Rewritten Article:
Is the government on the line for a significant financial hit due to stepping in to save Meyer Werft from bankruptcy? Let's dive in.
Shipbuilding Conglomerate Meyer Werft Hangs by a Thread. Thousands of Jobs Jeopardized. The Federal Government and Lower Saxony State Prepare to Splash €400 Million into Meyer Werft, Claiming a Majority Stake.
For months, Meyer Werft has been teetering on the brink of collapse. The German government and Lower Saxony state are diving in with €400 million in equity and guarantees, ready to grab an 80% share in the shipbuilder.
Max Johns: If it's about preserving jobs and protecting public funds, the government's move is logical. They've allotted three years to find a new investor. It's supposed to be a short-term solution. If a fitting investor emerges, the investment would be smart. It wouldn't be prudent for the government to become a long-term investor or hemorrhage money. The shipyard isn't a "systemically important" company, as the Chancellor put it. It would need top-tier technology, economic stability, social responsibility, a green footprint, and stellar governance to earn such a title. It's not clear that it possesses all these qualities.
Could the Meyer family eventually buy back the company? What's the likely exit scenario?
The family hasn't passed the baton on to the younger generation successfully yet. It's tough to tell if they'll succeed in a second attempt. There's reasons to be skeptical. An external investor is more probable. Private equity firms aren't a smart fit. There's a higher chance that other tech or shipbuilding companies, such as Chantier de l’Atlantique from France or Fincantieri from Italy, will find Meyer Werft irresistible. They both have cruise portfolios and might be interested in the portfolio and the location.
After Galeria Karstadt Kaufhof, is the state preparing for another million-dollar loss? Or does Meyer Werft have a promising future?
We need to separate poor performance from management errors: The shipping contracts lack float clauses for material costs. They were set up without adequate inflation protection. The financial crisis is currently being addressed. With the existing order book, there could be a bright future. However, the maritime industry is notoriously volatile, and external factors like recessions, wars, or pandemics can put a serious dent in the cruise business.
Meyer Werft can't renegotiate prices and must deliver ships at a loss. A COVID-19 gap also occurred. Cruise lines shuttered for nearly two years, resulting in delayed ship deliveries. The shipyard was left with half-built ships, some of which it had partly funded, and for which it received no payment. The temporary financing proved unsustainable. Building a ship costs around €1 billion in total. But given the current state of Meyer Werft's order book, it's in a solid position, and its products are in high demand. So, the chances of Meyer Werft becoming a "million-dollar pit" are slim, especially because the demand for its products remains.
Katja Michel interviewed Max Johns
The German government's intervention in Meyer Werft aims to stave off job losses and mitigate potential financial losses from the shipbuilder. To ensure Meyer Werft's long-term success, however, it's crucial to attract a suitable investor within the designated timeframe, preventing the need for the government to stay invested long-term.
After the government investment, shipping contracts with no float clauses for material costs remain a hurdle. If not promptly tackled, the financial crisis may persist, causing further difficulties for Meyer Werft despite its strong demand for products.
Additional Insights:
- Potential Financial Consequences: If an external investor isn't found for Meyer Werft within the given three-year timeframe, the potential financial implications for the German government could be severe. Possible scenarios include government bailout costs, loss of investment, economic effects, damage to government reputation and investor confidence, and long-term consequences for the industry.
- Management Errors: One of the main causes of Meyer Werft's woes is mismanagement, particularly related to shipping contracts that lacked float clauses for material costs. The absence of adequate inflation protection in these contracts has contributed to the financial crisis, which is currently being addressed. If not rectified, this financial problem could linger, potentially causing further complications for Meyer Werft.
- Potential Buyers: Companies such as Chantier de l’Atlantique from France and Fincantieri from Italy are considered potential candidates to invest in Meyer Werft due to their interest in the company's portfolio and location, as well as their cruise portfolios. Private equity firms do not appear to be promising contenders for investment.
