In late October 2017, Naviera Armas surprised the European ferry industry when it announced that it had entered into an agreement with Acciona to acquire Trasmediterránea, Spain’s number one ferry operator, by taking over the brand’s 22 vessels – including five chartered units and four high-speed craft – for EUR 280 million, plus EUR 45 million in debt. Armas, then the third biggest ferry operator in Spain, had already held a minority stake in Trasmediterránea following its privatisation in 2002. Overnight it would acquire a further 92.71%, transforming Armas-Trasmediterránea into Spain’s premier ferry operator, far ahead of Baleària, which now occupies the second position, in terms of size and capacity.

To finance the takeover, Naviera Armas went to the financial markets in London and issued EUR 300 million of variable bonds, which were more than twice oversubscribed in only two days, giving a vote of confidence to both the strength of the bond issuer and the price paid for Trasmediterránea.

The news of the takeover came as a bolt from the blue, surprising even those close to the company. “Except for the owners and the top management of Naviera Armas,” a Spanish ferry industry observer told Shippax, “nobody knew anything about the takeover of Trasmediterránea. It was a well-kept secret.” This was an illustration of the well-known reticence of the Armas family who normally preferred to steer clear of the limelight. So, arranging an interview with the company’s president, Antonio Armas Sr, was quite a feat. Not that Mr Armas was a shy person; quite the contrary, in fact. But he simply wanted to keep a low profile, a commendable quality of modesty his namesake son Antonio Armas Mead (or Antonio Armas Jr), whom Shippax interviewed two years ago, also shared.

“Armas is a very strong brand in the Spanish marketplace, but hardly anybody knows who’s behind the company,” we were told prior to the interview. Born and bred in Gran Canaria, Antonio Armas is not an ostentatious personality on the island. People often walk past him without realising who he is. His favourite beachfront restaurant in Las Palmas is not a fancy one and he doesn’t drive a big car. Describing Antonio Armas as humble is perhaps an understatement.

One group, two brands

Ever since the Spanish National Commission on Markets and Competition (CNMC in Spanish) ruled in favour of the acquisition of Trasmediterránea by Naviera Armas (with some strict conditions whereby some routes had to be given to FRS), it has been all hands on deck to integrate the brand into the group. It is still a work in progress. “We are giving Trasmediterránea back to the seafarers,” said Antonio Armas Sr, with a smile, when we met in his corner office overlooking the port of Las Palmas. “We have salt in our veins,” he used a metaphor to describe Armas as a shipowner having the heart in the right place. “Trasmediterránea was a rather bureaucratic organisation, led by a civil works company whose core business was anything but shipping.” 

Notwithstanding the sharp difference in corporate cultures, the takeover went smoothly. But redundancies on the Trasmediterránea side – about 250 – were inevitable. “Trasmediterránea had a different philosophy,” Armas went on. “We are now gradually implementing the Armas mentality. Especially in the Balearics, Trasmediterránea didn’t always have the best reputation and lost market share to Baleària. To turn the tide, we have increased the Armas presence and deliberately introduced one of our ships there.”

The strategy is one of keeping the identities of the two brands separate. “We are optimizing the fleet capacity and adapt supply to demand,” he told us, underlining this fact. “We are putting the right vessel on the right route regardless of the brand. Ships are deployed interchangeably without rebranding. The brand operations are mixed and we have seen a re-introduction of the Trasmediterránea brand in the Canaries, whilst you can see the Armas brand in the Balearic waters, a part of Spain where we didn’t operate before. It is part of our strategy. We are one group with one fleet, but two brands, which will come under the control of a single management team that is based in the Las Palmas headquarters. The merger process is still ongoing – for instance, we still have two booking platforms, but this will eventually become one system as part of the merger synergies.”

Within a few months after the takeover, a new brand identity – complete with a new logo and the C.T. (Compañia Trasmediterránea) initials – was launched. Under the previous ownership, the brand was known as ‘Trasmediterranea’ (without the acute accent on the second ‘a’), initially in combination with the name ‘Acciona’.

But Armas wanted Trasmediterránea to live and breathe shipping again, something that was clearly lacking when Acciona had the control of the company. The C.T. initials are reminiscent of Trasmediterránea’s logo of bygone days, thus demonstrating Armas’ deep respect for Trasmediterránea’s 100-plus years of history.  Armas has also revived the tradition of naming ships after Spanish cities. SUPER-FAST GALICIA was renamed CIUDAD DE IBIZA in June 2017, the first vessel in the fleet to undergo such a name change. “Maybe these are all just details,” said Armas, “but they are important details that have been welcomed by the everyday users. It has brushed up the company’s somewhat poor reputation.”

Humble beginning, trusted player

Antonio Armas Sr represents the second-generation owners of company. He officially took the helm when his father and founder, Antonio Armas Curbelo, passed away in 1985. Now in his early seventies, he is gradually handing over the day-to-day management to his son who lives on the Peninsula (Spanish mainland) and visits the Gran Canaria headquarters every second month or so. As the company’s president and paterfamilias, Armas Sr is still ultimately responsible for the business. As befits a shipowner of his calibre, he comes to the office every day, keeping continuous contact with his son. This was amply demonstrated during our interview, which was interrupted several times when Armas Jr called.

