Fincantieri battling to stay afloat

Fincantieri is holding last-ditch talks with Italy’s three main metalworking unions in the hope of agreeing a deal on a new labour contract. Talks have been going on for months, with the company eager to tie improved rewards closely to improved productivity and the unions resisting to various degrees.

Fincantieri executives say current discussions are make or break, arguing that with orders drying up and gaps already appearing in yard workloads, a deal is crucial to the company’s prospects. The 2008 results unveiled last week neatly encapsulate the difficulties faced by Italy’s state-owned shipbuilder. Earnings were down sharply, at a mere ?10m, as close to zero as makes no difference for a company of Fincantieri’s size.

The last cruise company to make its way to Trieste was Compagnie des Iles du Ponant which ordered two small cruise ships a year ago. It’s no surprise that Fincantieri added just ?2.5bn in new orders last year, compared with ?4.2bn in 2007, and that the order book dipped from ?12bn to ?10.8bn. Contemplating this scenario, chief operating officer Enrico Buschi says the cruise companies, and by extension Fincantieri, are inching forward in the dark, unable to guess at how long this crisis will last or how consumers will respond.

Reality is closing in however and, from the end of this year, Fincantieri will face tough choices as work dwindles at yards around the country, though the final decision on how the remaining work is distributed, and ultimately whether individual yards close, will be one for the politicians rather than the managers. The impact is likely to be profound, however, with the shipyard the main source of jobs and economic activity in towns like Monfalcone and Castellammare di Stabia.

In the meantime, the company is struggling to improve efficiency and cut costs, while straining to find new work in familiar and unlikely areas. In its core cruise and ferry businesses the traditional market comprises two people, i.e. Carnival chief executive Mickey Arison and Grimaldi Naples managing director Emanuele Grimaldi. Carnival is not ordering and, though Fincantieri had hoped for two more ferry orders from the Neapolitan shipowner, the problems with Finnlines appear to have pushed them off even further. Fincantieri has also been hit in other areas.

In repair and conversion, Palermo and Trieste have had cancellations, and the plan to build an international repair network is “on hold” after Fincantieri turned down a controlling stake in Lloyd Werft, and was shut out of the Grand Bahama shipyard.

Buschi said major shareholders Carnival and RCCL had decided to go it alone at the Caribbean yard, though “we would be happy to participate as prime contractors.” Talks on that possibility are ongoing.

In the superyacht arena, a cancellation and the last-gasp loss of another potential order have left the company with just one of these vessels under construction at Muggiano.

The one area of promise is military shipbuilding, which is expected to rise to 30% of production value this year from the more normal 20% after a string of orders.

Fincantieri, which has just won a contract to build a littoral combat ship for the US Navy, is bidding for further military work, in India, the US, and elsewhere. It is also going after almost anything that floats on the commercial side, everything from floating wind turbines to waste treatment plants to gas storage vessels. Buschi appears less than convinced of its prospects here, just as he is “quite sceptical” about its chances of landing a ferry contract it is bidding on in Tunisia, which is backed by the French government.

In addition, Buschi says the company is looking for synergies within the organisation where individual business segments do much of their own work, from design to procurement, and where individual yards have their own supplier networks.