Turning A Sunken Shipyard Into A Leviathan

When Martin Saarikangas looks out at the bustling grounds of Kvaerner Masa-Yard Inc., a shipbuilder in Finland's Baltic seacoast city of Turku, he takes in a remarkable sight. Five years ago, KMY was bankrupt--a victim of global recession, Soviet collapse, and poor management. Today, it boasts a $3 billion order backlog for everything from luxury cruise ships to liquefied natural gas (LNG) carriers, and CEO Saarikangas is a national hero.

The shipyard, formerly called Wartsila Marine Industries, closed its doors in 1989 after orders dried up from the Soviet navy, which purchased huge icebreakers from Wartsila. Some 6,500 workers lost their jobs, and several half-finished hulks were left high and dry. But Saarikangas saw promise in salvaging the partially state-owned Wartsila, his lifelong employer. So did Miami-based Carnival Cruise Lines Inc., with two cruise ships among the unfinished orders. Carnival agreed to put up $10 million in cash in exchange for a piece of the company, provided that Saarikangas ran the rescue operation.

Saarikangas then enticed other owners of unfinished vessels to invest in his scheme, collecting $90 million more from them and a group of investors led by Union Bank of Finland Ltd. The bankruptcy administrator then leased the yard to him, and he rehired three-fourths of Wartsila's workforce. Saarikangas, says Carnival Chairman Micky Arison, "generated confidence at every level, from the bankers to the welders."

SHIPS AHOY. Two years later, Saarikangas negotiated the yard's sale to Norway's Kvaerner Group, Europe's largest maritime conglomerate, for $108 million. KMY is now the Norwegian company's most profitable division, with an operating profit of $87 million on sales of $510 million in 1993. In recession-plagued Finland, where unemployment remains at 18% in a nation of 5 million, KMY employs 4,200 at its two plants--double that counting subcontractors.

Repeat customers are KMY's bread and butter, keeping production costs down and profits up. The four identical vessels KMY has built for Carnival, for example, have helped it post record results in a depressed market. "That's quite an achievement when most of the world's shipbuilders are in serious trouble," says Norwegian shipping analyst Henning Bratlie.

In the glutted global shipping market, U.S. yards that cranked out Navy ships during the cold war are downsizing. Japan and Germany are hamstrung by the strong yen and mark. And heavily subsidized yards in southern Europe are losing money by lowballing bids. But KMY, with the world's seventh-largest yard in gross tonnage, makes money because it specializes in cruise liners and icebreakers.

But depending too much on any one sector--such as the cruise business--can be risky. In July, a Greek customer, Majesty Cruise Line, missed a $9.6 million payment for the $220 million cruise ship Royal Majesty, which KMY finished in 1992. The yard expects to conclude refinancing talks before yearend, and Saarikangas and analysts say it will not hurt earnings.

HEADING EAST. Now, KMY is diversifying into LNG carriers, typically the preserve of Japanese and Korean yards. Last year, it spent $60 million on a new way of making LNG tanks and stunned the shipping world by nailing a $1 billion order from Abu Dhabi for four LNG carriers--the biggest single sale ever by a Finnish company.

Low wages and a devalued Finnish mark add to KMY's competitive edge. The recession has kept wages stagnant, and the Finnish currency has lost about 40% of its value against the dollar since it was allowed to float in 1992. It helps that KMY has plowed most of its earnings into more modern plants.

Back in 1987, when Wartsila was flush with Russian orders, Saarikangas was exiled to a small U.S. sales office for disagreeing with management over how to run the company.

Today, the 57-year-old Saarikangas is admired by his compatriots. A poll leading up to this year's presidential elections had him trailing just two points behind the eventual winner, Martti Ahtisaari. Colleagues predict Saarikangas someday will toss his own hat into the ring. For now, he leaves the door open, rumbling: "I never say never."