Is the government potentially facing significant financial losses due to its intervention in Meyer Werft's rescue operations?
Meyer Werft Teeters on Brink of Bankruptcy. Tens of Thousands of Jobs at Stake. The Federal Government and Lower Saxony State Plan to Buy Majority Stake in Shipbuilder for Millions. Shipping Expert Max Johns, Professor at Hamburg Business School, Explains What Happens Next.
The Meyer Werft has been fighting for survival for several months now. The German government and Lower Saxony state are stepping in with 400 million euros in equity and guarantees, taking an 80% share in the shipbuilding conglomerate.
Max Johns: If it's about saving jobs and avoiding lost taxpayer money, the government's involvement makes sense. They've set aside three years to find a new investor. It's supposed to be a temporary measure. If a suitable investor is found, the investment would have been a good move. It wouldn't make sense for the government to become a long-term investor or lose money. The shipyard isn't a systemically important company or "crown jewel," as the chancellor put it. It would need to be technologically advanced, economically viable, socially responsible, environmentally friendly, and have excellent governance to deserve that status. It's doubtful that it has all these qualities.
The Meyer family could potentially buy back the company shares later. What's a likely exit scenario?
The family hasn't successfully passed the baton from the older generation to the younger one yet. It's hard to say if they'll succeed in a second attempt. There's reason to be skeptical. An external investor is more likely. Private equity firms aren't a good fit. There's a higher chance that other tech or shipbuilding companies, like Chantier de l’Atlantique from France or Fincantieri from Italy, would be interested. Both have cruise portfolios and could 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 viable chance at a prosperous future?
We need to differentiate: A maritime company can struggle due to poor performance or making subpar products. In this case, one of the main reasons for the crisis is management errors: The shipping contracts have no float clauses for material costs. They were set up without adequate inflation protection. The financial problem is now being addressed. With the existing order book, there could be a promising future. However, the maritime industry is highly volatile, and external factors like recessions, wars, or pandemics can significantly impact the cruise business.
Meyer Werft can't renegotiate prices and must deliver ships at prices below cost. A COVID-19 gap also occurred.
Cruise lines were essentially shut down for nearly two years and requested ship deliveries be delayed. The shipyard was left with half-built ships, some of which it had already partly funded, and for which it initially received no payment. The prolonged interim financing proved unsustainable. Building a ship is extremely expensive, with a single ship costing about €1 billion to fully finance. However, given the current state of the shipyard's order book, it is in a strong position, and its products are in high demand. Therefore, the chance of it becoming a "million-dollar pit" is unlikely, as there is currently demand from customers. This sets it apart from Galeria Karstadt Kaufhof, where the business model was fundamentally questioned due to a decline in department store shopping. If one of the mentioned crises were to occur, of course, problems could surface again. That's why it's important that government funding is phased out quickly.
Katja Michel interviewed Max Johns
This interview originally appeared on capital.de
The government's intervention in Meyer Werft aims to prevent job losses and limit financial loss from the shipbuilder. To ensure the shipyard's long-term success, it's crucial to attract a suitable investor within the given timeframe, avoiding the need for the government to become a long-term investor.
After the government investment, shipping contracts with no float clauses for material costs remain a challenge. If not addressed, the financial problem could persist, potentially leading to further difficulties for Meyer Werft despite a strong position due to high demand for its products.
