Royal looking to liquidate a significant portion of its global fleet?

[chengkp75]

One thing that may influence RCI's decisions on reducing fleet size is their debt/equity ratio.  While not particularly high by general corporate standards, at 1.5, this is three times the debt/equity of the other two major lines, NCL and Carnival.  Selling assets for minuscule scrap price, especially older ships that may not have any debt associated, could significantly increase the debt/equity ratio, making it harder for RCI to attract future funding.

[deliver42]

I can see the Majesty and the Vision Class, but not the Radiance, not the Millenium Class. They need these ships to go where the large ships can't.

[Charles4515]

 
So be it, NJ right around the corner

I am a 45 minute drive to the Baltimore cruise port and for the last 15 years all my Royal cruises have been out of NJ or Florida. Don’t like the ships or itinerary out of Baltimore. I would have cruised if they had a Radiance class ship there. The eight to ten hours in the Chesapeake Bay to reach the ocean are another negative. If Royal has to reduce its fleet leaving Baltimore would be logical.


Sent from my iPhone using Tapatalk Pro

[TeeRick]

20 hours ago, chengkp75 said:

Scrap prices are based on displacement tonnage, so even a huge ship like Oasis (100,000 tons displacement), at $300/ton, would only bring about $3 million as scrap.  Compare that to her build price brought to today's dollars ($1.78 billion), and they would realize about 0.1% of her value, minus the cost to sail her to India.

So as an example.  Radiance of the Seas.  Twenty years old.  Initial Cost $350M. 90,000 tons.  So $2.7M scrap value?  But what about tax write-off value?  Assume the current market value whatever that is?  Flagged in the Bahamas so not sure how tax write-off's are calculated there?

[chengkp75]

27 minutes ago, TeeRick said:

So as an example.  Radiance of the Seas.  Twenty years old.  Initial Cost $350M. 90,000 tons.  So $2.7M scrap value?  But what about tax write-off value?  Assume the current market value whatever that is?  Flagged in the Bahamas so not sure how tax write-off's are calculated there?

Well, first off, you are looking again at "Gross tonnage", while scrap value is per "displacement ton".  As I noted, Oasis, while having a GT of 224,000 (and this is widely considered to be how much she "weighs"), actually has a "displacement" of about 100,000 tons (how much water it displaces, or truly how much it weighs), so Radiance would have a displacement (not readily available figures) of around 35-40,000 tons, so she might bring about $12 million in scrap (my previous post regarding Oasis had a factor of 10 error, she would provide about $30 million, or 1% of cost).  Radiance's cost, in today's dollars is $511 million, so she might recoup 2% of cost.  As there is no corporate income tax in the Bahamas, there is no tax write off value.

 

A large factor in the scrap price for a ship is how easily it can be run up on shore, and how far up the shore.  Cargo ships with no cargo or ballast almost have the bow completely out of the water, so they can get well up on shore, but cruise ships don't tend to carry much "deadweight" (cargo (pax) and liquids) in comparison to their displacement, so getting the ship up to where it can be cut apart can be difficult.

[TeeRick]

Just now, chengkp75 said:

Well, first off, you are looking again at "Gross tonnage", while scrap value is per "displacement ton".  As I noted, Oasis, while having a GT of 224,000 (and this is widely considered to be how much she "weighs"), actually has a "displacement" of about 100,000 tons (how much water it displaces, or truly how much it weighs), so Radiance would have a displacement (not readily available figures) of around 35-40,000 tons, so she might bring about $12 million in scrap (my previous post regarding Oasis had a factor of 10 error, she would provide about $30 million, or 1% of cost).  Radiance's cost, in today's dollars is $511 million, so she might recoup 2% of cost.  As there is no corporate income tax in the Bahamas, there is no tax write off value.

 

A large factor in the scrap price for a ship is how easily it can be run up on shore, and how far up the shore.  Cargo ships with no cargo or ballast almost have the bow completely out of the water, so they can get well up on shore, but cruise ships don't tend to carry much "deadweight" (cargo (pax) and liquids) in comparison to their displacement, so getting the ship up to where it can be cut apart can be difficult.

thank you!

[Seville2Cabo]

57 minutes ago, TeeRick said:

But what about tax write-off value? 

I don’t know how many years ships are depreciated, but if it is 20, it will have little book value and any money they get for it could be income, not a tax write off.  Over 20 years it is possible they have increased the book value by upgrades and other capital expenses. If so and there is a book value, it may offset some or all of the income

[drsel]

Generally, a ship needs to sail at capacity to cover expenses with the fares.  Onboard revenue is the profit margin.  I would suspect that a true "break even" point would be around 80%, but that depends on the level of onboard revenue the passengers generate.

