Japanese Shipbuilding Giants Cut Their Losses

Japan's Kawasaki Heavy Industries Ltd. and Ishikawajima-Harima Heavy Industries Co. Ltd (IHI) said on Tuesday they would integrate their loss-making shipbuilding divisions in October 2002.

News of the alliance was welcomed by investors, who sent shares in Kawasaki Heavy up five percent to 168 yen while IHI closed at 272 yen, gaining 7.5 percent.

The alliance of Japan's second- and third-biggest heavy machinery and ship makers, intended to bring them back to profitability, reflects growing competition from Korean shipbuilders able to take advantage of low manufacturing costs and a weak won.

The two companies will form a 50-50 joint venture based in Tokyo and will make joint use of Kawasaki's plants in Kobe and Sakaide and IHI's plants in Yokohama and Kure, they said. The company will target annual sales of 200 billion yen ($1.5 billion) in the year to March 2005 with a ratio of current profit to sales at two to three percent, they said.

Two firms had initially planned to integrate their shipbuilding businesses with that of sixth-ranked Mitsui Engineering & Shipbuilding Co. Ltd., whose shipbuilding operations are profitable. Kawasaki and Mitsui Engineering began cooperating in 1999 on procurement, market research, design and output, and IHI joined the alliance late last year. However, Kawasaki and IHI said Mitsui Engineering would not be joining for the time being. They gave no reason. The two firms employ a combined 3,712 people in their shipbuilding businesses and all will move to the new venture.