Sea Containers considers sale of Silja Line...

According to Sea Containers representative William W. Galvin, the Silja Line's parent company intends to announce news later this week relating to the Baltic passenger and auto ferry operator. Galvin admits that Sea Containers has considered selling off the entire operation. It is nevertheless believed to be only one alternative among many.

Stiff competition, the waning of the benefits of tax-free sales, and the meteoric rise in fuel costs have all driven the Baltic Sea passenger traffic into a tight corner. Many analysts take the view that there are so many vessels in the Baltic traffic that they cannot survive without some radical surgery.

Both Viking Line and Silja Line posted losses in the early part of the year (see linked article), but the difficulties of Silja Line are compounded by a hefty debt-burden. Silja's problems have become a strain on the company's owner, the Bermuda-registered Sea Containers.

Sea Containers recognises the history and positive image of the Silja brand, and the company has considered a number of alternative approaches to bring the shipping line back into profit.

Sea Containers does not have the luxury of much time to reflect on these things, as the company is in difficulties itself, with Standard and Poor's having downgraded its financial outlook rating from "stable" to "negative" earlier this year on weaker earnings and higher expenses. The company's stock, traded in New York, has halved in value in the past six months.

Silja's Finnish CEO Antti Pankakoski believes that there is still demand for the Baltic routes, but that there is currently over-capacity in the market. He feels that three or four vessels will have to go in the next couple of years in order to get the situation into balance.

Silja Line is currently engaged in talks with personnel over job cuts of around 100-150. Pankakoski was reluctant to comment on rumours of a possible sale of Silja Line. He stated that the cuts now being implemented would put the line back into the black next year "for certain".

However, some fear that turning the ship around will be a difficult matter. Jorma Taina, Professor of Logistics at the Turku School of Economics and Business Administration, believes the price-war in the Baltic passenger traffic will only escalate in the future.

At the same time, costs have gone upwards and the allure of mini-cruises has declined. The attraction of tax-free alcohol sales collapsed when retail prices in Finland were reduced by tax cuts on spirits. Taina regards the traditional Finland-Sweden cruises as a product approaching its sell-by date.

The Helsinki-Tallinn route, meanwhile, has very stiff competition provided by the Estonian shipping conmpany Tallink, which reportedly intends to bring a further four or five vessels into service in the years immediately ahead. Tallink is helped by the fact that crew payroll costs are considerably lower than those on Finnish vessels.

Some financial papers have suggested that Tallink might indeed be a candidate if a buyer is sought for Silja Line.

At the same time, Taina does not believe that the Estonian company would have the wherewithal to buy new vessels of its own and to acquire the debt-laden Silja Line in its entirety.

This would imply a possible splitting up of the carrier into separate parts, with some of them sold away.

This is cache, read story here