A last-ditch effort to save the engineering group Babcock Borsig from insolvency has failed. The group had filed for insolvency last week but hoped that talks could produce a restructuring plan. They didn’t.
Babcock's insolvency is inevitable - thousands of jobs are at risk
Eleventh-hour negotiations aimed at saving the century-old Babcock Borsig AG from insolvency have broken down once and for all. On Monday afternoon, Wolfgang Clement, premier of the state of North Rhine-Westphalia, said that creditors were not convinced by the group’s restructuring plan and new management structure.
The insolvency process, which began on July 4 with the initial filing by Babcock’s main holding company, will now move forward. The group had hoped the nearly non-stop talks going on since Wednesday would produce a plan that would enable it to withdraw its insolvency application and avoid any lasting damage.
Babcock, which employees some 22,000 people worldwide and 13,000 in Germany, has been struggling to make a sustainable financial profit for two decades now, but problems really began to mount in March when it pulled out of its submarine-making operations to focus on the energy sector.
Government Help Offered
As the seriousness of the situation became apparent, the German government stepped in and offered to help bail the cash-strapped group out. German Chancellor Gerhard Schröder was eager to prevent yet another high-profile corporate casualty in the wake of the Kirch Group, Cargolifter, and the Holzmann construction firm.
Schröder is facing a tough re-election bid in less than three months in which the state of the economy is the leading issue.
But any help from the government would have needed a matching cash injection from creditor banks, and the crisis talks failed to convince those creditors that Babcock was worth the risk.
Babcock needed an estimated 700-800 million euro ($688-$786 million) to get back on its feet, including 200 million euro ($197 million) it needed immediately for wages and other payments.
The groups main shareholders include Commerzbank, Deutsche Bank, West LB, Dresdner Bank, the tourism group TUI and U.S. investor Guy-Wyser-Pratte.
The provisional insolvency trustee, Helmut Schmitz, will now determine which of the group’s companies are affected by the insolvency and how its business operations can be continued.
Premier Clement went to Oberhausen, where Babcock is based, to talk with its workers’ council and staff. He told them the state government of North Rhine-Westphalia would now set up a task force to accompany the group through the insolvency process and continue working toward a restructuring plan within the framework of German insolvency law.
Babcock’s staff members can now receive state aid which will be calculated on the basis of their average net pay over the last three months. Staff members have not yet been paid for June.