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Sachsen, sending SM-2
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ThyseenKrupp Marine Systems (TKMS) recently announced a “close strategic partnership” and Memorandum of Understanding with the Abu Dhabi MAR group in the United Arab Emirates, but the move is much closer to a sale of key assets. The MoU stipulates a 50/50 joint venture to build naval surface ships, with TKMS retaining a lead role and know-how in all projects with the German Navy and NATO partners. Similarly, Abu Dhabi MAR Group will be responsible for the Middle East and North Africa. At the same time, however, Abu Dhabi MAR is acquiring 80% of TKMS’ key surface ship firms: Blohm + Voss Shipyards, Blohm + Voss Repair, and Blohm + Voss Industries.

The proposed sale follows other recent purchases in Germany by Abu Dhabi MAR, and other recent shipyard sales by TKMS. The net effect is a restructuring of Germany’s naval shipbuilding industry…

TKMS Organization
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TKMS’ listing of its management companies in Germany makes the importance of this transaction clearer. Howaldtswerke-Deutsche Werft (HDW) focuses on submarines, including construction, repairs, upgrades, and mid-life conversions. It will remain wholly in TKMS. The Swedish submarine, surface vessel, and USV/UUV designers and builders at Kockums AB also add submarine expertise to TKMS, but they are not noted in the above graphic.

Subsidiaries TKMS Blohm + Voss and Nordseewerke GmbH are responsible for naval surface vessels, special purpose ships, and commercial ships. Within the past year, both firms have effectively been sold. Nordseewerke GmbH will make wind farm equipment for its new owner SIAG Schaaf Industrie, and Blohm + Voss will be majority (80%) owned by Abu Dhabi MAR under the new arrangements.

Blohm + Voss Shipyards and Services GmbH handles yachts, ship repair and mid-life conversions, offshore work, ship components, and technical services. Both Blohm + Voss Repair and Blohm + Voss Industries fall under this group, and together they represent the effective sale of this group to Abu Dhabi MAR. The only part that remains is the repair division at Hellenic Shipyards, whose future is in doubt after disagreements with the Greek government led TKMS to cancel their submarine contract.

K130 corvette concept
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ThyssenKrupp puts a positive face on the deal, correctly noting that the planned joint venture would improve export opportunities for its frigates and corvettes, especially in the middle east. TKMS’ K130 Braunschweig class corvettes might have been quite suitable for the UAE, for instance; instead, Fincantieri will provide 1-2 corvettes based on its Commandanti class. This had been a frequent pattern for Blohm + Voss. The firm has fielded a string of fine ship designs, from its various MEKO OPV/ corvette/ frigate options, to the F124 Saschen class advanced air defense frigate and the new F125 expeditionary frigate. Of these, only the MEKO has enjoyed export success.

One interesting wrinkle to the Abu Dhabi MAR deal is whether it will affect Israel’s negotiations to field a Blohm + Voss MEKO variant as its future frigate, after a much-modified version of Lockheed Martin’s Freedom class Littoral Combat Ship proved to be too expensive.

Abu Dhabi MAR’s also creates a strong player in the mega-yacht sector, which has suffered recently from order cancellations and lower volumes as a result of the global economic crisis. That may pick up in future, but the current period is one of consolidation and survival. Abu Dhabi MAR Group had acquired about a 12% share of the market before this acquisition, which may leave them in a good position if they can manage to successfully integrate 4+ shipyards in 3 countries into a single, functioning entity. No mean feat, that, but it is where the firm has been placing its bets. Given the Middle East’s status as a key order center for superyachts, a local player may indeed be able to gain traction, and key intelligence, that others lack.

The United Arab Emirates has significant oil revenues and sovereign wealth resources in Abu Dhabi, and Dubai has made great strides toward becoming a business and financial hub for the Arab and Islamic world. It’s hard not to see these purchases as one data point within a larger global economic power shift toward resource and goods producer societies in the Middle East and Asia – and Germany had sovereign wealth funds, Russia, and middle eastern buyers specifically in mind when it enacted the German Foreign Trade and Payments Act in 2007. Yet political reactions across the spectrum in Germany believe that the government will approve the sale with little to no protest, given the lack of viable alternatives.

Contracts & Key Events

Oct 15/09: The Memorandum of Understanding between ThyssenKrupp Marine Systems and Abu Dhabi MAR is announced. All parties will now hold further talks and negotiations based on the MoU, with the transaction still subject to the approval of German supervisory bodies and the regulatory authorities. The business daily Handelsblatt is brutally frank:

“ThyssenKrupp’s executive board has succeeded in accomplishing what few thought possible – a coup that liberates it from its shipbuilding division…. It had no other choice. Thanks to the ongoing economic crisis, the company has its back against the wall. Its losses are piling up, and both politicians and unions are reducing any wiggle room the company’s management might still have. In civil shipbuilding, the situation is hopeless… and things are hardly any better in the military branch. The only area in which Thyssen has remained competitive is in submarine construction, which will remain in German hands.”

See also: ThyssenKrupp Marine Systems | Abu Dhabi MAR site | Der Spiegel’s roundup | Al-Bawaba | AP, via Forbes | Bloomberg | Reuters, via Forbes | Synfo.

Oct 5/09: TKMS issues a statement to the superyacht coverage site Synfo. It includes this excerpt:

“The international market for shipbuilding activities is dominated by over-capacity and finds itself in a consolidation phase. In recent months in Germany and internationally a number of shipyards, including some with a long tradition in the industry, have become insolvent or have only been able to continue operating with state support.

Against this background, ThyssenKrupp Marine Systems – like its competitors – conducts discussions in both the national and the international context on ways of dealing with the structural and cyclical crisis which has affected shipbuilding particularly badly.”

Sept 29/09: Germany’s ThyssenKrupp Marine Systems (TKMS) sells its Nordseewerke shipyard in Emden to wind power plant manufacturer SIAG Schaaf Industrie. Nordseewerke will continue to launch and outfit ships already in process, but 2 frigates slated to be built there will now be built by Blohm + Voss in Hamburg, TKMS’ remaining surface ship firm.

Following a transition period expected to last into 2011, Nordseewerke’s Emden yard will become a production site for towers and main frames for offshore wind energy plants, as well as underwater foundation structures including monopiles, transition pieces and jackets. SIAG Schaaf will take control of the Emden facility on Oct 1/09. For the ramp-up phase, an annual capacity of 100 offshore towers, 60 main frames, 25 monopiles, 25 transition pieces and 25 jackets is being scheduled.

SIAG will take on 721 of the roughly 1,200 Nordseewerke employees. About 375 of the remaining employees will remain with TKMS, and 115 of those will remain in Emden. About 100 others will either resign or take retirement. MarineLog.

July 10/09: Abu Dhabi MAR’s principals acquire a controlling interest in Nobiskrug, a German superyacht builder with a 173,000 square meter facility in Rendburg. The firm already had “common shareholding” with the French superyacht builder CMN in Cherbourg, and these shipyards have been consolidated under the Abu Dhabi MAR Group. They join a recently-built 200,000 square meter facility at Port Sayed, Abu Dhabi, UAE that is currently working on converting 2 Dutch Kortenaer class frigates from UAE Navy service to private superyachts.

Synfo’s report adds that there are 83 known superyacht orders, of which the combined Abu Dhabi MAR group is contracted for 10, or about 12% of the global order book.

Additional Readings

• Der Spiegel (Aug 11/09) – The Container Crisis: Shipping Industry Fights for Survival