Gdynia Shipyard sets sail for the luxury cruise market
Gdynia Shipyard is set to close a landmark move into the luxury shipbuilding market by the end of the month, the Business Journal has learned.
For the past several months, Poland's leading shipbuilder has been negotiating the purchase of a strategic stake in Kvaerner Masa-Yards, which operates two shipyards in Finland specializing in building luxury, passenger cruisers.
"We are quite optimistic about the outcome," Janusz Szlanta, the president of Gdynia Shipyard said last week. "And we expected the decision to be issued in a few weeks' time."
After heavy restructuring in the early 1990s, Gdynia Shipyard has emerged as a strong force on the world shipbuilding stage, now ranked eighth globally and specializing in large-scale cargo and container ship construction. But under growing market pressure from shipbuilders in Asia, Gdynia has chosen to diversify and build revenue from the niche, luxury cruiser market.
Parties involved in the deal refused to comment on specifics of the purchase of Kvaerner Masa-Yards' two shipyards in Norway, including the percent and price tag of the stake. However, they did say Gdynia was on the road to becoming the major strategic investor in the Finnish yards. Analysts viewed the move as positive for Gdynia.
"We are talking about several-hundred million dollars," said Nigel Gardner, shipbuilding industry analyst with London-based Drewry Shipping Consultants. That's the value of the three pending orders being implemented at both the Finnish yards, he said.
"They are very good yards, with strong track records and good relationships with cruise operators all over the world," Gardner said. The Kvaerner Masa-Yards in Finland recently won a $375 million contract to produce cruise vessels for Carnival Cruise Lines and demand for new vessels remains high, he said.
"People always want to use the newest and the best vessels," said Gardner. "And cruise operators have to deliver."
On the other hand, looking for a niche business is the only way for European yards if they want to survive in the light of fierce competition from Japanese, Korean and recently, Chinese shipyards that have strong labor-cost advantages, he said.
Gdynia's move into the luxury cruise market follows on the heels of Kvaerner Holding's decision to restructure and focus on core activities, according to a press release from Kvaerner. That meant casting off shipbuilding, said Kvaerner, a British-Norwegian conglomerate with global activities in the engineering and construction, oil and gas and pulp and paper sectors, in addition to shipbuilding.
Kvaerner's two Finland-based shipyards, which are located in Helsinki and Turku, have recently completed an investment program valued at FIM 1.4 billion ($245.6 million), the company said.
Gdynia Shipyard is one of the two short-listed bidders in the current restructuring sale. The other bidder is the Kvaerner Masa-Yards' management. Both groups are expected to emerge as co-owners of the two shipyards.
"Originally we planned a takeover," said Miroslaw Piotrowski, Gdynia Shipyard's spokesman. "But by the end of the year we changed the concept."
"Right now we plan capital involvement," Piotrowski said. "That means significant, but not majority ownership of Masa-Yards." Piotrowski refused to specify the amount Gdynia is ready to invest.
The London-based shipbuilding division of Kvaerner also refused comment on the issue.
"I'd rather not talk about it right now," said Antti Pankakoske, a head of Kvearner's shipbuilding division. "We release all information in due time."
For Gdynia, building passenger vessels does not mean sailing into completely uncharted waters. During the communist era, the yard built ferries for Swedish operator Stena-Line and its present facilities allow the company to manufacture even the most complicated vessels, such as condensed gas tankers, he said.
Gdynia and Kvaerner came close to crossing paths two years ago, when the fate of ailing Gdansk Shipyard was being decided. Kvaerner considered bidding for Gdansk but never followed through. Eventually, the Gdynia Shipyard emerged as victor in the Gdansk tender and has launched an intensive restructuring operation at the neighboring shipbuilder.
After losses in 1995 and 1996, the Gdynia Shipyard generated zl. 51.68 million ($16.15 million) in net profit in 1997, which in zloty terms more than doubled the following year to zl. 113.43 million ($32.28 million). Net profit last year is forecast to drop significantly to zl. 60 million ($15 million) because of restructuring at Gdansk shipyard. Although Gdynia has not released profit estimates for this year, it is forecasting about 25% growth in sales to $500 million from $406 million in 1999. The yard expects to reach its full production capacity in its Gdynia and Gdansk shipyards by 2003 when sales are to increase to $700 million.
In line with the goals of its restructuring effort adopted in April last year, Kvaerner is posting stronger returns. The third quarter last year was the second consecutive quarter to produce profitable results, the company said. After three quarters of 1999, the operating profit from the three core businesses of "New Kvaerner" increased from NOK 183 million ($22.8 million) in the second quarter to NOK 231 million ($28.85 million) in the third.
In 1998 Kvaerner showed NOK 1.3 million ($165,000) in pre-tax losses.
