new markets.

Herrod added that the Marco Polo has been sailing full and that he has been looking for suitable tonnage to expand the company. He believes that NCL can give him the ships he needs to grow Orient Lines and become a key player in the premium segment of the market.

Although Orient Lines originally focused its operations on the Far East (hence the name), the company lost money the fust two years, according to Herrod, before moving the ship to Antarctica and the Mediterranean. Last year, Herrod said, Orient Lines, which sells cruises and land tours, posted nearly $18 million in operating profits.

The deal with NCL stipulates a one-year guarantee of a $17 million operating profit contribution from Orient Lines.

But past performance is clearly no guarantee for future success. And NCL’s acquisition of Orient Lines offers a striking correlation to its previous acquisition of Royal Cruise Line (RCL), another premium market operator that was reportedly profitable before it was acquired by NCL’s previous owners and eventually closed down by the present owners and management who inherited a money-losing division.

The big difference is that while RCL’s founders left the company, Herrod stays on and assumes key roles at both NCL and Orient Lines. In addition, when NCL shed Royal Viking Line and RCL, the company was struggling financially and could not afford to hold on to money-losing divisions, according to Aune.

Aune said that today’s situation is markedly different with NCL being strong financially and with Orient Lines being extremely profitable. He noted that Orient Lines had presold 86 percent of its passenger capacity 12 months in advance.

New Opportunities

Thus, after successfully concentrating on a single brand, the multiple-brand strategy may be less of a dramatic change for NCL – or a return to a tumultuous past – than a matter of taking advantage of opportunities to grow out of the competitive North American marketplace.

But if NCL grows its new brands through the transfer of NCL ships to them, won’t they grow at the expense of the NCL brand? If so, how are these two minor brands expected to succeed where management believes that the much stronger NCL name cannot?

Aune emphasized that no decision had been made yet on transferring any ship from NCL to Orient Lines.

And, Art Sbarsky, executive vice president, discounted that Orient Lines would grow at the expense of NCL. “The goal is to grow NCL on the corporate level,” said Sbarsky, “but the core business is Norwegian Cruise Line.”

Sbarsky also said that this year NCL has 25 percent more beds to sell than last year based on the full-year deployment of the Norwegian Majesty and the stretching of the Norwegian Dream and Norwegian Wind.

Next year, the Norwegian Sky will boost NCL’s capacity by a further 15 percent.

Orient Lines

Orient Lines has earned a reputation for offering a quality cruise experience for passengers from the United States, United Kingdom, Australia, New Zealand, and South Africa and a high percentage of its business is said to be made up of repeat passengers. Its itineraries range in length from five to 25 days and include destinations such as India, Egypt, Southeast Asia, Africa, Australia, Antarctica and the Mediterranean.

NCL Ship Deployment (11 markets)


Market Ships     Capacity      Share   
Carib/7+ 5 199,000 38.5%
Carib/3/4 2 125,000 24.0%
Bermuda 3 57,000 11.0%
Alaska 2 45,000 8.5%
North Europe     2 22,000 4.5%
Med 2 21,000 4.0%
NE/Canada 3 14,000 2.5%
Hawaii 1 12,000 2.5%
Transcanal 3 11,000 2.0%
S. America 1 8,000 1.5%
Transatlantic 2 6,000 1.0%
Total 9 520,000     100%
Orient Lines Deployment 1998 (6 markets)
Med 1 26,000 65.0%
Far East/South
1 6,000 15.0%
Africa 1 2,000 5.0%
India/MidEast 1 2,000 5.0%
Transatlantic         1 800 2.0%
Antartica 1 3,000 8.0%
Total 1 39,800 100%

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