Evolving the Life Cycle

The ability to listen is a virtue that has long been neglected by many, but thankfully for the cruise shipbuilding industry it was not forgotten by Kvaerner Masa-Yards (KMY) – now known as Aker Finnyards – a couple of years ago when hearing customers request a new service function.

“At the end of 2002, we had a number of discussions with customers interested in complex refurbishment and conversion programmes,” explains Carl-Gustaf Rotkirch, vice president of the customer service division at Aker Finnyards. “We suggested it might be an idea to work on the concept and refine it into a defined product by capitalising on our expertise from the newbuild market and tailoring modular service packages.”

Rotkirch had previously worked as project manager on the delivery of the Costa Atlantica series of vessels, and was appointed to the customer service division at its inauguration at the beginning of 2003.

CONVERSION IS THE SOLUTION

The hard facts underlining the need for change were very much evident in the market in 2002. Spending on newbuilds was in decline due to the poor dollar-euro exchange rate as the major cruise lines tightened their purse strings in the wake of 9/11.

Demand and regulations were also playing an important part in the evolution of the sector with cruise lines increasingly wanting continuous updates of cruise ship interiors and systems, especially those related to passenger comfort and performance. Passengers were now looking for attractive cabins with balconies and were willing to pay higher tariffs to get them.

Meeting the stricter requirements of SOLAS 2010 was also right at the forefront of owners’ thoughts as conversion for compliance represented a cost-effective alternative to a newbuild. Rotkirch explains the situation: “Cruise Lines started to see refurbishment and conversion as an attractive addition to their newbuilding programme.

“We did not believe the two segments competed – rather that they complemented each other. This product range helped make Aker Finnyards a full-range shipbuilder.”

BIRTH OF A NEW CONCEPT

With owners wanting more from existing vessels and at the same time hoping to cement and enhance their relationship with the yards, the life-cycle concept was born, but according to Rotkirch, the composition was not entirely new. “Our "life-cycle" concept is not completely new, as a spares and warranty service has always been a part of the contractual obligation between the yard and the owner.”

However, the hard part was convincing management, owners and even competitors that refurbishment and enhancement were not just a last-resort option in a poor market, but actually a distinct and very different sector. “There is a misconception by many newbuilding yards with regard to the term refurbishment,” explains Rotkirch. “There is a common understanding that refurbishment is a last resort in periods where there is a poor market for newbuildings. But yards have much to gain from refurbishment – although they have to understand the need for different processes compared with those of newbuilding.”

The new Aker Finnyards customer service division, with its comprehensive knowledge of ship technology, was set up to offer upgrades and modifications, conversions, lengthenings and engineering consulting, as well as services related to dry dockings, maintenance and spare parts.

FROM CONCEPT TO COMPLETION

The deal that really brought the life-cycle concept into the spotlight was concluded in September 2004 with Royal Caribbean Cruise Lines. The E40–45m deal involves the lengthening and refurbishment of its Enchantment of the Seas vessel.

Royal Caribbean had been actively looking at upgrades and refurbishment for a number of vessels, but the 1997-built vessel is the first to undergo the life-cycle process. “The refurbishment of Enchantment makes tremendous sense from both an economic and a strategic standpoint,” explained Royal Caribbean’s chief executive, Richard Fain, at the unveiling of the Enchantment of the Seas upgrade. “We add substantial revenue without adding commensurate costs. We have taken what we have learned during the newbuild process and applied best practices to upgrade our existing ships.”

The Enchantment of the Seas project includes an extensive public area revitalisation programme, involving lengthening the ship (a 22.2m mid-body is being put together at its Turku yard), cutting, inserting and joining the mid-body, and, finally, outfitting, powering up and recomissioning the ship.

After the lengthening, the ship will be over 300m, and will include another 151 passenger cabins in addition to the current 975. The vision-class ship will have a final length of 301.8m, lifting it from 74,140 to 80,700 gross tonnes. New indoor and outdoor public areas will also be added, while existing spaces will be reconditioned.

The final work will not be carried out in Finland, but at the Keppel Verolme (KV) Shipyard in Rotterdam, where the ship will be lengthened between mid-May and early July 2005.

