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Royal Mail Steam Packet Company Kylsant Empire Part 4
From SN Guides
Kylsant’s discovery of the Harland & Wolff nightmare after Pirrie’s death
Part 4 takes the history onward from Pirrie’s death during a trip to South America in June 1924.
The Harland & Wolff on the verge of bankruptcy
The only certain Royal Mail group response would have been to face reality; close all or most of H&W and swallow the resultant investment losses. Kylsant felt however that H&W’s plight was a serious threat to the survival of the entire Royal Mail group. RMSP, Union-Castle and the Elder Dempster companies, all had substantial share investments in H&W. These investments were in the shipping companies’ balance sheets at cost but were in reality almost worthless. Group companies had also made cash loans of almost £600,000 to H&W. In addition, because of the complex cross-investments between the companies in the Royal Mail group, if the collapse of H&W caused one of the shipping companies to fail, this would have a domino effect throughout the group. As the entire group was increasingly dependent upon credit and Government loans, Kylsant thought it was imperative to avoid any public suspicion of failure.
Instead of Royal Mail raising money to cover the group’s real investment losses, Kylsant’s response to the massive problems posed by the H&W nightmare was characteristically cavalier. Within days he announced that H&W was to go public by the issue of £4,000,000 new non-voting preference shares. This move would require the publication of H&W’s accounts for the first time in its history, but Kylsant delayed that event by moving the Company’s year end from 30 June to 31 December, thus giving himself a little time to massage the figures.
Against the background of the gloomy news from other public shipbuilding and engineering companies, the preference share issue was a disaster. Only 12% of the stock was subscribed, mainly from the conversion of existing loans to H&W. The rest of the issue was left in the hands of the underwriters. At least H&W received its badly needed funds, but until the underwriters could sell the stock, the entire Royal Mail group was cut off from the Stock Exchange as a source of finance.
The shipbuilder faced other massive problems. In his latter years, Pirrie had filled most of the Company’s management positions with servile yes-men. The team had no knowledge of the finances of H&W; how estimates were prepared and contract details were a mystery to them. Over three decades of cost-plus Commission Club contracts (See Part 1) had produced a management with no experience of the application of efficient cost control. The deputy chairman, Robert Crighton buckled under the strain and died some 10 weeks after Pirrie. In the ensuing hiatus, Lady Pirrie briefly assumed control of the works committee and seemed to be trying to seize the leadership of H&W. Kylsant moved swiftly to re-establish control, although he was hampered by the quality of the Company’s management. While the young engine-works director, Frederick Rebbeck had great promise, only John Craig of Colville’s Steelworks had any overall management experience. John Craig was appointed deputy chairman and the two men devoted their attention to the education and development of the other board members.
Kylsant and Craig also carried out a detailed investigation of H&W’s financial situation. They were dismayed to discover that, except for the Commission Club contracts, every ship on the order book was being built at a loss. The twelve-ship Andrew Weir contract was projected to lose over £750,000 and three liners for P&O to lose over £311,000. To make matters worse, Pirrie had already taken the eventual profit on the cost-plus contracts into the results for previous years. Even by the relaxed accounting standards of the 1920s H&W should have shown a loss of about £1,000,000 for the eighteen month 1923/24 accounting period. Kylsant needed to avoid disclosing the true trading position and that, despite the inflow of £4,000,000 from the creation of the new preference shares, the balance sheet was still in a precarious state. The fact that this was the Company’s first public balance sheet was a great help – there were no previously published comparatives. Many of the new balance sheet descriptions were highly misleading. Kylsant’s creative accounting disguised most of the Company’s financial problems. Undisclosed special dividends of £720,000 (from reserves established in prior years by the wholly owned Clyde companies) were added to the current H&W trading income and further amounts transferred to the profit and loss account from H&Ws reserves established in earlier years for other purposes. By entirely ignoring depreciation Kylsant produced a paper profit of £368,000.
Although the balance sheet Audit Certificate was qualified as to the “sufficiency of the provision for Depreciation” the first H&W public accounts were favourably received by the press, financiers and investors in the City. Their main reaction was positive, allaying their fears that H&W would be unable to pay the dividend on the new preference shares. In truth the dividend came from the proceeds of the share issue, rather than trading profits, but this was concealed from the public. The City’s favourable view enabled the underwriters to dispose of the shares they were holding, leaving Kylsant and his team to concentrate on bringing work into the shipyards and trying to improve its productivity.
