A year ago, many yacht brokers and manufacturers still dared to hope that the intensifying financial crisis, although obviously severe, would spare the world’s wealthiest people and leave them with enough cash or credit to buy the $100m superyachts they had always wanted.
With hindsight, it is clear that the luxury boat industry, fattened by years of rising production volumes and improving profit margins, was far too optimistic. There was a shockingly abrupt decline in the market in late 2008 and early 2009, following the collapse of Lehman Brothers, the investment bank.
Today, as the first, tentative signs of recovery appear, most industry executives, financiers, and suppliers are no longer asking how well the superyacht business will resist the global economic slowdown. They are wondering whether it can ever be the same again.
“The situation in the early months of this year and the later months of last year was very difficult,” says Anton Francesco Albertoni, chairman of Ucina, the Italian nautical industry association. Italy is the biggest producer of luxury yachts, with a total pleasure yacht industry turnover of about €6bn ($9bn), and Mr Albertoni says the sector suffered a “violent stop”.
The problem was not always felt immediately in the yards that build larger boats – a superyacht is loosely defined as a vessel more than 30m or 100ft long – because the long lead-times in construction mean that some are still making boats ordered in 2007.
But the dearth of new orders, some cancellations and the withdrawal of credit have left indebted companies struggling and caused headaches across the industry. The charter business was also hit by lower prices.
Figures from the Superyacht Intelligence Agency, part of The Yacht Report Group, show that 241 large yachts were delivered last year, compared with 231 in 2007 and 267 in 2006. From this year, however, it will be hard to achieve such steady numbers.
“While it is not all gloom and doom, we have certainly seen a huge reduction in yachts sold and charters booked,” The Yacht Report says.
Camper & Nicholsons International, the yacht group, which produces its own slightly different statistics in its annual Yachting Index, says that the crash in financial markets after the collapse of Lehman Brothers in September 2008 “triggered a change, and most probably an irreversible one, in the large yacht industry”. Offers to buy were withdrawn and build contracts cancelled by potential owners.
Nimbler companies moved quickly to cut production. Fairline, the UK maker of motor yachts up to 78ft, had trebled in size through organic growth in the previous 13 years, but took drastic steps to reduce output at the end of 2008, according to Derek Carter, chief executive.
The company laid off 400 of its 1,400 staff and cut turnover by a third to about £100m ($162m) a year. Other luxury yacht builders, including Ferretti in Italy and Rodriguez and Couach in France, were forced to restructure their debts or seek protection from creditors.
Today, international yachtmakers say they are starting to see a trickle of orders and are hoping for a return to some sort of normality in 2010, especially for vessels of – relatively – modest size and price.
“It’s been very tough since the summer of last year, but I’m seeing early signs of confidence returning and serious buyers,” says David Tydeman, chief executive of Oyster, the luxury UK yacht maker, which has extended its range and is due to finish its first 100ft-plus sailing yacht next year.
Other producers see similar indications of demand flickering back to life and predict better times, once the stock overhang of – new and second-hand – boats for sale has shifted.
“The growth of the past few years has been enormous and a sort of correction was necessary,” says Paolo Vitelli, founder and chairman of Italy’s Azimut-Benetti Group. But he adds: “Rich people want to spend their money there are plenty of rich people and in the world.”
What is not yet clear is precisely how the crisis will change the spending habits of the rich and whether it will affect two of the notable recent trends in the superyacht market: the irruption of fashion designers, architects and luxury goods houses – Norman Foster, Philippe Starck, LVMH – and the drive for more environmentally friendly boats.
Sometimes the two are connected. Wally, the Monaco superyacht company, and Hermès of Paris have teamed up for the launch this month of their venture to make a revolutionary €100m, 2,900-tonne motoryacht of “exceptional” width, style and comfort that would be powered not only by diesel but also by arrays of solar panels, wind generators and a kite to assist propulsion.
Patrick Thomas, Hermès chief executive, says the ultra-wealthy target market for the vessel numbers only 200 people, a “very rarefied” universe of possible customers for this “anti-boat”. For Wally founder Luca Bassani, the key to the yacht is stability. “A lot of customers still suffer seasickness,” he says. “The original idea was to create a kind of floating island rather than a yacht.”
Even if new customers are attracted to superyachting by such innovative concepts, sceptics doubt that the market as a whole can return to the heady growth of the previous decade.
Brokers and manufacturers say the mood among the wealthy has been changed by the financial crisis and the resulting public scorn for the financiers responsible. Customers are more likely than before to opt for discretion over conspicuous consumption, for the comfort of a displacement vessel rather than the gas-guzzling speed of a fast, planing motoryacht, and for classic, elegant and seaworthy lines over extreme designs.
“In general, we are losing the nouveaux riches,” says Azimut’s Mr Vitelli. “There were plenty in the last 24 months before the crisis, coming from Russia, from finance, from emerging markets.”
Barry Gilmour, executive chairman of Royale Oceanic, the yacht services company that supervises construction and management for owners, says customers will once again start spending millions of dollars on superyachts. But he expects to see consolidation among the weaker members of the industry in the aftermath of the crisis.
“It’s a cyclical business. People in the yacht business got carried away by their own hype,” he says. “I think we’re probably going to hit the nadir in December or January and we’ll start to see slow recovery from there. But I don’t think it will ever get back to where it was.” In a glamorous business once known for its ebullience and year-after-year expansion, that view is surprisingly widely shared.
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