Author Topic: Cunard in trouble in 1967  (Read 1784 times)

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Online Waverley

Cunard in trouble in 1967
« on: Feb 11, 2011, 10:45 PM »
« Last Edit: Jan 03, 2015, 11:22 AM by Lynda Bradford »

Online Michael Gallagher

Re: Cunard in trouble in 1967
« Reply #1 on: Feb 12, 2011, 10:06 PM »
Cunard’s financial situation had worsened during 1967 and the company forecast a further £3½ million loss of the passenger ships for that year. This was compounded by the news from John Browns in July that the contract price for Q4 of £25½ million would probably be increased by a further £3 million. Even if Q4’s cost had not risen the additional losses on the passenger ships would mean that the Government’s financial aid would not be adequate. Cunard warned the Board of Trade that the project was in danger of being abandoned, with major political repercussions, unless the Government would agree to increase the loan.

Sir Basil Smallpeice (Cunard Chairman) said:

“I have seen the Board of Trade about the new loan and they are considering our request. It is to cover the increases in shipyard wages and materials since the £25,500,000 contract for the Q4vwas signed in 1964.

“When the Government loan was arranged it was to cover 80 per cent of the estimated cost of the hull and machinery, but it did not take into account a substantial escalation of in cost levels. Even now it is impossible to tell what the final price of the Q4 will be when she comes into service early in 1969”.

There then followed a period of intensive negotiations between Cunard and the Government throughout August and September with Cunard stressing that a final decision would have to have been made by the time of their next Board Meeting on 14 September – if the worse had come to the worse the company felt they would have to give the Queen at least five days notice of a cancellation!

In his autobiography ‘Of Comets and Queens’ Sir Basil would later write:

“We had no indication of what the Government were prepared to do by the afternoon of the 13th. Geoffrey Seligman (of S G Warburg, our merchant bankers) and I asked to see Harold Lever, the Financial Secretary to the Treasury, that evening. We met him in his flat in Eaton Square. This gave us the opportunity to present our case to him in a simple and straightforward manner, not through officials. Without a larger loan from Government, we should almost certainly have to stop building the ship; her new cost was much higher than quoted in 1964 and we could not meet it in full. He listened with evident sympathy and asked questions to fill gaps in his knowledge. He promised to let me have a written answer before or during our board meeting next morning. And with that, which was all we could have expected, Geoffrey and I retired to our respective homes and Harold Lever left – late – for a dinner engagement.

“While waiting for the Financial Secretary’s letter, we had time at our board meeting to consider what we would do if the Government’s response proved negative. Geoffrey Seligman was with us, and so were Sir Henry Benson and Anthony Pinkney, our auditors. It was a grim prospect. We might even have to put Cunard into liquidation. At last the long-awaited letter arrived. To our great and undisguised relief, we found that our basic requirements had been substantially met”.

On 19 September on the eve of the launch Cunard announced that agreements had been reached in the discussions with the Board of Trade concerning the provision of additional finance for the completion and putting into service of Q4. The existing loan agreement under which the Government would make available a loan of £17.6 million on delivery of the ship by the shipyard to Cunard was to be replaced with a new arrangement. Under it the Government was now prepared to lend in the neighbourhood of £24 million which Cunard could draw as may have been necessary in advance if delivery.

The original arrangements for Cunard borrowing from a consortium of banks to enable progress payments for to be made while the ship was under construction was therefore to be brought to an end as soon as practicable.

The new Government loan was to be in two parts. Cunard intended to set up a separate subsidiary company to own the passenger ship fleet (including Q4) and other assets necessary for the operation of the transatlantic and other passenger services. At the option of the Cunard board, up to £14 million (including £2 million for working capital) could be lent to this subsidiary company. The security for this part of the loan was confined to the assets of the passenger subsidiary company, and would not require any guarantee by Cunard or any other member of the Cunard group.

The terms of this part of the loan provided for interest of 4½ per annum until the end of three years from delivery of Q4 and thereafter at a rate to be agreed; for repayment to be completed by the end of 12 years from delivery.

The remaining £10 million of the loan was made to the Cunard Steamship Co. Ltd. The rate of interest was 4½ per annum throughout and repayments of the loan would not necessarily be in equal amounts but would be completed within five years of the first drawing.

This new loan arrangement relieved Cunard at a time of continuing trading difficulties, of the strain in its cash resources involved in putting Q4 into service.
« Last Edit: Jan 03, 2015, 11:22 AM by Lynda Bradford »


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