The Pirrie-Kylsant Motor Ships
These Kylsant orders were entirely dependent upon Government guaranteed loans under the Trade Facilities Act (TFA) (See Part 3). Negotiating these loans was a painfully slow bureaucratic process. Some of the projects had started before Pirrie’s death; as a result the liners are usually referred to as Pirrie-Kylsant Motor Ships.
H&W had already converted an existing diesel powered cargo ship into the Elder Dempster Group’s Aba in 1920, which was the world’s first diesel passenger liner and had built the motor liner Adda for the same Kylsant company in 1922. (See Part 3) An impressive stream TFA financed motor liners now followed.
The Elder Dempster group liner Accra delivered in 1926 and her sister Apapa in January 1927 were the last of the small, pioneer, diesel propelled liners. Apart from carrying a single fat squat funnel, both ships continued the utilitarian appearance of the earlier motor liners.
Union-Castle’s Carnarvon Castle was delivered in June 1926, four months after Asturias. She had an identical hull and machinery arrangement as Asturias and suffered from the same problems. In 1937 she was completely rebuilt by replacing the diesel engines with 10 cylinder B&W engines developing 26,000 bhp and extending the forepart of the ship by 30 feet, with a new raked bow. These changes increased her service speed to 19 knots. She was also fitted with a single conventional funnel.
The two funnel trade mark was even applied to the Belfast Steamship Co’s Irish Sea ferry Ulster Monarch (3,851 GRT, delivered 1929). In service, this ship rolled badly in stormy conditions and the funnels were reduced in height, but the dummy funnel was still retained.
Ulster Monarch was followed in 1930 by sister ships Ulster Queen and Ulster Prince and the slightly smaller (3,019 GRT) Innisfallen for the City of Cork Steam Packet Co.
The next two Kylsant Motor Ships were delivered to Union-Castle for their Round Africa service. Of all of the ships that were built in this series, these two were probably the ugliest. Bizarrely, although they were both delivered from H&W’s Govan yard only six months apart and for the same service, they were built to entirely different designs. Llangibby Castle (1929) was 14.4 feet longer and 1 foot wider than Dunbar Castle (1930) and they were powered by different B&W diesel engines. These differences inevitably added unnecessary costs.
Two Union-Castle mail ships were next to be built in Belfast. Although they closely resembled Carnarvon Castle, they had an improved hull-form that overcame the problems experienced with the first three vessels in the Kylsant series. Winchester Castle was delivered in 1930 and Warwick Castle followed three months later in January 1931. In 1938 both ships were re-engined as Carnarvon Castle to achieve 19 knots service speed. There was no need to modify the hull, but they were fitted with a conventional single funnel, which greatly improved their appearance.
Although the PSNC passenger route to the west coast of South America was quite adequately served by the Company’s existing ships, the Reina del Pacifico was built “as an act of faith” in the future of the service. In reality she seems to have been mainly built to occupy H&W. Unlike all of the other Kylsant Motor Ships, Reina del Pacifico was quadruple screw, to ensure higher speed. She dramatically outclassed all previous ships on the service, reducing the round trip time to Valparaiso by 18 days. Unfortunately she entered service in 1931 at a time when the world economy was descending into a deep slump.
The last of the Kylsant Motor Ships, Achimoto for Elder Dempster, suffered a series of early misfortunes. Her engines were built in H&W’s Clyde works and the ship transporting them to Belfast in 1930 sank during the voyage, delaying Achimoto’s completion until September 1931. By that time the Kylsant empire had imploded and Elder Dempster were unable to pay the £300.000 contract instalment due upon delivery. Achimoto was repossessed, laid-up at Belfast and offered for sale. The cost-plus value of the ship was £520,000, but the best offer for her was £346,376 from the Melbourne shipowners, Huddart Parker & Co. Although the Australians were clearly taking advantage of H&W’s predicament, the transaction gives an indication of how uncompetitive H&W‘s prices had become. After modification to the accommodation, Achimoto sailed from Belfast on 29 November 1932 and was renamed Wanganella in Melbourne. She entered into her new owner’s Melbourne-Sydney-Auckland service in February 1933.
