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Bernabé Unda – Executive Chairman’s Counsel for Commercial Shipbuilding and Diversification Issues, Navantia (SEPI Group), Spain

Bernabé Unda of Navantia, Spain’s publicly owned and largest shipbuilder, discusses Navantia’s successful internationalization, including contracts with both the Australian and Norwegian navies, the company’s resistance to fluctuations in energy prices, and their cutting-edge technologies.

Could you begin by introducing Navantia to our international audience?

“The civil market is more well-known, more aggressive, and the driver is energy, not politics. Politics follows the energy sector.”

Navantia was founded in the 18th century, in military armory to build ships for the Spanish Navy. In 1908, the Spanish Society of Naval Construction was created in the Cadiz region and the Basque Country. In 1947, a national company was created, called Bazan, with shipyards for military facilities in Ferrol, Cartagena and Cadiz. In 1969, a new firm of civil shipyards construction was created called ‘Spanish Shipyards’ with facilities in the Basque Country, Cadiz, Gijon, and Valencia. In 2000, all the shipyard companies merged in one company – Izar – bringing together public, civil and military construction. In 2005, Navantia was founded on the back of this history of naval knowledge. It is a public company which belongs to Sociedad Estatal de Participaciones Industriales (SEPI), which is part of the Spanish Ministry of Finance and Civil Service and responds directly to the minister.

What is Navantia’s main service offering?

Navantia designs, constructs, transforms and repairs civil and military ships, as well as electronic systems for these ships, such as platform control systems and armory systems, either with partner companies or by ourselves. We also participate in technology transfer. Another crucial part of our offering is lifecycle support, which means not only delivering a product, but accompanying the clients after the product has been delivered. We offer both predictive and corrective maintenance plans with the objective of minimizing the number of non-working hours or maximizing the product’s lifecycle. We also produce diesel engines and turbines. Our main objective is operating naval programs associated with national defense. This represents more than 80 percent of our EUR 2 billion (USD 2.4 billion) overall business. We also have contracts with the Australian and Norwegian navies.

Additionally, since we are a 100 percent publicly-owned company based mostly in Cadiz, Ferrol and Cartagena, we have an important role in employment in these areas: our staff consists of 5,252 people now, but including induced employment from our activity, there are more than 37,000 people.

Since April 2017, we have been in a phase of reorganization. Recently, new management has been appointed, and along with these changes, we are preparing an industrial plan. The aim is to guarantee company sustainability and change the organizational model that we have been following up until now. The idea is to revolutionize the business model of management where shipyards get more power, so that the decisions can be more flexible in terms of deadlines and results achievement.

How did you convince the Australian navy to work with a Spanish company based on the other side of the world?

Even though it does not seem as if the mentality is very close, the truth is that the Australian mentality is open, very practical, and the Spanish and Australian navies are very similar. We overtime demonstrated our ability to deliver a finished product of the highest quality; the Spanish Navy indeed went to the Australian Navy and showed its efficiency and functionality. The result was very interesting, we signed a contract in 2007, against our main competitor, and that was the first step after which once we were known, we were asked to repeat. This is the best example of a client repeating their order for maintenance for example, and all associated services post-delivery.

What about technology transfer?

In terms of technology transfer, we are now making an amphibious ship, the same as that which has been made for Australia, but this time for Turkey. In this case, we do the design and use our knowledge in technology, and the ship is produced in Turkey. Moreover, since 2010, we have been working in the wind power sector and we have agreements with Iberdrola, Scottish Power, and have worked with floating structures for Statoil.

The military market is different. Countries that have their own technological capacity and shipyards have only one client in their domestic market which is the navy, they adapt themselves to their necessities and develop projects and products for that client. Later, with this knowledge and solutions to problems, along with the navy, we move to the international market to sell this very product. This is what happened with frigates with the serial number F100, another example would be the production for Norway, and this is also what happened with Australia. We are now trying to get the projects done there, in their facilities.

Only nine percent of the total market goes for export. These export processes have changed. First of all, the countries which economically can be called developers, like the US, the UK, France, Germany and Spain, have reduced their budgets during the crisis by up to 44 percent. This has allowed other players to enter the market. When we used to have approximately two thirds of the market, it was reduced to the level of nine percent of export. When we and the US were in those two thirds of the market, it was reduced by half. This year it is recovering, and now we are at 62 percent.

