Smooth sailing for yacht builders despite economy
By ALAN SAYRE, Associated Press
Jul 4, 2008 1:09 PM CDT
Trinity Boat President John Dane III talks with the Associated Press in New Orleans, Tuesday, April 29, 2008. Although the world economy is being shaken by $135-per-barrel oil, there's no shortage of buyers willing to put down tens of millions of dollars for a "super yacht," a floating second home...   (Associated Press)

Fuel prices are soaring and credit markets tightening, but the super-rich are still lining up to pay tens of millions of dollars for mega yachts.

The well-heeled buyers of the floating mansions are increasingly coming from emerging economies _ in the Middle East, Russia and South America. The source of their wealth runs the gamut _ technology, venture capitalism, new industries. And, yes, oil.

"There are a lot of people with new wealth looking for relaxation and enjoyment," said John Dane III, president of privately owned Trinity Yachts, the largest U.S. builder.

These days, the biggest problem at Trinity's shipbuilding yards is having enough workers to handle the 24 custom contracts the company currently is working for the luxury vessels.

"Nobody is buying these yachts because they need them," said William S. Smith III, Trinity's vice president. "They're buying them because they want them."

Another builder, YCO Deuxil PLC, has nine yachts under construction _ more than double from last year. Sales for the first five months exceeded the entire amount for 2007, the London-based company said.

YCO Deuxil, which also provides services for super yacht owners, saw its profit more than double to $549,367 in 2007 over 2006.

According to Camper & Nicholsons International, a broker of yacht sales and charter contracts, there are about 3,800 yachts over 80 feet in service around the world now. About 1,800 of those have been built since 2000. The study predicts that that by 2010, there will be 5,000 such yachts on the water.

"There's not enough supply," said Ed Slack, editor of International Boat Industry. "It takes two years to build some of these yachts and the demand hasn't slowed down."

So far, Trinity's largest vessel has been a 192-foot yacht that would carry a replacement price of $60 million to $65 million. The company is working a 242-footer that will have a price tag in excess of $90 million.

In the Netherlands, the First Export Association of Dutch Shipbuilding, or Feadship, can put together a 128-footer for about $40 million. On the upper end of an already high scale, a 300-foot monster yacht typically will run around $150 million.

Francois van Well, chief executive of Feadship America, said about 50 percent of his company's business comes from the United States, but more buyers are coming the rest of the world. And it's not old family money.

"Most of our clients have earned their wealth in one generation," van Well said.

Trinity, which once had an almost exclusive U.S. buyer base, also is seeing more overseas buyers who have recently moved into substantial money, Dane and Smith said.

At the Global Superyacht Forum, a meeting of yacht owners in Amsterdam last November, Steven Rattner, manager of DLJ Merchant Banking Partners, said there are 90,000 families in the world with a net worth of more than $360 million each. That number is expected to increase over the next three years by 10 percent a year.

Because most of the new buyers are still active in business, they only have so much time a year for their yachts. Many also have vacation homes overseas. And they know about investments.

Enter the charter business, especially in the Mediterranean where, according to Dane, a 164-foot yacht can easily bring $350,000 a week. By chartering a boat 10 weeks a year, the owners can pay operating expenses for a full year, he said.

"The charter market has allowed people to buy boats a little larger than they would have wanted to invest in had they not seen it as a source of revenue to help defray their operating costs," Dane said.

And these vessels don't depreciate in price.

Dane said the first owner of every Trinity-built yacht who decided later to sell got more for it than the purchase price. Three were sold by the original buyer even before they were delivered.

"We have one owner and this is his fourth boat and he's never taken delivery," Dane said. "Rich people don't want to wait on a boat and they'll pay a premium. This owner has taken that premium and moved to the back of the line."

Trinity has about 900 employees at its yards in Gulfport, Miss., and in New Orleans, where the company's yard was used to build the Higgins vessels of World War II and D-Day fame. Feadship has three European yards that keep 1,200 workers busy turning out an average of five yachts a year.

Dane said he could use more workers to keep up with the orders. When someone is ready to buy, a long delay could mean "they look for another yard," he said.

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