The board of the loss-making nationalised ferry fiasco shipyard firm Ferguson Marine has admitted that a lack of financial support from ministers has cast a "significant doubt" on the firm's ability to continue operations.
The directors of Ferguson Marine (Port Glasgow), which has made a net loss of £1.3m in 2022/23 have laid bare the risks to the business and pointed to a failure to get a committed investment of £25m to support future work at the Inverclyde after the delivery of two long-delayed and over-budget ferries.
They have admitted that the lack of investment to upgrade shipyard facilities as part of a five-year business plan puts at risk its hopes of extra work from BAE Systems which is delivering City Class Type 26 frigates on the Clyde.
It also places uncertainty over its hopes to get the contract from the Scottish Government's Transport Scotland agency for the replacement of up to seven 50m ageing 'loch class' ferries vessels serving the Clyde & Hebrides Ferry Services (CHFS).
It comes as the lead union at the yard has called on the Scottish Government to review the outcome of the due diligence test it undertook to decide that it could not provide the funding.
GMB Scotland said failing this the Scottish Government "must look at all other possible avenues, including funding through agency bodies, "to secure investment for FMPG as soon as possible".
Ferguson Marine hoped for a heavy involvement in the Small Vessel Replacement Programme which hopes to achieve a substantial renewal of the small vessel fleet by 2031.
They are due to be electric motor-powered modern versions of the three 42m hybrid vessels Ferguson Marine built successfully, on-time and on-budget before nationalisation, between 2012 and 2015.
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It has led to concerns about the solvency of the last remaining last remaining shipbuilder on the lower Clyde.
The company has been dogged with issues with the delivery of lifeline ferries Glen Sannox and Glen Rosa which were due online in the first half of 2018 when Ferguson Marine was under the control of tycoon Jim McColl. With both now due to serve Arran, they are getting on for six years late. The last estimates suggest the costs of delivery could more than quadrupled from the original £97m cost.
Ferguson Marine was taken over by the Scottish Government four years ago after its financial collapse under the control of tycoon businessman Mr McColl as a row erupted over long delays and mounting costs over the delivery of the vessels.
David Tydeman, the chief executive of Ferguson Marine (Port Glasgow) outlined his concerns in a financial statement seen by the Herald.
While he said they had received a letter of comfort from the Scottish Government reaffirming a commitment to supporting a "sustainable future" for FMPG, there remained a "material uncertainty" that casts "significant doubt" over the Ferguson Marine group of companies to continue as "a going concern".
On Tuesday, wellbeing economy secretary Neil Gray confirmed it had so far refused to sign off on an estimated £25m investment to support future work at the Inverclyde yard saying an independent due diligence over an initial capital request found it could not meet the commercial market operator test - a key legal requirement effort to demonstrate compliance with the UK subsidy control regime.
The board has said that for FMPG to compete competitively for new work to follow on from the delivery of Glen Sannox and Glen Rosa investment by Scottish Government in the shipyard facilities, equipment and processes "is required and approval of the plans submitted earlier in 2023 remains outstanding".
The new shipyard business plan assessed the market that is available to FMPG and concluded that the business can "compete effectively for complex vessels, built to high standards, in the 40m to 110m range".
But it said the upper end of this range is limited by the size of the shipyard.
The board has confirmed that for the shipyard to improve its efficiency and to be competitive in the broader market it must first secure a pipeline of repeatable work over several years.
Developing a pipeline of £250m in work from the warship programme and future ferries was seen as "strategically important" before it could consider more complex, larger vessels in the future.
Mr Tydeman went on: "Financial stability in the longer term after the completion of [the ferries] remains a key issue for FMPG.
"Opportunities have been identified in the strategy for FMPG, however currently the order book beyond existing orders for FMPG remains uncertain in the medium to longer term."
The shipyard has pointed out that the UK’s National Shipbuilding Strategy Refresh (NSSR) which was issued in early 2022, aligned with a renewed governmental interest in shipbuilding, is likely to increase the opportunities in the domestic UK market for ship construction.
The NSSR identifies the building of more than 150 new naval and civil vessels for the UK Government and devolved administrations over the next 30 years and sets out a strategic intent to maximise the UK build element of this significant pipeline of work.
The shipyard management say the commercial shipbuilding market is vast, and that opportunities for future vessel build are available in emergent and growing market sectors such as renewable energy.
But Mr Tydeman has said that to succeed with its future strategy, it is "vital that the yard has a robust plan to improve its competitiveness for the sustainable future to be realised".
There were "risk and uncertainties" over the future operation of the commercial wing of the Ferguson group with the board saying it had successfully developed a working relationship with BAE Systems for the mobilisation of surplus labour to the BAE Systems site at Govan on a small scale throughout 2023. In addition, an agreement was signed in April 2023 for Ferguson Marine (Commercial) Limited to build three units for the T-26 programme as a pilot project.
"With investment from Scottish Government in upgrading the shipyard facilities, Ferguson Marine (Commercial) Limited would be well placed to compete for further larger units upon completion of the pilot project, but as this investment remains unconfirmed... these opportunities are at risk," said Mr Tydeman. " Additionally, as set out in the five-year business plan, the small vessels replacement programme... would be an attractive opportunity for Ferguson Marine (Commercial) Limited to pursue, but this also remains uncertain whilst the investment is unconfirmed.
"Considering these factors, the [board] has identified a material uncertainty related to events or conditions that may cast significant doubt on the group’s ability to continue as a going concern and, that it may be unable to realise its assets and discharge its liabilities in the normal course of business."
The company analysis said there had been "persistent difficulty" in being able to recruit the necessary trades and skills required to meet the requirements of the plan to finally deliver Glen Sannox and Glen Rosa due to shortages of key skilled labour resources in the marketplace.
The effect of this was mitigated by placing what the board said was "discrete packages" of work with subcontractors, and the increased use of agency and contract workers.
It comes after the public spending regulator in Scotland warned of FMPG's future financial sustainability of with no contracted work beyond the completion of [the ferries].
Audit Scotland said FMPG and the Scottish Government "must continue to work together to agree the future plans for FMPG as an organisation and to provide the clarity required to support a going concern status".
The investment is for a vital new plating line and software to raise productivity and help it compete for future work.
The time-critical element of the project was the plating line and FMPG has said that when it sought funding it was hoping to have delivery by December, next year.
Producing an order nearer Christmas would mean it would not be in place till the summer of 2026.
FMPG has admitted that it is currently not as competitive as other yards that have modern plating lines and modern facilities.
And as the plating line cannot be installed for nearly two years the yard would not get "decent productivity" until 2026 which makes pricing for future work harder.
The Herald on Sunday revealed some details of a secret report from consultancy firm First Marine International in May that said Ferguson's needed to be three times more productive.
According to an official account of discussions from February, FMPG non-executive director Christopher Mackay, an experienced construction and projects lawyer previously warned the board "have to have an eye on the solvency issue with [Ferguson Marine] if we do not have a workstream."
Gary Cook, senior organiser for manufacturing at GMB Scotland has written to the wellbeing economy secretary expressing disappointment at a refusal to provide investment as requested adding: "Urgent action is needed from you as cabinet secretary to provide investment and secure a pipeline of work which includes small ferries through a direct award."
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