German Shipbuilding Restructured: UAE’s Firm Buys Blohm+Voss

Sachsen, sending SM-2
(click to view full)

In October 2009, ThyssenKrupp Marine Systems (TKMS) effectively sold most of its naval and commercial surface shipbuilding assets, via a “close strategic partnership” and Memorandum of Understanding with the Abu Dhabi MAR (ADM) group in the United Arab Emirates. The proposed sale followed related purchases in Germany by Abu Dhabi MAR, and other recent shipyard sales by TKMS. The net effect was a restructuring of Germany’s naval shipbuilding industry.

The envisioned agreement involved 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, while ADM was responsible for the Middle East and North Africa. At the same time, however, Abu Dhabi MAR would acquiring 80% of TKMS’ key surface ship firms: Blohm + Voss Shipyards, Blohm + Voss Repair, and Blohm + Voss Industries. That deal has largely fallen through in 2011, leaving TKMS naval assets in play again.

TKMS: The Restructuring

TKMS Organization
(click to view larger)

TKMS’ listing of its management companies in Germany makes the importance of the ADM transaction clearer. Howaldtswerke-Deutsche Werft (HDW) focuses on submarines, including construction, repairs, upgrades, and mid-life conversions. It will remain wholly in TKMS, though Hellenic Shipyards, which is building HDW U214 submarines in Greece, was sold to Abu Dhabi MAR in March 2010.

The Swedish submarine, surface vessel, and USV/UUV designers and builders at Kockums AB also add submarine expertise to TKMS as well, but they are not noted in the above graphic, and were not sold.

Subsidiaries TKMS Blohm + Voss and Nordseewerke GmbH are responsible for naval surface vessels, special purpose ships, and commercial ships. Nordseewerke GmbH was sold to SIAG Schaaf Industrie, and will now make wind farm equipment.

Blohm + Voss was to be majority (80%) owned by Abu Dhabi MAR under the new arrangements, but reverts now to TKMS. In 2011, Blohm + Voss was divided into Blohm + Voss Naval GmbH, which specializes in military shipbuilding, and its civil businesses.

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 represented the effective sale of this group to Abu Dhabi MAR.

Under its current plan, confirmed in May 2011, TKMS will keep military shipbuilders HDW, Kockums AB, and Blohm + Voss Naval, while selling the HDW-Gaarden Kiel facility, and the Nobiskrug super-yacht builders and repair facility in Rendsburg, to Abu Dhabi MAR.

ThyssenKrupp are still looking to sell all other civil shipbuilding components, and external estimates say that their overall restructuring in and beyond their shipbuilding businesses will represent the sale of about EUR 10 billion ($14.5 billion) in assets, depending on final deal prices.

Opportunities Lost, and Gained

K130 corvette concept
(click to view full)

These restructurings aimed to change the future for both sides of the deal.

Back in 2009, ThyssenKrupp put a positive face on things. Submarines remained a source of strength worth keeping, and 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.

That history in the military market, and the difficulty of making any money in the heavily subsidized world of commercial shipbuilding, left German domestic politics on the sidelines for the sale. Germany had sovereign wealth funds, Russia, and middle eastern buyers in mind when it enacted the German Foreign Trade and Payments Act in 2007, and created obstacles to buyouts of important German firms. Yet political reactions across the spectrum in Germany believed that the government would approve the sale with little to no protest, given the lack of viable alternatives. That is exactly what happened.

TKMS continues to shop for a buyer to take Blohm + Voss off its hands, and has reiterated its future in military-only shipbuilding. The general sense is that their restructuring has been delayed, but not prevented.

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. In 2009, it was hard not to see the TKMS deal as one data point within a larger global economic power shift toward resource and goods producer societies in the Middle East and Asia.

That has attenuated somewhat, but even without the naval shipbuilding component, Abu Dhabi MAR’s acquisitions have created a very strong player in the mega-yacht sector. ADM will keep those additions, and orders may pick up in future, but the current period is one of consolidation and survival, following the twin blows of the 2008 global economic crisis, and then the 2011 “Arab Spring.”

Abu Dhabi MAR Group had acquired about a 12% share of the mega-yacht market before the 2009 deal, which may yetleave 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 this is where the firm placed its bets. Given the Middle East’s status as a key order center for super-yachts, a local player may indeed be able to gain traction, and key intelligence, that others lack.

Meanwhile, the Nobiskrug yacht-building facility bought from TKMS also has a 60 meter patrol vessel design on the drawing board, the Nobis FAC60. Vessels of that type can be very useful in the Arabian/Persian Gulf region, and it remains to be seen if Abu Dhabi MAR will make use of that asset in future.

Contracts & Key Events

Sept 15/10: A contract to sell off Hellenic Shipyards to Abu Dhabi MAR is signed with Greek government approval, but must be ratified by the Greek Parliament. Meanwhile, Greece will accept the U214 submarine Papanikolis. And instead of refurbishing 2 U209 boats, the Greek government wants to spend EUR 175 million more to convert that into a purchase of 2 more U214 submarines. The move would keep Hellenic Shipyards open and working for a while longer. Agence France Presse via Defense News | AFP via Expatica | BYM Marine & Martime News | Capital.GR | Reuters.

Sept 1/10: The Hellenic Shipyards sale isn’t quite done yet, as setbacks have hit the deal. Greek Defence Minister Evangelos Venizelos has held a 2nd round of talks with Thyssenkrupp AG and Abu Dhabi MAR Group. Legal advisers are reportedly drafting a final agreement to submit to the Greek government. Bloomberg.

March 1/10: Greece approves the sale of Hellenic Shipyards to Abu Dhabi MAR. The new joint venture will be led by ADM with 75.1% of the share capital of Skaramanga shipyard (HSY), with ThyssenKrupp Marine Systems participating with 24.9%. The move gives ADM something its earlier arrangements with TKMS did not include: submarine construction capability.

ThyssenKrupp fully acquired HSY in 2005, as part of its contract to deliver 4 U214 submarines to the Greek Navy. The firm picked Abu Dhabi MAR in January 2010 as the preferred bidder for a majority stake; no details were disclosed, but TKMS had reportedly said in the past that the shipyards, which depend on Greek navy orders, would be sold at the price of one euro. The firm had already declared the Greek government to be in default on the U-214 contract. ThyssenKrupp reportedly received 5 bids for HSY, but found only Abu Dhabi MAR’s to be acceptable. Khaleej Times | Reuters.

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

• DID – Greece in Default on U-214 Submarine Order. Explains the background behind Hellenic Shipyards.

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