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Shipyard for sale, Finnish shipyards looking for a buyer

I took advantage of the high quality blog posts and professional journals gathering the news of Finnish shipyards now being for sale and do not write anything about the things around it. To summarize: STX Groups problems have escalated into level, which forces the current decision makers to sell parts of the group, including STX Europe, which basically consist of STX Finland and STX France. There is a strategic interest for French government to buy the majority of their navy service provider but that is not the case in Finland. At least not in the Turku shipyard, which is known more of the fine cruise vessels. Rauma  shipyard however, is strategically important for Finnish navy. Rauma is known for special vessels and it has been suffering of the unclear political decision making regarding sulphur regulations, which has frozen the newbuilding of pax vessels in certain areas in the world. Well, problems in financial environment have a lot to do in that sector as well.

After sunset on a ship built in Turku Shipyard

After sunset on a ship built in Turku Shipyard

In Finnish media the government is taken into major role of becoming the next majority owner of the STX Finland’s Turku and Rauma shipyard. Government has not given red light, quite the contrary now, when the owner is actually selling, the decision makers are considering it seriously. Turku city already has indicated, that hey want to take part by buying the plot of the shipyard, which is quite obvious, strategically thinking. If there is no shipyard, there could be a place for the new Port of Turku.  Well, that is not on the table, yet..

Who are the optimal and possible buyers of Finnish shipyards?

This paragraph has no support from any major decision maker and does not represent anything else than my personal opinion

1. Finnish government should take part into the process by being the bridge solution to make it easy and fast.

This governmental ownership however, should not be a golden parachute for the contractors and STX. In this context I mean that golden parachute pours money (unproductive benefits) to current stakeholders pockets. It should just be bridge between the troubled waters, the time of search of the actual ownership. That may take more that 1-2 year and the closing to happen after TUI ships are completed. This ownership model would ensure one important client delivery of their 2 vessels on time.

2. As there is no such thing as free lunch, the Finnish industrial owner might be just a daydream.

Many say, that there should be “a big industrial owner” or even more opportunistic “a rich industrial owner” who is of Finnish origin and has interest in the business. Like I wrote, there is no such thing as free lunch. The big industrial operators are limited into ABB, Wärtsilä and Kone. These are the ones who are active in his business. Ironic as it is but these Finnish industrial manufacturers are not dependent of the location of the shipyard, where the vessels are build. Their business is service business, believe or not. They make propulsion systems, machinery and elevators with decent but not too big profit and chain themselves to ship owners for decades, selling well priced service to them. So, these are out of the table. If one these will become even minority owner, I promise to eat fermented Swedish herring.

3.Stakeholders, would be time to come out of the closet

This is the paragraph which will most probably create discussion as it is a well known secret in Finland. Already then, when I pushed out that Finnish work might not be that much better than French and the price is quite high, I received aggressive emails telling me to shut up. Sorry, but I will not shut up.

Biggest stakeholders in the shipbuilding industry are government and city of Turku/Rauma. All these three have indicated interest to join into new “Finnish Shipyards”. Well done, thank you for telling all of us that the industry is actually quite important, though not strategic but still easily a Billion EUR exports business is important, nevertheless it might not pay too much corporate taxes as the shipyard has not been profitable since STX became the owner.

Second biggest stakeholders are the labour unions. As their members work in the shipyards, they should take another kind of role than just barking from the ground level like a mad dog. Yes, it is not their job to find work and financing for the shipyard but YES, it is very much the labour union’s responsibility to be cooperative in terms of efficiency and price of work. This is the discussion that has been discussed in Germany and in Finland, the questions, even the hard ones should be asked now. I ask two: is the work really 3 times more valuable on Sundays? Is the work really 3 time more efficient after 10 hours of work? Well, the cost is..

Last but not least, the contractors. According to my sources, quite a substantial amount of contractors indicated interest to buy 33% of the shipyard, if the government buys buy the rest. That was during the time when the shipyard was not for sale. I do not know, what is the situation now but back then the pricing idea was far in the forest, although the shipyard business has not shown cash flow over the years. However, I understood, that the idea of the price of the shipyard, in terms of the offer, was estimated to be 15 million Euros. Although, the business cannot be evaluated even positive in terms of cash flow, but still.. The main contractors say in newspaper articles, when not talking about the purchase of the shipyard, that they do 40-50% of a cruise vessel.  Most probably  an accurate estimate.  Well then.. if and when Oasis and Allure of the Seas where apprx. 1 Billion EUR vessels, their part was 400-500 million Euros. After 15 minutes of investigation it was obvious, that the main contractors make 8-12% net profit a year, at least made after the Allure of the Seas project, which ended financial year 2010. Estimating with approximate average of 10% net profit, the contractor made together a neat 40-50 million EUR profit per vessel. I do not think that STX will sell the 30% of the shipyard to contractors with 5 million EUR and the rest to Finnish government with 10 million coffee coins..

My proposal

Ownership should be share between major contractors and the government. It is not often, when a “shipyard for sale” tag is up. The price is not 15 million but it cannot be sky-high because of the economical situation of the seller, who cannot do any profit with the shipyard. However, the contractors, who have 80-100 million profits from Oasis –class alone, should take their own risk when investing to the shipyard where they make their profit. They should take the majority, as the governmental ownership is too slow and clumsy in decision making but is needed in order to show width and depth in financing. Why majority to SME’s? They have the ownership close to the action. They are committed. There is work out there, there is light in the tunnel. So, the investment should be paid within 3-6 years, which is not a lifetime and impossible for the majos Turnkey- contractors.

It is possible, no doubt about it! They should contract a person, buy an around-the-world ticket from Finnair (good product by the way!), fly to US, Japan, China, Russia, perhaps taking a trip to Middle-east with the CFO and then sit down, make the report and come out with the information stating the clients needs and willingness to collaborate with the new entity and perhaps even some new project leads and financing could be gathered. It

Mikko Varjanne

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

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