I read that 97% occupancy is the break even point. that means they need to sell 970 out of 1000 cabins.

Income from the Cruise fare of the last 30 cabins is pure profit.

The profit from Onboard sales is extra.

 

[drsel]

One thing that may influence RCI's decisions on reducing fleet size is their debt/equity ratio.  While not particularly high by general corporate standards, at 1.5, this is three times the debt/equity of the other two major lines, NCL and Carnival.  Selling assets for minuscule scrap price, especially older ships that may not have any debt associated, could significantly increase the debt/equity ratio, making it harder for RCI to attract future funding.

Are you saying that Carnivals debt equity ratio is only 0.5 and hence they will easily be able to raise a lot more debt to survive the next few months until they start earning some income?

[Xekyn]

1 hour ago, TeeRick said:

So as an example.  Radiance of the Seas.  Twenty years old.  Initial Cost $350M. 90,000 tons.  So $2.7M scrap value?  But what about tax write-off value?  Assume the current market value whatever that is?  Flagged in the Bahamas so not sure how tax write-off's are calculated there?

 

It's not about the scrap value (which is essentially pocket change) it's about the massive savings from no longer having to fuel, staff, maintain & operate the ship any longer. The ships are a sunk cost, they have essentially zero resale value because demand for the entire industry will be so significantly decreased moving forward; there simply won't be enough paying customers to fill the ships regardless of who operates them. 

 

Every single cruise line faces the same problem, they need to get leaner in a hurry and minimize their monthly expenditures, scrapping ships is the most effective way to do this, particularly those that older and more inefficient in terms of running costs and generally smaller, as the consensus across the industry seems to be that even when things do return they will be sailing nowhere close to 100% occupancy. 

 

They'll also get more than just the value of the scrap metal, there's a lot of valuable electronics and other items onboard that can be resold prior to scrapping. Cumulatively stripping + scrapping a ship probably brings in a not insignificant amount of revenue. 

[sfaaa]

18 minutes ago, drsel said:

I read that 97% occupancy is the break even point. that means they need to sell 970 out of 1000 cabins.

Income from the Cruise fare of the last 30 cabins is pure profit.

The profit from Onboard sales is extra.

 

I would think 97% is average occupancy % for the entire year, not each sailing. During peak cruise season, rates are a lot higher so break even point would be lower than during shoulder season.

[chengkp75]

1 hour ago, drsel said:

5 hours ago, chengkp75 said:

One thing that may influence RCI's decisions on reducing fleet size is their debt/equity ratio.  While not particularly high by general corporate standards, at 1.5, this is three times the debt/equity of the other two major lines, NCL and Carnival.  Selling assets for minuscule scrap price, especially older ships that may not have any debt associated, could significantly increase the debt/equity ratio, making it harder for RCI to attract future funding.

Are you saying that Carnivals debt equity ratio is only 0.5 and hence they will easily be able to raise a lot more debt to survive the next few months until they start earning some income?

NCL's debt/equity is about 0.5, Carnival's is around 0.4, and has been for the last decade or more.  And, yes, with a lower debt/equity ratio, it is easier to raise capital, since they have more equity to pledge against the debt.

[drsel]

NCL's debt/equity is about 0.5, Carnival's is around 0.4, and has been for the last decade or more.  And, yes, with a lower debt/equity ratio, it is easier to raise capital, since they have more equity to pledge against the debt.

But what about S&P recent rating downgrade of Carnival corporation by 3 notches from BBB- to BB- ?

will that not affect Carnivals ability to raise debt and also pay much higher interest rates of 12-15% pa?

 

[chengkp75]

8 minutes ago, drsel said:

But what about S&P recent rating downgrade of Carnival corporation by 3 notches from BBB- to BB- ?

will that not affect Carnivals ability to raise debt and also pay much higher interest rates of 12-15% pa?

 

I'm not a financial analyst, but of course the rating downgrade can affect the ability to raise capital, and affect interest rates, but that is, I think, just one factor involved in credit rating, and debt/equity ratio is another.  I don't know exactly how all the lines raised their cash, whether it was bonds, stocks, or simply lines of credit, so I can't say what caused Carnival to get a downgraded rating (I don't follow their financials that closely), and not the other lines.

[cruisequeen4ever]

Like some have said, the small to mid size ships easily go under the bridge to Vancouver, whereas the bigger ones have to time the tide just right, and it can get tricky when there are unforeseen circumstances like late arriving pax. Also, the Royal Princess has had to sail a bit less scenic route due to her size. The one way cruises are the best because they enable inland travel in Alaska either pre or post cruise. As for any potential limitations in Seward, I’m not sure. There’s one dock with 2 sides available. The terminal is a big warehouse. Seward is right out into open ocean, so there aren’t any narrow passageways to consider.

