Shipyards May Be Dead In The Water...And A Supertanker Can't Rescue Them

An eerie stillness reigns in the shipyard beside pale-blue Cdiz Bay. The great gray cranes, 90 meters tall and capable of lifting 600 tons, loom immobile over the dry dock. A nearly completed supertanker, its hull rust-red and black, its superstructure gleaming white, stands lashed to the quay by a web of hawsers, but not one human figure can be seen on it.

This is the shipyard of Puerto Real, owned by Astilleros Espaoles SA (AESA) along with yards in Cdiz and Seville, among others. Puerto Real is one of the biggest and most modern shipyards in Europe. It is also in deep trouble. The 24-hour strikes that shut it and all other AESA yards on July 20 were testimony to the brutal pressures bearing on the poorer countries of the European Union as the hour of reckoning approaches for money-losing state enterprises.

Under EU rules, shipyards will be barred from receiving state aid after 1996, though economically weak Spain has been granted an extension through 1998. AESA, an arm of giant state holding company Instituto Nacional de Industria (INI), lost nearly $1.3 billion over the past four years, $378 million in 1994 alone, "and we expect to lose about that much again in '95," says Jose Carlos Fernndez, head of the Puerto Real yard. Accordingly, on July 6, AESA announced plans to modernize operations and cut more than half the workforce, from 9,950 to 4,872. The yards in Cdiz and Seville would be closed, with losses of 615 and 670 jobs, respectively, while Puerto Real would shrink from 2,000 workers to 1,324.

Why is AESA bleeding money? Jaime Ruiz, its 49-year-old human-resources director in Puerto Real, cites bad luck and Asian competition. In the early 1970s, AESA invested heavily to make Puerto Real a state-of-the-art yard. But not long after the shipyard opened in 1973, the supertanker market tanked, partly because of the Suez Canal reopening. Meanwhile, Singapore, Japan, and South Korea were grabbing share. The latter two currently build 56% of the world's ships; Spain, between 2% and 3%. With the cheap-labor Koreans establishing the market price, Spanish yards have been forced to sell ships below cost to keep operating.

For the Cdiz area, the AESA plan could amount to what one local newspaper called "a death blow." Aside from a General Motors Corp. plant employing 2,000 and a few smaller state-owned factories, there is virtually no other industry in Cdiz, which has a population of about 150,000. Unemployment in Cdiz province is an astounding 44%--among the highest of any province in Western Europe.

On the day of the strike, Cdiz shop windows sport posters saying: "No to the closing of the shipyards!" The owners come out to applaud workers marching to City Hall. At union headquarters, Federico Pedreo, 41, a local official of the metalworkers' union, looks exhausted. He says that for each of the 1,300 jobs directly lost in Cdiz and Puerto Real, 31/2 other people will be thrown out of work. But he thinks AESA's drastic plan is a negotiating ploy it will back away from.

The ship nearing completion at Puerto Real symbolizes both the strengths and weaknesses of AESA. Designed by a consortium called Euroyards--made up of AESA, France's Chantiers de l'Atlantique, Italy's Fincantieri, and Germany's Bremer Vulcan and Howaldswerke Deutsche Werft--the ship will be the prototype of an advanced, double-hulled supertanker dubbed E3, for Ecological Economical European. The 280,000-ton E3 that AESA is building for Naviera Tapias of Madrid is scheduled to be delivered early this fall.

The problem is that no one else has placed an order for an E3, partly because government pressures to switch to double-hull designs have not been as strong as expected. And should demand rise, the South Koreans could probably build similar double-hulled ships cheaper. AESA, notes Jaime Ruiz, can turn a profit on very high-tech ships such as shuttle tankers that can load oil right at the production field, for example, in the North Sea. Supertankers, however, are relatively simple to build--and the Koreans, he jokes, can turn them out "like churros"--a popular Spanish pastry extruded and deep-fried like a doughnut. So the E3 may not provide the lifeline AESA badly needs.

Before it's here, it's on the Bloomberg Terminal.