“Freude in Hamburg, Sorge in Kiel.”

That was how the headline writer of one Hamburg newspaper noted the reaction to last month’s news that ThyssenKrupp, owner of Germany’s Nordseewerke and Blohm + Voss yards, is moving forward with its acquisition of HDW.

It is paying U.S. investment group One Equity partners a reported Euros 230 million for HDW. OEP, the private equity arm of Bank One Corp. (itself now part of J.P. Morgan Chase) will also have a 25 percent stake in the new merged shipbuilding operation.

ThyssenKrupp has said it will retain all the yards within an enlarged group, but will rationalize which facilities do what type of work. The Hamburg (Blohm + Voss), Emden (Nordseewerke) and Kiel (HDW) facilities will “each be developed into centers of excellence with a clearly defined product responsibility.”

The Hamburg facility will concentrate on naval surface ships and mega yachts and repair. Emden will focus on naval and merchant surface ships, while submarine activities will be concentrated in Kiel.

All this will probably involve significant job losses.

The merger can be seen as yet another of the convulsions to periodically shake German shipbuilding. Nonetheless, by just about any measure, Germany remains Europe’s leading shipbuilder with some 40 shipyards capable of building or repairing oceangoing vessels, some 35 building inland waterways vessels–and around 400 specialized supplier companies. Direct employment in the yards is currently about 24,500 people, with the industry as a whole—including the supplier base—currently employing about 100,000 people.

Partly as a result of strong growth in worldwide ship demand, and partly because of “temporary” subsidies to counter alleged South Korean price cutting, German yards last year won commercial vessel orders worth Euros 3.6 billion, giving them somewhat over a year’s worth of work.

On the other hand, military shipbuilding is another story. Germany naval shipbuilding expenditure has recently run at about Euros 600 million a year. That is set to plunge over the next several years as German defense policy puts a higher priority on aircraft acquisition.

According to a report published in May by VSM (the German Shipbuilding and Ocean Industries Association), four Type 212A submarines are currently under construction at HDW and Nordseewerke Emden. The first vessel is due to be delivered soon and the second was named in December, so that this project is providing only limited employment. Similarly, the Class 124 frigate program involving the shared production of three ships is drawing to a close. The lead ship has been delivered, sea trials of the second began in January, and the third will be delivered in 2005. The option for a fourth frigate was not taken up. The defense research ship Planet will be delivered in summer 2004, which is when the first batch of five Class 130 corvettes is due to start production.

VSM says that “further procurement projects will be subject to budgetary constraints for years ahead.” It notes that “the F 125 as replacement for the obsolescent units of the Bremen" class has not passed the preparation phase, and finance has not yet been secured for additional class 212A submarines.”

VSM says the MJ 2000 minehunter program “also faces financial problems.”
“It seems to be essential to formulate a balanced medium- to long-term procurement program for the armed forces enabling industry to orient its capacities, investment and R&D planning,” says VSM. “Without contracts, Germany will lose its leadership for submarines, frigates, corvettes and minecraft. Core competences can be secured only with orders.”

The merger of the ThyssenKrupp and HDW yards is a response to the drop in naval spending. It is also seen by some as a step towards the creation of a hypothetical European-wide naval shipbuilding entity (HDW already owns Kockums in Sweden and Greece’s Hellenic Shipyards).

COMMERCIAL NEWBUILDINGS
In the commercial ship sector, 17 German yards last year delivered 62 newbuildings totaling 1 million gt (0.9 million compensated gt) and worth Euros 2.8 billion—Euros 2.3 billion of this being for export.

Containerships accounted for the largest proportion of deliveries (54.4 percent of compensated gt), but other important sectors for German yards are ferries, megayachts and cruise ships.
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n the second half of last year, German shipyards booked 102 newbuilding orders totaling 1.9 million gt (1.6 million cgt). A huge proportion of these orders (87 ships totaling 1.3 million cgt) were containerships for domestic owners.
German yards also reported significant orders in the first quarter of this year and capacity utilization should remain high into 2005.

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