KEY POINTS:
1.Company books NOK411 million impairment charges against fleet of four ships
2. These include 1993 built Braemar and 1988 built Balmoral
The decision of Fred. Olsen Cruise Lines to book an impairment charge against the value of its ships did not come as a surprise after All Leisure group in the UK had earlier this month booked a £6.7 million impairment against the value of its 1972 built Discovery of 20,636 gross tons.
However, what is noteworthy in the decision of Olsen is that it includes two ships that younger than 30 years, which is regarded as the depreciation time of major capital assets like ships. The company has reported losses for some time and as the valuation of any asset is ultimately dependent on its ability to generate profits for its owner, this could be understood.
Furthermore, all ships in the Olsen fleet have received major upgrades in the past decade, the two oldest units have been re-engined, while Braemar and Balmoral have been lengthened. This must have increased their book value.
A question that arises from today's news is whether the book values of third generation cruise ships, such as the Fantasy class of Carnival Cruise Lines and Sovereign class of Royal Caribbean Cruises Ltd. will require an impairment.
These ships that largely lack balcony cabins must obtain markedly lower yields than more modern tonnage that features more balconies. The question of valuation may, therefore, refuse to go away from the agenda.
