State-run 'ferry fiasco' Ferguson Marine shipyard firm makes £100m loss in four months

The deficit revealed by Ferguson Marine (Port Glasgow) Holdings is linked to the failure to deliver the two long overdue lifeline island ferries MV Glen Sannox and Hull 802 which has led to costs more than doubling from the original £97m contract.

It comes as it was confirmed that ministers have taken over the contracts for the ferries, and terminated the existing agreements with Caledonian Maritime Assets Ltd (CMAL), the taxpayer-funded company which owns and procures ferries.

The Port Glasgow yard went into administration in August, 2019 with the ferries still far from completion, and was taken over by the Scottish government.

According to financial papers seen by the Herald, the accounts deficit is linked to a revised programme for delivering and completing the ferries which created a £94.5m loss on the contracts.

It comes as it emerged that the Scottish Government have pumped over £17m into the business during the four months to March 2020 - including £10m into the construction of the two ferries.

Ferguson Marine director Tim Hair, who is taking home £790,000 a year to run the enterprise for the Scottish Government, said the loss did not reflect the performance of the shipyard and was based on "the auditor's view of the contractual arrangements in place at the time the shipyard was brought into public ownership".

It comes a week after the ferry network was plunged into further crisis ahead of the easing of lockdown with four vessels breaking down in the space of three weeks while it emerged a replacement freight serves can only take four lorries.

The problems emerged as CalMac's largest ferry MV Loch Seaforth was taken off the Ullapool-Stornoway route to be taken into dry dock for "major" engine repairs. The eight-year-old vessel is not expected back in service till May 17.

Gavin Fulton, chairman of the Arran Ferry Action Group which has been waiting for a long-delayed replacement vessel for the busy Ardrossan to Brodick crossing said of the latest revelations: "It is unbelievable and what we have come to expect now.

"It is just signs of more waste and squandering of public money with no result. "Who is going to be held account for this massive waste?

"Politicians and civil servants should not be involved in trying to run a shipyard as this news amply demonstrates. Meanwhile the entire Clyde and Western Isles ferry service is in chaos as a result .

"They shouldn't be able to get away with this because it is a complete scandal.

The two ferries were originally due to enter service on the Arran and Skye/Outer Hebrides routes in 2018/19.

But the work repeatedly fell behind schedule and costs rose, with the Inverclyde yard's owner Jim McColl and CMAL, blaming each other for the problems as Ferguson Marine went into insolvency.

The Herald on Sunday revealed that ministers had ensured there was a "right to buy" the shipyard when it provided a £30m loan nearly three years ago knowing it was creating a path to a controversial state ownership.

While finance secretary Derek Mackay was telling the public in June, 2018 that the £30m loan was “to further diversify their business", internal documents revealed the real reason was that Ferguson was in financial trouble and at risk of falling into administration.

Meanwhile, ministers were ensuring that the loans came with it a pathway to nationalisation.

Under a revised ferry delivery schedule given in August, the first ferry - Glen Sannox - was to be completed between April and June 2022 and the second vessel between December 2022 and February 2023.

Joe Reade, chairman of the Mull & Iona Ferry Committee, added: "These colossal sums - just to deliver two ferries – could have been spent so much better. Had the same amount been spent on series construction of proven industry-standard designs, more than half of the entire CalMac fleet could have been renewed. Instead, all we have is the hope that these over-sized, over-complex one-off ships might be delivered at some distant point in the future.

"At what point do we decide that good money is being thrown after bad? At the same time as this seemingly bottomless pot of money is being poured into a failed shipyard, government seem blind to the obvious alternatives that could actually deliver vessels fit for purpose."

In a recent update Ferguson Marine said that recruitment uncertainty meant "it is not therefore possible to provide a definitive schedule for completion of the vessels at this time".

The recruitment launch with Tim Hair.

Ferguson Marine hoped to take on 120 extra workers to enable seven-day working but at the end of March the new shift had only 29 staff in place and that the delivery timetable had slipped by seven weeks due to Covid-related issues.

The difficulties in recruiting skilled workers could lead to a further delay.

While Ferguson Marine are working to the original schedule no predictions were being made about its future course.

The shipyard, which currently employs about 400 workers, has been looking to fill vacancies through sub-contractors.

Mr Hair has remained upbeat about what he described as an 'accounting loss'.

He said: "With the yard being brought into public ownership, the Scottish Government, working with Ferguson Marine and CMAL, has made some contractual changes to reflect the most appropriate financial arrangements for the project going forward. "As a result of these contractual changes, the reported loss will not be realised and will therefore be reversed in the accounts for the year ending March 31, 2021, which will show a corresponding profit.

"Both the 2020 loss and the 2021 profit are simply accounting matters that are not reflective of the underlying performance of the shipyard and do not have any impact on the estimated costs to complete the ferries."

But he admitted that 2020 had been a challenging year for Ferguson Marine.

"The work required to stabilise the business was always going to make it a demanding time, but the addition of a global pandemic and prolonged shutdown at the yard created a uniquely difficult situation. Despite this, and because of some exceptional efforts, improvements have beenmade across the business that give a good foundation for completion of the ferries."

The Scottish Government said it was "an operational matter for the yard".

Ferguson Marine said it could not make further comment on the reasons for the loss because it was constrained by pre-election purdah.

Timeline

March, 1903: Ferguson Shipbuilders lease the Newark Shipyard in Port Glasgow for £500 a year and secures its first order for two steam tugs.

August, 2014: Ferguson goes into receivership with the loss of up to 77 jobs.

September, 2014: Clyde Blowers Capital, an industrial company owned by tycoon Jim McColl, purchases the yard for £600,000 and renamed it Ferguson Marine Engineering Ltd (FMEL).

August 2015: Government-owned Caledonian Maritime Assets announced that an order for two ferries for publicly owned CalMac capable of operating on either marine diesel oil or liquefied natural gas, had been won by Ferguson.

August, 2019: The directors of FMEL gave notice that the company would be put into administration after a failure to resolove a dispute over increased costs and delays to the construction of the ferries.

December, 2019: The government takes over ownership of the shipyard.

January, 2020: A Scottish Parliament inquiry is told that the large ferries MV Glen Sannox and Hull 802 were "significantly less than half built".