The shipyard group Meyer Werft is reportedly facing a growing financial crisis that is going to require refinancing of the company by mid-September as it works to address the downturn in the market after the Covid-19 pandemic and dramatic cost increases in materials. Talks commenced earlier in June with the government in the Lower Saxony region of Germany which will also need to involve the federal government in order to craft a financial guarantee package for the shipyard.
The shipyard highlights that the current challenges are not with its orderbook but instead due to rising costs. It recently delivered the Silver Ray (54,700 gross tons) to the Royal Caribbean Group and has work underway on the Disney Treasure (135,00 gross tons) due for delivery before the end of 2024. Work is also underway on Asuka III (51,950 gross tons) and has also recently started on Disney Destiny, a sistership for Disney Cruise Line. Earlier this year, the Papenburg yard received orders for two 180,000 gross ton cruise ships for Carnival Cruise Line and it has orders for a research ship and platforms for offshore wind. Elsewhere in the group, the yard in Finland is building two more mega cruise ships for Royal Caribbean and the eastern yard is building river cruise ships for Viking while it is also managing the outfitting of the Disney Adventure (ex. Global Dream) acquired from the bankrupt MV Werften.
Government officials and union representatives speaking to the media said the challenge for the yard is the financing structure of shipbuilding. They explained the yard traditionally receives 20 percent of the value of the order upfront and 80 percent at completion, requiring Meyer to finance materials and labor costs during construction. One alternative that has been discussed is raising the upfront portion to 30 or 40 percent of the contract value.
Media reports are suggesting that Meyer is seeking €2.3 billion in loans and an additional €400 million in capital. The Lower Saxony state government is expressing support but the amounts involved are too large for the state to provide alone.
The state and federal governments would need to cooperate for the loan guarantees. One suggestion is that Lower Saxony might become an investor in the company as well. It already holds positions in Volkswagen and steelmaker Salzgitter. The Budget and Finance Committee of the Lower Saxony State Parliament has met to discuss the alternative and expressed support for the company.
One of the concerns for the local government is that Meyer employs 3,300 people with reports suggesting there are as many people employed via contractors and suppliers. The yard supports a broad network of vendors and suppliers in the region that contribute to the construction projects. An interim step has called for laying out 400 people according to the media.
Meyer has brought in a reorganization expert Ralf Schmitz, who is working with the recently named new CEO of the company Bernd Eikens. Patriarch Bernard Meyer has reportedly stepped back and as part of a management reorganization, his son Jan Meyer has shifted to focus on new business development. Tim Meyer is the Managing Director of Meyer Turku in Finland.
The company has independent experts preparing an analysis of the business which is expected to be delivered to the government in mid-July. It will be the basis for the discussions for the rescue package. Other reports indicate that elected officials and the unions are also looking for a further reorganization of the structure of the company. In 2015, the Meyer Group moved its incorporation to Luxembourg. Reports suggest they will be required to reincorporate in Germany which would also require the establishment of a supervisory board, a normal structure for German companies.
Media reports are indicating that currently the situation is “extremely tense,” with employees waiting for word on their future. Local officials view the company as “too big to fail,” but point out that there will be hard discussions over the next months to craft the future.