That being said, the demand for local construction has increased, which is also technology transfer. Today, more than two thirds of purchased products within the exportation market require fabrication in the place of origin. Thus, this change was very important, and it is the step we have made in other countries.

There is another factor in the military market which has started to appear. It is the European Defense market. It is becoming more and more apparent that Europe is thinking about common defense strategy, common projects, and shared budget. It’s known that NATO requires an increase in the budget for defense matters in European countries. We believe it is the right moment and opportunity to present the projects. This is a scheme according to which the military market operates.

The civil market is more well-known, more aggressive, and the driver is energy, not politics. Politics follows the energy sector. Petroleum prices dropped from USD 110 to 27 per barrel in 2014. In 2015 during the energy summits all the players assured that we would come to a USD 60 level, but this has not materialized yet and we are now in the USD 50 lines. As a result, there is less movement, investments were detracted, and there was a total collapse in the Oil and Gas market, not just in petroleum, but in gas as well. Gas has also dropped drastically. Among the world’s most well-known shipyards, three South Korean companies experienced real dramas. Nowadays they are immersed in a complicated situation. However, the truth is that the tendency is recovering, it is expected that by the end of 2020 here will be another recovery period.

What seems surprising however is that before the 2000s, the price of the barrel was at a similar level to what it is today… so shouldn’t the industry be well acquainted with the extreme cyclical nature of the oil and gas industry?

It is true… but it is very difficult when you are growing up, when you are on the top of the mountain at USD 100-110 per barrel to then fall to the very bottom. At one conference, when the price of petroleum was USD 30, one of the speakers when replying to the complaints of all the presidents, and management from the companies of the energy sector, reminded them that he and all who were present at the conference, had seen petroleum at a level below USD 20. They agreed, but underlined that it is easier to go from 20 to 100, than from 100 to 20 again. This was a drama – for sure. But as I mentioned, I expect a full recovery of our shipbuilding industry by 2020. The Korean government has opened the rescue fund, so that the three shipyards have enough time to recover by 2020.

What is interesting is to look at is the cruise sector,. In 2015, the cruise business represented between 4 to 10% of the civil ships, and today, it surpasses 60%. While the oil and gas market has fallen, the cruise market has impressively increased. It is a sector which is, frankly speaking, very profitable. In 2016, they had 40% of the market quote, the historical maximum in 40 years.

Tell us more about the internationalization strategy of Navantia and some specific contracts you recently won.

I have already mentioned our operations in Australia, which represents a great source of satisfaction for us with more than 150 people. It is in the process of growing and we are signing agreements of high value in the country. We also have delegations in Brazil, the Middle East, Turkey and India. As for the commercial strategy, the number of contracts from previous years is aggressive and we have received 300 offers since 2015 from almost every country in the world.

We count in our portfolio clients such as Iberdrola, Scottish Power and Statoil. With Iberdrola, we won a bid in Germany to build the substation and it was delivered last year. In August 2016, a new project came from East Anglia in the UK. We won it along with Iberdrola for more jackets and a substation. What advantage does it have? First, to show that we can do it, and it also generates wealth and employment in the area where it takes place. For example, in our Ferrol facilities, we today employ 700 people. Additionally, it helps us to access new contracts where we are currently immersed. Having such demanding clients as Iberdrola, Statoil or Scottish Power, helps improve our competitiveness. The more demanding a client is, the more effort you need to take in measures, procedures, logistics, and engineering. This is what´s called sophisticated demand.

Today, in Spain, there are several players in the wind energy sector, rather qualified, with whom we have relations or will have some in the future. Thanks to our state of the art facilities, knowledge, track record local clientele base and the technological alliances we have, this market has become very important for Navantia.

As for naval construction in the oilfield, we have agreements with four petroleum companies in Spain. Suezmax is the model we used for the minimization of risk with the help of a Korean engineering company . This is the model that was experienced and the first tanker is about to float (September 2017).

In LNG, we have done the same thing but the other way around. We have developed a project called the national LNG of Navantia, and collaborate with this Korean company to continue development. Obviously, it is not the best moment, since there are no important international tenders currently. But as we have said, the cost on the LNG market is very low, and when talking to them, they always reply that they need good news from this market. Without good news, it is hard to reactivate it.