Edited June 26, 2020 by cruisequeen4ever

[Biker19]

On 6/25/2020 at 1:32 PM, chengkp75 said:

Scrap prices are based on displacement tonnage, so even a huge ship like Oasis (100,000 tons displacement), at $300/ton, would only bring about $3 million as scrap.

Apparently scrap values have swung widely over the past few months:

 

As many as 13 cruise ships were reduced to scrap in 2020 – more than in the five preceding years combined.

The number of cruise vessels removed from the worldwide fleet in 2020 was so high that scrap yards have been struggling to keep up with the demand – especially when the vessels are registered in the European Union and, therefore, have to comply with stricter regulations.

 

According to Vagelis Chatziginnis, a senior trader at GMS Leadership (one such company that organizes ship scrapping), most of the vessel scrapping in 2020 took place in Turkey.

 

“We have seen a couple of units being sold for recycling in India already, but a couple of units is nothing compared to the numbers we've seen in Turkey so far,” Chatziginnis told Cruise Industry News. “Some of these larger cruise ships (are) being laid up in locations like Greece, for example, until more spaces are available to digest in Turkey.”

 

Scrap Values

Chatziginnis said the average scrap value in India is $400 per ton. In Turkey, the value is considerably less at $280-300 per ton. At the height of the pandemic, however, those values could be as low as $90 for EU-flagged ships.

 

“When the pandemic was at its peak – let's say around summer 2020 – and the first cruise ships started being scrapped, some of them were even getting double digits, like hardly $100 per ton, maybe $90,” he said.

 

The value can depend on various factors, such as the country where the facilities are located or whether the cruise vessel was registered in a EU country.

 

“If the vessel has to be recycled in compliance with a regulation of the European Union, you would probably be looking in Turkey for something like $200 per ton equivalent because of their very limited capacity of the yards, which are compliant with European regulations,” Chatziginnis explained.

“In the U.S., you have one facility that is approved in the European Union. So, the vessel could be recycled there, but it's a totally different market. You would probably be looking at something like $80 per ton, for example,” he added.

 

However, Chatziginnis said that steel prices globally have increased dramatically over the past few months and residual value has increased by nearly $100 per ton in each of the major ship recycling counties.

 

Process Organization

 

A role of a company like GMS is to organize the entire recycling process.

 

“So, ultimately the ownership and responsibility of the vessel would be transferred to the owning entity that would be buying the vessel. The cruise line has nothing to do anymore with the vessel. And thereafter, we are arranging the transportation from point A to point B,” Chatziginnis said.

“Let's say you're taking delivery of a cruise vessel and, let's say, from Piraeus.

 

So, from Piraeus in Greece, we put our crew onboard, and we arrange for the unit to go to Turkey. We are (then) sending the unit to the recycling facility, and the recycling facility has to pay for purchasing the vessel to recycle in accordance with the standards that we're going to agree on,” he added.

GMS also vets the requirements of the original owner for regulations that need to be complied with and then guides them with how to proceed with the scraping in the best interests of the cruise industry.

“It sounds like it’s simple, but it isn’t always. Especially when you have to respect other regulations (like the EU ones),” Chatziginnis said.

 

What Holds

A record-breaking 46 cruise vessels could enter service in 2021: 30 ships that are set to debut and 16 more ships that were delivered in 2020 but have yet to enter revenue service.

 

With that many ships entering the scene, cruise lines have to be wary not to oversupply the market, said VesselsValue, a maritime data provider.

 

“A quick and confident return of demand is paramount for the industry to rebound; otherwise, we should expect to see further delays and removals in an attempt to balance things out,” VesselsValue’s cargo analyst, Guy Cooper, told Cruise Industry News.

 

The other sad consequence of the pandemic is that many relatively young cruise ships are getting scrapped.

 

“Look at the Marco Polo – it is a 55-year-old vessel … It has been operating for, like, more than 50 years now… And now, all the other major lines are scrapping all the vessels that were built in the 1990s and the 1980s. This is quite young for the normal industry in cruising in our understanding,” said Chatziginnis.

“I doubt that in the last decade, at least, or maybe even more than this, we have seen so many cruise ships being recycled in a year,” he added.

 

How to Scrap a Cruise Ship and What They Go For - Cruise Industry News | Cruise News

 

BTW, Marco Polo is on its way to Alang.

[LB_NJ]

Last rating I saw for RCL was out of Moody's on Aug. 24 which had a Probability of Default Rating downgraded to B1-PD.

