Page 41: of Maritime Reporter Magazine (May 1999)

Kvaerner, Daewoo Calling It Quits In Shipbuilding Businesses

With alarming — if not admirable — expediency, in April two of the world's premier shipbuilders decided to pull out of the shipbuilding market.

April 1999, in years to come, could prove to be a watershed in the ship- building business. While shipbuilders around the globe have openly and loud- ly complained about stagnate pricing and too much capacity, two of the world's biggest players — faced with mounting financial crises on the corpo- rate scale — decided to completely pull out of the business of building ships.

Meanwhile, General Dynamics bid to become the dominant shipbilding force in the U.S. via the acquisition of New- port News Shipbuilding lacked the nec- essary political and defense department backing, and thus fell to the wayside less than a month after the billion plus dollar deal caused chins to collectively drop. Skeptics, however, panned the deal from the start, noting that placing 75 percent of U.S. Navy shipbuilding business in one company's coffers was a long-shot at best.

The decision by Kvaerner ASA and

Daewoo to sell off their shipbuilding assets is ironic, indeed, considering that the two companies were central figures in the above-mentioned controversy of piling on additional commercial ship- building capacity in the face of low ship prices. Subsidies, politics and industry in-fighting aside, though, the decision by both companies largely took the mar- ket by surprise, and could effectively help to shift the balance of shipbuilding power for years to come.

For instance, Daewoo was (at press time) in discussions to sell its shipbuild- ing business to Japan's Mitsui. With

Japan and Korea jockeying for ship- building supremacy for the past half decade, the sale to Mitsui or another

Japanese yard would clearly shift the balance of power to Japan

In Kvaerner's case, the divesture of shipbuilding assets will more than likely not be as clear and easy, as its holdings encompass more than a dozen yards in four countries. At press time, the com- pany — which saw its shipbuilding operation profits plummet from $95.8 million in 1997 to $12.4 million in 1998 — was considering several options, including company spin-offs to share- holders, joint ventures and an outright sale. The picture is also murky for the company's Philadelphia project, which

May, 1999 is well underway but not yet complete.

An immediate reaction to the news has been from a niche, yet high value mar- ket of the sector, cruise ship owners and operators. As Kvaerner's Finland facili- ties in Turku and Helsinki are undoubt- edly two of the top cruise shipbuilding yards in the world, their "for sale" sta- tus, coupled with brimming orderbooks at the other major European cruise ship- building yards in Germany, France and

Italy have shipowners eyeing Far East yards for new cruise tonnage, a develop- ment that was imminent but until recent- ly still seen as far off.

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