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Finnish Government announces negotiations with Meyer Werft

It was reported in the Finnish new yesterday 8th May 2014 that Finnish government is negotiating with Meyer Werft regarding purchase of Turku Shipyard. Finnish government had reported a frame decision of being interested in participating in acquisition if an industrial partner can be found. STX group, the owner of STX Europe, including STX France and STX Finland (being Turku shipyard after shut down of Rauma shipyard) had announced already last year, that they will sell European shipyard by the end of June 2014. No information can be found, whether the European shipyard should be sold as one entity or individually.

Speculation naturally started at once and I’d like to speculate too.

Good news for the industry in Finland and ship ownersCranes

One thing is for sure, this is good news. Finnish network of shipbuilders, which have had to live under very stressful environment for the la
st 4 years, got the best news so far when this rumor has even some fact behind it. When governmental decision makers make such announcement, there cannot be just political speculation involved despite of upcoming election in Finland. Meyer Werft seems to be more cautious in their comments but that, in my opinion is rather usual in case of acquisitions because there are always many things that this kind of thing has effect on. Negotiable contracts not being the minor ones.

 

Benefits of possible Meyer Werft of Turku

Turku shipyard has suffered from several problems during last years. Financial performance of projects has been poor, lack of large scale projects after Allure of the Seas and being unable to get the balance sheet in the condition the guarantees require, as written earlier when Turku lost the battle against STX France. Today RCCL ordered the optional second vessel from STX France, which was part of the contract made between the parties in December 2012.

When Finnish government together with Meyer Werft would be involved in the shipyard as an owner, the guarantees should be more easily arranged. To put is simple: the financial muscles would be heavy weight. Commercial output of Meyer Werft is good and most probably due to their system of operational excellence ensuring profitable and high quality production in industrial form.  However, Finnish governmental ownership will not be based on cash injection but efficient and profitable construction of vessels. That is where Meyer Werft comes into the game as “primus motor”, the shipyard that really knows their business. Meyer has successfully implemented the Lean method into shipbuilding and their major clients love the outcome. The quality of the product has to be great everywhere but when build in Meyer Wert, the process is top-of-the-line and the client can really rely on the outcome whenever asked. What are the main aspects in successful industrial shipbuilding, which Meyer Werft, as the top shipbuilder is able to meet and keep the clients happy? It should be kept in mind that Meyer has succeeded to win the trust of all major cruise ship owners in the world. This is not typical but usually the yards serve 1-2 major clients and additionally some smaller ship owners.

Goals and challenges in industrial shipbuilding

  1. Risk – The industrial methodology should mitigate the operative risk of the production through transparent portfolio and supply chain management.
  2. Schedule – The target is to achieve zero deviation to schedule
  3. Quality – In the holistic perspective, the execution and the delivery of the product is high on quality
  4. Efficieny – The Lean systems (flow/takt/pull) recognized in automotive industry, bring efficiencies in several levels. Procurement system and transparency are very different from the traditional shipbuilding.
  5. Cost – The well-defined system reduces cost without unfair pressure, stress and pain. This is proven worldwide in different industries, starting from Toyota automotive production but also for example in healthcare.
  6. Safety – The system which is well planned, operations controlled and transparent, creates a safe environment not only for the end-client as a safe product but for the workforce who builds the ship. What is more valuable than health? Nothing.

Joint-ventureThese goals and challenges are common to many industries but especially shipbuilding, where the amount of workforce is significant and the product is large and complex. The Lean system, which Meyer Werft has implemented successfully is however much more.

Geographical benefit

Some false speculation has already been written and referred to professionals of the industry. The basic misunderstanding is related to length of the dock-pool. Some say, that Meyer werft would need Turku shipyard because of the length of the dock and some on the other hand say, that they would build only the steel blocks in Turku and then move the hull to Germany to be equipped in the covered dock. Both wrong. Well, at least in my opinion those are not the case. First of all, Meyer has more dock capacity than Turku but the location of the yard is the problem. They cannot float out from the yard to the sea more than 200 BRT vessels and this due to the channel connecting the yard itself to the sea. Second of all, it is not according to Lean system to move such big entity as the hull from a yard to another. Turku shipyard on the other hand is located close to Neste oil-refinery and therefore there is a short distance (apprx. a mile) to deep-water route to the sea.

 

Geographical challenge

If the location of the yard is the challenge to Meyer, the northern position of Turku and uncovered dock is the challenge in Turku. However, if a shipyard is purchased, the new committed owner should cover the yard the soonest. Mein Schiff 3 should be the last or the second last vessel to be built outside in the Finnish winter. There is no reason, why these ships should be built in rain, wind and snow.

Meyer

Source: Google Maps

Potential

Summa summarum, the joint venture between Finnish government, Meyer werft and Finnish maritime cluster could be very successful. There is a lot of potential and ships to build and contracts to be signed even quite fast. TUI cruises may want another two ships if there is a committed owner with stable balance sheet. A new cruise line may be established according to rumors and that operator has announced the funds have been collected and they have the will to build the biggest cruise ship in the world. Fincantieri has order book quite full as well as French shipyard. Meyer werft in Germany cannot build such vessel but the joint venture could do it Turku. Those three together, create apprx. 3 Billion EUR worth of potential.

As far as I know, there is no reason why this joint venture should not happen. It is a multiple win –situation. There are so many winners, that I do not even speculate it before this is real and a fact. I hope it will become reality!

 

Mikko Varjanne

Chief Operational Officer, M.sc Econ, Bachelor of Hotel, Restaurant and Tourism Management, In maritime industry since 1998

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