 

According to the article the rating was based on "assumptions which include a resumption of US cruising in the first half of 2021 with capacity days reaching at least 65% of their 2019 levels and occupancy reaching at least 70% by the second quarter with continued improvement from there."

 

I am guessing that if these assumptions are not met there could be a further downgrade however if the results are better then the assumptions there could be an upgrade.

[xpcdoojk]

On 6/25/2020 at 2:58 PM, cruisingator2 said:

That is not an Azamara ship. The three Azamara ships entered service in 2000, 2000 and 2001 respectively. The ship showing entered service in 1998. Either the Regatta or Insignia. Plus the Oceania ships are registered in the Marshall Islands as listed. Azamara is registered in Malta.

Hi Gordon, miss chatting with you.

[PhoenixCruiser]

1 hour ago, xpcdoojk said:

Hi Gordon, miss chatting with you.

 

Same here!

[Biker19]

Royal Caribbean Group said it is selling its Azamara luxury cruise line for $201 million in cash to private-equity firm Sycamore Partners, a move that would let the company focus on core operations after almost a year since onboard coronavirus outbreaks brought voyages to a halt in the U.S.

 

The divestment is the latest downsizing move by a cruise company during the Covid-19 pandemic as operators look for additional sources of cash. Royal Caribbean Finance Chief Jason Liberty said the deal wasn’t driven by financial reasons and that it had considered selling the brand before the health crisis.

 

The company will seek to expand its core Royal Caribbean International, Celebrity Cruises and Silversea brands after the sale, according to Royal Caribbean, which also operates TUI Cruises and Hapag-Lloyd Cruises under a joint venture. Under the transaction, expected to close in the first quarter, Sycamore will acquire Azamara’s three ships and intellectual property such as the brand’s logo and slogan, the company added.

 

Royal Caribbean in December said it sold two ships in its Royal Caribbean International fleet. The company will come out of the deal with three fewer ships than its 61-ship fleet in 2019 after taking two ship deliveries and exiting a joint venture for Pullmantur Cruceros, which filed for reorganization under Spanish insolvency laws in 2020, a spokesman said.

 

“It allows us to really prioritize our resources, which are not just financial resources—it’s also the minds and time of management,” Mr. Liberty told The Wall Street Journal.

 

Royal Caribbean to Sell Azamara Luxury Cruise Line for $201 Million - WSJ

[Charles4515]

1 hour ago, Biker19 said:

Royal Caribbean Group said it is selling its Azamara luxury cruise line for $201 million in cash to private-equity firm Sycamore Partners, a move that would let the company focus on core operations after almost a year since onboard coronavirus outbreaks brought voyages to a halt in the U.S.

 

The divestment is the latest downsizing move by a cruise company during the Covid-19 pandemic as operators look for additional sources of cash. Royal Caribbean Finance Chief Jason Liberty said the deal wasn’t driven by financial reasons and that it had considered selling the brand before the health crisis.

 

The company will seek to expand its core Royal Caribbean International, Celebrity Cruises and Silversea brands after the sale, according to Royal Caribbean, which also operates TUI Cruises and Hapag-Lloyd Cruises under a joint venture. Under the transaction, expected to close in the first quarter, Sycamore will acquire Azamara’s three ships and intellectual property such as the brand’s logo and slogan, the company added.

 

Royal Caribbean in December said it sold two ships in its Royal Caribbean International fleet. The company will come out of the deal with three fewer ships than its 61-ship fleet in 2019 after taking two ship deliveries and exiting a joint venture for Pullmantur Cruceros, which filed for reorganization under Spanish insolvency laws in 2020, a spokesman said.

 

“It allows us to really prioritize our resources, which are not just financial resources—it’s also the minds and time of management,” Mr. Liberty told The Wall Street Journal.

 

Royal Caribbean to Sell Azamara Luxury Cruise Line for $201 Million - WSJ

 

They practically gave away Azamara. 

[sfaaa]

They gave away a headache they no longer want to deal with and got some much needed cash relief in return.

Edited January 19, 2021 by sfaaa

[CTCruiser76]

8 hours ago, Charles4515 said:

 

They practically gave away Azamara. 

Does anyone know what they paid for it and when?

[Charles4515]

55 minutes ago, CTCruiser76 said:

Does anyone know what they paid for it and when?

 

Royal did not purchase Azamara. The brand was created by Royal. The transfered two ships from an affiliated cruise line. 

 

Edited January 20, 2021 by Charles4515

[hallux]

9 minutes ago, Charles4515 said:

Scroll back.  The price was $201 million cash. Here is a non paywalled link.

I think @CTCruiser76 was asking how much Royal paid and when, for when Royal PURCHASED Azamara...