Superyacht industry loses buoyancy as orders dry up

There is plenty of talk these days about bankers not earning their bonuses, but little is said about precisely what it is they are not spending their money on.

One answer is expensive boats. The luxury yacht industry, in which Europe in general and Italy in particular are pre-eminent, suffered a collapse in orders in the months following the failure of Lehman Brothers a year ago.

Financing for yacht purchases dried up and some contracts were cancelled. Anton Francesco Albertoni, chairman of the Italian nautical industry federation Ucina – which estimates Italy’s annual turnover in the sector at €6bn – says orders came to a “violent stop” at the end of last year and the beginning of 2009.

Investment bankers were not the only buyers to hesitate. The global crisis damaged the fortunes of the property tycoons and Russian entrepreneurs, whose taste for luxury had fuelled the rapid growth of the superyacht industry for the previous decade. Buyers of small pleasure yachts were affected, too.

Thousands of jobs have been lost. Some of the best-known motor and sailing yacht brands sank into the red and were forced to restructure.

Yacht manufacturers are praying that the tentative signs of buying interest they see now will materialise into a solid recovery in the first half of next year. They hope that next week’s Monaco Yacht Show will be a turning point.

In the meantime, they are analysing what went wrong. Yacht-making requires a highly specialised set of skills and is generally a low-volume business, but industry executives say they have learned the hard way that it is not exempt from the normal rules of finance and marketing.

Private equity firms plunged into what seemed like a fashionable and fast-growing sector at the wrong time, leaving some companies burdened with debt at the peak of the market. Candover bought Ferretti, owner of the Riva and Pershing brands, in 2007 for €1.7bn. Bain Capital paid about €1.3bn for Bavaria Yachtbau, the German company known for its mass production of smaller sailing yachts.

Luxury goods groups, fashion designers and architects such as Sir Norman Foster and Philippe Starck were also attracted to the glamour of superyachts. Last year, LVMH bought Royal van Lent, the Dutch builder of Feadship motor yachts, while Hermès announced a joint venture with Wally, the Monaco-based luxury yacht-builder, for “innovative projects”.

Yet the companies that emerge strongest from the havoc wrought by the crisis are likely to be those that eschewed excessive leverage, focused on the business of making stylish but seaworthy yachts and reacted quickly to the drop in demand by cutting output and costs.

“The amount of growth of recent years has been enormous and a sort of correction was necessary,” says Paolo Vitelli, chairman of Italy’s Azimut-Benetti Group. His company, he says, has “practically no debt” and is developing a range of traditionally shaped motor yachts to meet demand from customers who are less flashy or faddish than they were in the boom years.

In short, the post-Lehman crisis taught many of the yachtmakers waiting for wealthy buyers at the Monaco show a brutal lesson. “It’s a cyclical business,” says Barry Gilmour, executive chairman of Royale Oceanic, the superyacht management and services company. “People in the yacht business have all been carried away with their own hype.”

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Tags: Economical Crisis, MYS Monaco Yacht Show

Category: Industry