“When we first discussed the issue with our customer, it was anticipated that we could do the work at one of our own yards. However, we didn’t have the availability, so we looked elsewhere. KV was a suitable alternative,” explains Rotkirch. Although he is unsure of the exact scope of project, he expects it that it may take over 200 workers in total, with the electrical and piping work being carried out by KV.

However, the Enchantment project is only one of many that Rotkirch is currently overseeing, and many involve a mobile workforce executing the work at overseas yards. Over the last six months, Aker Finnyards has carried out work on vessels such the Carnival Legend and the Carnival Ecstasy in the Caribbean, which means keeping them close to their service routes.

“The costs associated with repositioning are very great, as a large number of vessels serve the Caribbean. Moving a vessel to a western European yard is an expensive option,” says Rotkirch. “With vessels such as these, our focus is on the competence to do the work during a drydocking, or elsewhere, rather than at the newbuilding yard. We completed the total renewal of the Carnival Ecstasy spa area in the Grand Bahamas – the spas were torn down and built up again.”

WINNER PROVIDES ALL

In terms of competition, Rotkirch believes that there are many companies in the market who can provide a niche part of the service the division provides, but at present there is not another company or division from another yard that can actually provide a complete life-cycle product.

According to Rotkirch, technical service activities are characterised by a high number of suppliers and a high volume of transactions and communications, creating challenges in terms of keeping to schedules, quality levels and budgets. “There are a number of suppliers in the market who will obviously be competing with our services,” Rotkirch admits, “but our aim is to provide entire project management and to bring expertise to what can be a long and complicated process – collective knowledge is important.”

The customer services division has a number of best practices that it strictly adheres to, and is constantly updating its working practices. These practices also include providing the ability to enhance and repair vessels built at other yards.

“Obviously, we don’t limit our ambitions to our own vessels – it is self-evident that we can do a good job on vessels built elsewhere,” says Rotkirch. “But with our own vessels, we have an intimate knowledge of the design and processes.” One area that could affect the growth of the customer services division and the life-cycle concept is the current debate regarding the movement of cruise ship technology to lower-cost Asia to negate the effect of the strong euro.

However, Rotkirch believes that the skills garnered by established builders such as Aker Finnyards will keep the technology in Europe: “When the manufacturing process can be well defined, as in newbuilding of other vessel types, like standardised commercial vessels, there might be benefits in exporting a process to a lower-cost base country. But it is important to remember that in life-cycle services no projects are the same, so you need to use a skilled and experienced workforce that is well equipped to adjust to the varying conditions. This kind of competence is typically Europe-based.”

With these skills, the Enchantment of the Seas conversion in the planning stage and a number of smaller projects already providing case studies, Rotkirch is naturally optimistic about the future, despite the ongoing consolidation at Aker Finnyards: “We have considerable activity planned for the division. This is a growing market and we hope to always lead from the front.”

NEW BRAND, NEW CONCEPT

Aker Finnyards is the new entity of Norwegian-based Aker Yards and includes all Finnish ship yards in the group, including KMY. The move continues the trend of acquisition and mergers that has been prevalent in the Scandanavian shipbuilding industry over the last 15 years and brings with it further consolidation amongst yards.

More importantly, how will it influence the development of the embryonic life-cycle concept developed by KMY?

“Our division is obviously aimed at a segment that is not that big, but it is expanding. The three yards in Finland are now consolidated, and this will have an impact on the spares and warranty services,” comments Carl-Gustaf Rotkirch. “However, as a life-cycle division it looks like we will be left to develop our own portfolio.”

Kværner originally acquired Masa-Yards in 1990, after the previous owner Wärtsila went bankrupt in 1989. Aker also established its yard group at around the same time as it acquired the Langsten group in 1992, and through several other mergers and acquisitions eventually formed the Aker Yards AS group in 1998.

It was the purchase of Kvaerner by Aker in 2001 that paved the way for the new Aker Yards, which was eventually floated on the Oslo Stock Exchange in June 2004. The newly mergerd Aker Yards’ combined cruise vessel order book for 2004 represented over 20% of the total world newbuilds, with work carried out in 13 yards around the globe.