Shipyard supplier ponders pay cuts, layoffs

The management of Poznań engine and turbine maker H. Cegielski has to decide this week whether to force through pay cuts and layoffs, a move that is prompted by plummeting orders and mounting debts resulting from the collapse of the Szczecin Shipyard. The yard filed for bankruptcy two weeks ago after a consortium of seven banks failed to meet conditions for a government bailout, resulting in the write-off of 80% of the shipyard's $293 million in bank loans. The insolvency has sent waves of debt through the shipyard industry, casting a shadow over the future of about 1,500 contractors. The shipyard owes H. Cegielski zł. 105 million ($26.5 million), leading the engine maker to consider ceasing production until it is able to repay its suppliers, company sources said. "Our situation means that we can't restart production without paying our suppliers," said Bolesław Januszkiewicz, the spokesman of H. Cegielski. "You must look at the situation holistically because it is difficult to imagine that Szczecin Shipyard will be able to restart production without the products of H. Cegielski." This week the Industrial Development Agency (ARP) will continue discussions with the shipyard's banks, aimed at finishing work on five ships. But the deal holds little hope for workers at H. Cegielski since it is expected to generate demand for one engine at most, compared to the 33 ships in the shipyard's order books, Januszkiewicz said.

"With 50,000 man-hours required to build each engine, it is plain why we are considering pay cuts and redundancies," he said. Last week the management of H. Cegielski failed to gain acceptance from unions for pay cuts of 20% for production workers and 25% for administrative staff and layoffs for 300 of the company's 3,100 staff. H. Cegielski, which generated around 40% of its revenue from Szczecin Shipyard, stands little chance of regaining its badly needed payables when the shipyard's assets are divvied among creditors in September, Januszkiewicz said. "We will have to write off 40% (of the debt) and we will receive the remaining 60% over five years," he said. There is hope, though, that an agreement between the ARP and the banks to restart production will lead to the completion of further contracts and provide a cash injection for H. Cegielski, said Marek Molewicz, the shipyard's chief public relations specialist. "We are aware of all these problems, and we are currently fighting to restart ship production, regardless of how many ships the banks decide to build," Molewicz said. "If we regain our financing, this should allow us to make advance payments on engines from H. Cegielski." The bankruptcy of the Szczecin Shipyard will affect contractors regardless of their level of exposure to the yard, bringing the threat of long-term unemployment for laid-off workers as Poland's economy grows slowly, said Maciej Grabowski, the deputy director of the Market Economy Research Center in Gdańsk. "The closure of the Szczecin Shipyard will mean that many smaller, highly specialized companies will cease to be competitive since they will lose a big share of the market demand that generates their economies of scale," he said.