An antitrust investigation into Fincantieri’s proposed takeover of Chantiers de l’Atlantique has exposed the rifts in the European shipbuilding sector.

The European Commission set the cat among the pigeons last month by opening a fully-fledged in-depth investigation into the Italian yard’s proposed acquisition of its French rival.

The probe, led by European Commissioner for Competition Margrethe Vestager, has highlighted differing views of rival shipbuilders — principally in Germany — about whether the forging of a cruise shipbuilding giant will protect or harm the European shipbuilding industry.

A combination of the Italian-French shipbuilding leviathan would be responsible for 59% of the global cruise orderbook.

But Fincantieri — Europe’s largest shipbuilder — may need to win over its rivals if it is to get its way.

Competition concerns

Fincantieri holds 37% of cruiseship gross tonnage currently on order and Saint-Nazaire-based Chantiers has 21%.

Their main competitor is Germany’s Meyer Werft, the only other cruise shipbuilder of comparable size, with about 28.8%, according to the German Shipbuilding and Ocean Industries Association (VSM).

The EC will investigate whether the removal of Chantiers as an important competitive force in an already concentrated and capacity constrained market will reduce competition further.

This has irritated Fincantieri. The Italian yard has had its eyes on Chantiers — formerly STX France — for at least a decade as it seeks to consolidate its position as the market leader in a booming cruiseship market.

Strip away its Norwegian shipbuilding unit Vard, which is currently undergoing a reorganisation, and the business is profitable for the Italian shipbuilder.

Its shipbuilding division reported Ebitda of €287m ($320m) for the first nine months, with a 30.2% rise in the shipbuilding segment.

VSM general manager Reinhard Luken says Germany’s concern is less about questions of competitiveness between shipyards, but more related to doubts over “whether the merger would make Europe as a place to source cruise ships more attractive for the customers”.

Luken adds that suppliers to yards “could be confronted with a dominating player and they fear to see themselves in a substantially weakened negotiating position.”

Political support

The merger appears to have gained political support in some parts of France and Germany.

On 11 November, Fincantieri chairman Giampiero Massolo defended his company’s planned acquisition of Chantiers by saying jobs in the industry could suffer if the project fell through.

The risk of losing Europe’s knowhow, capabilities and leadership in advanced maritime technologies is high

SEA Europe

“Ours is a valid industrial project that could not only help Europe’s shipbuilding industry compete better globally, but also generate economies of scale right away and support technological progress in the sector,” he said at the time.

“The impact on employment of a European retrenchment in the shipbuilding sector should not be underestimated.”

That argument is being pushed by SEA Europe, or the Shipyards’ & Maritime Equipment Association.

It believes the shipyard and maritime-equipment sector generates an aggregated production value of €114.8bn and creates jobs — direct and indirectly — for more than one million people in Europe.

“The risk of losing Europe’s knowhow, capabilities and leadership in advanced maritime technologies is high, particularly in the light of the ongoing unfair competition from Asia and China," it says in a recent white paper.

88% booked with three European yards

But while the European shipbuilding industry fears growing competition from China, evidence of Asian encroachment on the cruise shipbuilding market is patchy.

State-owned China State Shipbuilding Corp, which has a joint-venture with Fincantieri to build cruise ships in China for the local market, only has 2.3% of the orderbook.

Even China's Genting Hong Kong, which bought three shipyards in Germany in 2016 collectively known as MV Werften, controls just 4.6%.

That leaves nearly 88% of the cruiseship orderbook to be delivered between 2019 and 2027 in the hands of Fincantieri, Chantiers and Meyer Werft.

Meyer Werft has work until the end of 2023 for its Papenburg facility, while its Finish facility in Turku is busy until 2024.

And the Fincantieri-Chantiers merger project faces a formidable hurdle in the form of the EC, which will give ruling on its future in coming months.

The investigation has highlighted the high barriers for entry into the market.

“Cruise shipbuilding requires, in particular, specific infrastructure, established engineering and design capabilities, as well as important project management skills to coordinate hundreds of suppliers and sub-contractors all along the construction process,” the EC says.

“It is unlikely that a timely and credible entry from other shipbuilders would counteract the possible negative effects of the transaction.

Price, choice and incentive worries

“The transaction may therefore significantly reduce competition in the market for cruise shipbuilding, which could lead to higher prices, less choice and reduced incentives to innovate.”

Luken says there are different views on whether or not the merger will strengthen European shipbuilding.

But he adds there is a clear consensus that further efforts are needed to safeguard the strong competitive position of European cruise builders in the face of Asian competition.

“Despite different views on the merger issue, we all want to pull in the same direction to ensure a strong European maritime industry,” Luken says.

The EC is expected to make a decision before 17 March next year — a time frame that gives it 90 working days to come to a conclusion.