Third Oasis-class Ship on Hold

| 12.17.12

We look at some of the finer details behind the deal to build the third Oasis-class ship

The Oasis-class is the most comprehensive cruise ship class ever

Royal Caribbean has seen nothing but unprecedented success with every facet of the Oasis-class project - except one; getting the money to build these ships. Both Oasis and Allure of the Seas were built at the Finnish shipbuilder STX Europe, in Turku Finland.

The Oasis-class ships, at 225,282-gross tons, are by far the largest, most comprehemsive and most costly cruise ships in history. The first one, Oasis, cost roughly $1.4-billion, but the first ship in a class is by definition the most expensive since it includes design costs as well as other unforeseen cost overruns.

Oasis was ordered in November of 2007 and construction commenced immediately. It was delivered in October of 2009. Much like cars, shipyards do not receive payment for the ship until the vessel is delivered to the end user.

Both ships, Oasis and Allure, were eventually paid for by Royal Caribbean with the help of Finnvera, a division of the Finnish government that supports Finnish export businesses through loans, export credit guarantees and other services. Typically, shipbuilding is not considered an "export business" where the credit guarantees are usually smaller and only meant as "bridge loans."

Financing for Allure (ship #2) went a little more smoothly. Its financing was settled in December 2009, a full year before it was delivered to Royal Caribbean. Allure of the Seas only cost about $1.2-billion and had a very similar financial deal where Finnvera secured the loan and capital came from banks as diverse as BNP Paribas (a private bank in France), Citibank, and two banks based in Stockholm; Nordea and SEB.

A Third Oasis is Announced

In October, 2012, Royal Caribbean officially confirmed the leaked rumors that it is planning to build a third Oasis-class ship, as yet unnamed. At the time Royal Caribbean reiterated that its normal policy is not to comment on ship orders until they are confirmed with the shipyard, but it did reveal that the deal-making process was underway.

But similar to the deal for Oasis, Finnvera is once again giving Royal Caribbean headaches. Finnvera just rejected the first offer put forth by Royal Caribbean. It is believed the company asked the cruise line to find additional funding to help pay for the ship so it would not have to make such a large loan guarantee, however Finnvera has a policy of not commenting on the reasons behind its decisions. The company did point out that shipbuilding businesses in other nations (generally of the EU) are partly owned and supported by the governments in those nations, while that is not true with Finland and STX. However, Finnvera has already financed two of these ships very successfully, and the shipyard has an open schedule and people who work for the plant who need a project to stay busy.

But here is the difference between the first two ships and this third one. The shipyard, STX, started construction on the first two even though the financing was not place. Back in 2007 it was considered a given that Royal Caribbean would be able to get the money to pay for the ships by the time they were ready for delivery. However that proved to be harder than expected in 2009 when Oasis was completed and ready for delivery. By then it was very hard for any company to get a loan, banking as a business was in a crisis. So, in the end, Finnvera had almost no choice but to do the deal with whatever deal they could manage. Fortunately, it turned out to be a very safe deal for them.

As we approach 2013, sadly it appears that little has changed in banking - arguably things have become more difficult. The shipyard, STX Finland, which built the first two ships, is now working with Royal Caribbean to persuade Finnvera to guarantee the loan - but it hasn't started building that third ship yet. All parties appear to be looking for financing to be in place before construction starts, unlike the situation before the 2008 economic meltdown.

This is not a reflection on Royal Caribbean as a business as much as it is a general fear in the financial world that the economic future is not so certain. The first two ships have been tremendously successful, but there are no guarantees in life.

Would you welcome a third Oasis-class ship from Royal Caribbean? Tell us here: Royal Caribbean Forum

Where Is This Going?

The shipyard is telling Finnvera that if it does not act quickly the deal could go to the German shipbuilder Meyer Werft or the Italian shipbuilder Fincantieri.

Meyer Werft built the Celebrity Solstice-class ships (for Royal Caribbean International), and it has the orders for the two Project Sunshine ships to be built for Royal Caribbean for delivery in 2014 and 2015. This gives the German shipbuilder an edge in credibility, but a problem in terms of having room in its schedule to build a third Oasis. By the same token, Royal Caribbean has never built a ship at the Italian Fincantieri shipyard which is favored by Carnival Corp.

STX Finland, which built the first two Oasis-class ships definitely has the best experience and also has the room in its schedule to build the ship. It needs to fill out that schedule for the sake of jobs at the shipyard.

What is the holdup? We don't know.

The Oasis ships have a berth capacity of 5400 passengers and a maximum capacity of 6296. The first ship, Oasis, cost $1.4 billion, the second ship, Allure, cost $1.2-billion (reportedly). The proposed price tag for the third vessel is just $1-billion. That puts the cost of Oasis at $222,000 per guest (total capacity), Allure at $190,000 per guest and the third oasis ship at $158,000 per guest based on a proposed cost of $1-billion.

The newest ship from Carnival, Breeze, for example, is barely half the size of Oasis at 130,000-gross tons, and at a cost of $740-million means the cost to build the ship is $156,000 per guest based on total capacity. Berth capacity is 3690 passengers and total capacity is 4724.

Meanwhile, Oasis and Allure have been able to command premium pricing for cruises - Oasis debuted in 2009 and yet still gets at least $749 per person ($107/day) for a seven-day cruise while a six-day cruise on the newer Breeze (debut 2012) can be found for as low as $379 per person ($63/day).

Would you welcome a third Oasis-class ship from Royal Caribbean? Tell us here: Royal Caribbean Forum

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