Mitsubishi Heavy Industries announces $586M loss on cruise ship builds

By Finance

Mitsubishi Heavy Industries, Ltd. (MHI) has reported immense financial loss of around 60 billion yen (nearly US$586 million) in the process of building 2 cruise ships. The loss is a result related to the process of construction and will be included in the financial results for the fiscal 2013 (ending March 31, 2014).

Three years ago (November 2011), Mitsubishi Heavy Industries signed a contract for building 2 large cruise ships for AIDA Cruises. The company is part of COSTA Group (subsidiary of Carnival Corporation & plc). MHI received an order for the construction of 2 cruise ships of 124,500 gross tonnage, passenger capacity - 3,300. The vessels are expected to be delivered in the beginning of 2015 and in the beginning of 2016 from Mitsubishi Heavy Industries shipyard located in Nagasaki.

The construction of the first of the cruise ships started in 2013. The vessels are planned to be built as next-generation energy-efficient cruise ships and to operate as a prototype for the AIDA Cruises. There was need of time for the pre-construction details to be considered. During the construction progress, difficulties emerged, according to MHI. The work over the design of the cruise ship cabins and other areas was immense, there were many changes in the design and because of that a delay in the design work was reported.  

The construction process needs more time and that is one of the reasons for the increased costs. Other factors leading to the US$586M loss are: additional material procurement, construction schedule, etc. MHI informed that the current earnings forecasts for FY2013 will not be changed.