This remarkable series of motor ships was without parallel in the world’s merchant fleets. The diesel engines involved were very difficult and expensive to build and operate. A number of units developed problems in service. The almost continuous technical modifications that were applied to each set of engines, plus the absence of any form of prototype construction and testing were major contributors to the very poor H&W financial performance throughout the post war period.
Continued Harland and Wolff problems
The 1925 financial results were an improvement on the previous year, enabling Kylsant to make a £300,000 depreciation provision and to pay the dividend due on the publically held Preference Shares, but he was not able to make any payment on the Preference and Ordinary Shares held by the Royal Mail group. The Company’s borrowings increased, but the shipping and financial press were generally pleased with Kylsant’s masterful portrayal of the results.
At the beginning of 1926 freight rates started to improve and Kylsant’s family owned tramp company, King Line, quickly applied for, and obtained a loan guaranteed by the Northern Ireland Government to cover the construction of three 4,500 ton and six 5,200 cargo ships at H&W Belfast. While this provided additional work for Belfast, the source of the loan prevented H&W from building the ships in the cheaper Govan yard that needed work to follow on from the Andrew Weir contract.
The growing optimism was dashed in May 1926 by the national coal miners’ dispute and the short lived general strike. The miners remained on strike until the winter causing serious disruption to the group’s David Colville & Sons steelworks, leading to a grave shortage of materials in the shipyards. Production schedules had to be abandoned and 40% of the shipyard workforce laid-off. New orders continued to be placed with the Company but these were mainly for very small vessels. H&W needed liner orders, but these were only being placed by the Royal Mail group. As liners were delivered to other companies, no further orders were forthcoming.
Harland and Wolff Liners built for Non-Royal Mail Owners
P&O ordered three liners from the Caird's Greenock shipyard, but these were contracted on a fixed price and not on the usual Commission Club basis. The yard made a loss of £311,256 on a contract price of £2,672,700 for the three vessels. All were delivered in 1925, but H&W did not build another passenger liner for P&O until the Iberia of 1954.
Razmak was built for the extra service that P&O operated from Bombay to Aden to connect with its mail liners operating on the Australia route. In 1929 the faster P&O ships introduced onto the Australian service were able to make an additional call at Bombay and still maintain the contractual voyage time to Australia. As a result Razmak was no longer needed. She was transferred to Union SS Co of New Zealand, renamed Monowai and employed on its Sydney – San Francisco service.
Holland America initially struggled to become established, but in 1886 there was a sudden great increase in the number of emigrants to the USA and the Company added a number of second hand H&W built liners to its fleet. H&W was the Company’s natural choice when it bought its first new liner, which was delivered in 1897. Statendam was the tenth H&W liner built for Holland America. All work was stopped on the ship after her launch in 1924, because of the impact on transatlantic travel of the draconian new US immigration restrictions. In 1927, H&W were instructed to complete work on the ship’s hull and machinery, after which she was towed to Holland for completion. Work proceeded slowly, in pace with the Company’s ability to raise finance, with the ship eventually entering service in 1929.
Holland America remained in existence, but never ordered another liner from H&W. The Company is today one of the brands owned by Carnival Corporation. At the end of 2007 Holland America operated 13 cruise ships.
When the relationship between the two Companies began, both were supported by the Liverpool financier, Gustavus Christian Schwabe. As a consequence White Star ships were built under cost-plus contracts, starting the H&W Commission Club. Ominously OSN demanded that Laurentic should be built under a fixed price contract. H&W responded by producing an austerity vessel, greatly alienating its customer. She was the last coal-fired, triple expansion major transatlantic liner and was already obsolete at the time of her delivery. Bizarrely, although she was intended and indeed named for the Canadian service, she was delivered with masts that were too tall to pass under the Montreal Bridge and they had to be cut down. The ship was considerably delayed by miner’s strike and finally entered service at the end of 1927.
Oceanic Steam Navigation Co
The draconian US immigration regulations were crippling IMMC and there had already been some failed attempts by other shipowners to acquire all or part of the American group. Despite the precarious financial condition of Kylsant’s empire, he immediately offered to buy Oceanic Steam Navigation Co and agreement was reached in November 1926 at the very high price of £7,000,000. The consequences of Kylsant’s reckless acquisition on the stability of the Royal Mail group are told in Part 5 of this Article.