Carnival Cruise Lines, which has enjoyed smooth sailings through the 1980s, may be facing tougher seas ahead.

While Carnival has been able to steadily introduce new tonnage to build market share and increase earnings, its three new 2,600-passenger ships, scheduled to enter service in January and November of 1990 and in the fall of 1991, may now at best be delivered late or not at all as Wartsila Marine Industries, the building yard, has declared bankruptcy.

Carnival, whose expansion and acquisition of Holland America Line has generated an increasing debt burden, has also postponed indefinitely its previously announced public offering of $200 million of subordinated convertible debentures, citing unfavorable market conditions.

New Ships in Limbo

While Wartsila has declared bankruptcy and has dismissed its entire work force with two weeks' notice, its future remains uncertain at least until November 2 when the receivers will meet with the shareholders and the government to decide its future.

At present, however, there is little building activity going on. As it is unclear if Carnival has ownership rights to the newbuildings, sources close to the yard speculate that Carnival will be able to take delivery of the Fantasy although delayed and at a higher price to cover some of the yard's losses. Sources also speculate that Carnival will be able to take delivery of the second ship, the Ecstasy, but at a significantly higher price, and that the third newbuilding will be cancelled and that the order will be transferred to a different yard.

Financial Ramifications

For Carnival, Wartsila's bankruptcy is likely to mean increased costs as prices for its new vessels are expected to go up, and reduced revenues - as the introductions of its new ships are expected to be delayed.

The short term effect will be a slower growth rate with reduced revenues and net earnings. The financial market's immediate reaction sent Carnival's stock down more than three points. At press time, the stock closed at $19.75. (12-month high is $26.38.)

According to Carnival, the line was not "notified officially by Wartsila" and only learnt about the impending bankruptcy from press reports.

Deployments Affected

Carnival has also announced a series of ship repositionings which would also be affected, the arrival of the new socalled 'superliners. In the first place, the Fantasy would enter the three- and four-day market from Miami, replacing the Carnivale which would be repositioned to Cape Canaveral, marking Carnival's entry into the Central Florida market.

Further deployments are also expected to be delayed pending the now uncertain arrivals of the new ships.

Expansion

The sudden uncertain future of the "superliners" plus the postponement of the public offering are expected to slow down Carnival's aggressive rate of expansion and put the announced three-ship newbuilding program for HAL in jeopardy.

As reported in CIN (no. 19, October 16, 1989), Carnival may already be squeezed for cash and Wartsila's bankruptcy is likely to force up the price of the "superliners." This will put increased cash demands on the cruise line in addition to its present debt commitments resulting from its acquisition of HAL and development of the Crystal Palace Resort.

Industry Effect

The cruise industry, especially its close competitors, is watching Carnival closely. A "struggling" Carnival would give Norwegian Cruise Line, Princess Cruises and Royal Caribbean Cruise Line more room to maneuver and fight for marketshare.

In the meantime, the financial industry is also watching Carnival closely and their favorable evaluation of the cruise industry may very well depend on Carnival emerging successfully from the inclement seas that now seem to be brewing for its management.