The Kvaerner Group bas announced that it plans to exit the shipbuilding business. The diversified Norwegian-based engineering company, which also bas interests in construction, oil and gas, metals, pulp and paper, operates 13 shipyards in seven countries, including Kvaerner Masa-Yards (KMY).
Immediate speculation focused on a joint venture between Kvaemer and Fincantieri which would operate KMY.
Fincantieri and KMY already have joint interests in ABB Azipod.
Other yards would be spun off and/or sold. Interested parties are said to include the Norwegian Aker Group and Fred. Olsen.
The reason for the sell-off is a massive restructuring from what the new Kvaerner CEO Kjell Almskog called “loss-making businesses.” He said in a prepared statement that the “new” group would focus on engineering, contracting and construction.
Kvaerner is looking at three ways to dispose of its involvement in shipbuilding: one is a spin-off of the largest yards to shareholders and a sale of the smaller yards; another alternative is to sell all the yards to one buyer; while a third alternative is to enter into a joint venture with another shipbuilder, but on the basis that Kvaerner would reduce its ownership over time.
Without being specific, Kvaerner also said it intended to shut down its money-losing business in the United States.
The selling off of shipyards and other business interests combined with a new share offering is intended to help cut costs and reduce Kvaerner’s debt.
“The plan is to create a group that is significantly smaller and much leaner, but infinitely stronger,” said Alrnskog.
Kvaerner’s restructuring plans comes only three years after the company bought Trafalgar House, which turned out to be ill-timed. That acquisition included Cunard Line, which eventually was sold, but has come back to haunt Kvaerner. The new owners of Cunard led by Carnival Corporation now seek a $50 million refund based on debt and other problems unknown at the time of purchase.
Meanwhile, Kvaerner also built up its holdings in shipyards, claiming significant benefits in synergies and economies of scale. But while the orders came in, the profits evaporated.
Earlier this year, Erik Tonseth, who was the CEO at the helm during the past several years, left and Almskog took charge.
For KMY it must seem as if history repeats itself. It was in 1989 that Wartsila Shipyards went bankrupt with an orderbook full of cruise ships. The shipbuilder re-emerged at Masa-Yards – with some help from Carnival, which was a part-owner and had several ships under construction there – and became KMY when it was bought by the Kvaerner Group.
That KMY is losing money again shows that cruise ship-building, without state subsidies or creative financing, is difficult to make a profitable business.
Without Kvaerner’s backing, KMY needs a new strong owner or partner. The yard is important for Finnish employment and has sufficient experience and an impressive orderbook that should attract suitors as long as cruise-ship building can be made profitable.
A consequence of yet another European shipbuilder in trouble may be the arrival of Far Eastern builders. Japanese and South Korean yards already build 70 percent of the world’s cargo ships.