What are you going to do regarding this situation?

For a long period of time, we were not able to enter the civil market, and did not produce any tanker after the 1970s. We however built 6 LNG vessels in 2004. What we do now, is to get ready to be able to enter. We entered the petroleum market, let’s see if we can do the same thing with LNG. At the moment, Puertos del Estados and Enagas are developing projects for the next 3-4 years to be available once the demand increases, and have ships at their disposal. These ships are small, they are not from our field, but we are doing the follow up of the value chain. This way, the service could be complete.

In Spain, there are 7 regasification plants but until now, we could only accept LNG and couldn’t deliver it back. Nowadays, investments are being made in that sense, since a cruise ship will never go to the regasification terminal to reload its tankers. It will always be a small ship that will reload the big ones.

When it comes to repairs, we have 3 niches in which we are specialized: LNG (from Ferrol), cruise ships (from Cadiz) and big yachts (from Cartagena). In 1992, our company. decided to enter the market of LNG repairs A technical service agreement was signed with GTT and Navantia was given a license and homologation for repairing the membrane. This agreement enabled Navantia to become a European leader in the field, and actually, we are not just a leader: last year, the only shipyard that repaired LNG vessels was Navantia, even though there was a drop of operations registered.

Recently, we have also started working with cryogenic systems to be able to repair not only ships, but also Spanish regasification plants. If you know how to repair cryogenic systems, you can be sure that these plants will need you. We are also working on another initiative with Gas Natural Fenosa and Reganosa: the possibility of a shipyard to receive gas to cool down the membrane after being repaired.

Looking at the technological side of your business, how would you define the shipyard 4.0?

Navantia is supporting a process that was created mostly in Germany, which is industry 4.0. It actually means focusing on identifying the strengths of a particular country with industrial assets and how we could build a technological and digital edge versus our competitors. For Navantia this means creating a digital platform and a digital model of all the elements that a ship has in a virtual way, so that both the client and Navantia could develop functions. It would even allow us to see how to disassemble the equipment. In this way, prejudice could be avoided and errors could be also avoided in manufacturing. But it also has another dimension, based on Big Data and data analysis. We could then optimize the number of parts and elements that should be bought. All this will be created inside the model and will help to avoid reformation. This digitalization with the Big Data and cybersecurity (to avoid any leak of information), allows for an optimal modelling of ships and processes. The shipyard 4.0 will be able to know in real time the state of manufacturing process. This helps to avoid stocks, allows the suppliers to bring all the materials that we buy in time, instead of having big storages and big stocks, and it generates competitivity.

Is this the area in which you work with Indra, for example?

With Indra, we both collaborate and compete, a concept we call “coo-petir”. When there are several companies in the same region that work in the same market, through collaboration, we can access a larger and more powerful customer base, and through competition between ourselves, we become stronger. It might sound as a strange concept, but the setting will ultimately bring profit. This is what happens with Indra, we make systems and Indra does them as well. The ship digitally developed has the following advantages: it can be monitored, and it can make the support of lifecycle more accessible.

Spain could play a huge role in African oil and gas, especially considering the position of the Canary Islands. Do you see this materializing?

Oil and gas, and LNG are completely global businesses. Whereas in the past there were many fixed routes, this is no longer the case today. Let’s take the example of Gas Natural Fenosa: they work in Africa but they repair with us. It is the owner who decides if it’s Ferrol, Singapore, or Dubai that will do the repair. Without a doubt, Ferrol has a big piece of the market and we are a hub to a certain extent, but I think these variables are not correlated. The fact that Africa has a big potential doesn’t mean that all the companies would go to the closest place geographically speaking. One needs to be good at repairs, have the best prices, and all necessary additional services. That’s why we are leaders in Europe, but I don’t really believe in this hub positioning towards Africa.

A few words to conclude?

Navantia, with 300 years of existence in naval construction is a leader in its field. We are an engine of economic growth and a strong creator of employment. We are a technologically driven company with the capacity to design products and systems, and we are innovative experts in ship repairs. Navantia contributes to doing a good job in the Spanish industry and in the world.



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