We had never met before. Antonio Armas immediately broke the ice and put me at ease with a cordial handshake. After welcoming me by the elevator on the second floor, he guided me to his private office adjacent to the boardroom. “We hardly ever use this boardroom,” he joked while inviting me to make myself comfortable by taking off my jacket and sit down in a deep sofa in the corner of his office. I soon found myself sitting in front of a down-to-earth man who had a good sense of humour. It felt as if we had known each other for ages. I also saw an unmistakable resemblance between Armas Sr and Armas Jr in both physical appearance and mannerism that was characterised by warmth and approachability.

Antonia Armas Sr joined the then still small family business back in 1969. In 1973, he brought the ro-ro concept to the Canaries following the acquisition of two diminutive 399-deadweight-ton freighters from DFDS. The company introduced its first ro-pax ferries in 1995. Soon it embarked upon an impressive newbuilding programme to further grow its business in the Canaries and, in 2011, it expanded to the Alboran Sea. Six years later, it scored a major coup by acquiring Trasmediterránea.

The acquisition represents another big step in the consolidation process of the European ferry industry, which still remains fragmented. The group is now one of the top five ferry operators in Europe.

Yet Armas Sr remains as humble as ever. He had never even met any of his peers. He credited much of the company’s success to the people who work there. “The takeover of Trasmediterránea was only possible thanks to the continuous support of our staff,” he explained. “A company is only as extraordinary as its people. For this reason, I have sent a letter to each and every employee to thank them for their loyalty to the company. It’s not only about money and business; it’s also about people and service. Our employees take pride in working for a company like Armas. Our staff make the difference. This is especially apparent in our OBS. We offer an excellent service to our passengers. People know this. Ask any taxi driver here in the Canaries. Taxi drivers are the barometer of society and they will tell you that Armas is a company for the people, offering value for money with a service that is second to none.”

In the midst of the animated conversation, suddenly, he decided to interrupt the interview and walk to the balcony. “Come here,” he beckoned. “Look over there. Our new VOLCÁN DE TAGORO is entering the port. It’s on time again, completing the Santa Cruz de Tenerife-Las Palmas de Gran Canaria service in under ninety minutes.” Then he pointed to the new terminal where VOLCÁN DE TAGORO was about to dock. “The port is state-owned, but we obtained a 50-year concession in the newest part of the port. We are investing heavily in a new state-of-the-art terminal building and a new corporate headquarters building. Although it remains state-owned you could say that we own the terminal, and this is an industry first in Spain. We have five berths and ten hectares of hardstanding. This is our main hub in the Canaries and once completed, Trasmediterránea’s weekly service from Cádiz, operated by CIUDAD DE CÁDIZ, will also call here.”

Fast craft or conventional tonnage

Naviera Armas was a relatively latecomer to deploying high-speed craft in the Canaries. Although already having introduced the monohull ro-pax VOLCÁN DE TAURO in the spring of 2000, it was not until 2014 when year-round intra-Canaries high-speed services were offered. “We had to follow the competition,” Armas Sr commented on this move, alluding to Lineas Fred. Olsen, which, since the late nineties, had been gradually but surely replacing its conventional fleet by high-speed craft under the Fred. Olsen Express banner. “The steel-hulled VOLCÁN DE TAURO was anything but a success and we quickly disposed of it,” he continued. “I’m not the biggest fan of fast craft, but to remain competitive against Fred. Olsen Express we could no longer just watch and do nothing. So we had to add the high-speed element, it’s as simple as that. Our fast craft don’t only compete with those of Fred. Olsen Express, but also with our own conventional ferries.”

Fred. Olsen sold its last conventional ferry in 2004. When asked whether Naviera Armas would in the long term adopt this model, Armas Sr was quite adamant that this wouldn’t happen. “There are still many passengers who don’t want to travel with these fast craft,” he said. “About 50 per cent of the total passenger market in the Canaries prefers the conventional ferries. Our ro-pax ferries and freight-oriented ferries are the workhorses of the Canaries, carrying about 75 per cent of the total intra-Canaries freight trade. Ro-pax ferries win hands down when it comes to freight and they likely always will, as freight capacities of fast craft still remain rather modest.”

Notwithstanding his somewhat mixed feelings about high-speed ferries, he couldn’t hide his pride at the introduction of the company’s newest acquisition, VOLCÁN DE TAGORO. “Our unique selling point is that this vessel goes from capital to capital – Santa Cruz de Tenerife to Las Palmas de Gran Canaria – in under ninety minutes,” he pointed out. “Fred. Olsen Express takes the short cut from Santa Cruz de Tenerife to Agaete, an 80-minute crossing, but the drive from Agaete to Las Palmas takes about 35 minutes.”

VOLCÁN DE TAGORO will soon be joined by Trasmediterránea’s Incat 96-metre ALBORAN, which will re-emerge as VILLA DE AGAETE following repairs. “This is yet another example where we revive an old Trasmediterránea ship name,” said Armas Sr, “and, obviously, it’s no coincidence that we opted for the name of Agaete – the village served by our competitor. VILLA DE AGAETE will sail in the Trasmediterránea colours, exemplifying that the Armas and Trasmediterránea brands can ‘live’ perfectly next to each other.”

Including the chartered Incat 86-metre CHAMPION JET 1, the combined Naviera Armas-Trasmediterránea high-speed fleet boasts eight vessels. Reading between the lines, we believe that the Armas group is the “undisclosed European ferry operator” behind the 111-metre wave piercer, a sister of VOLCÁN DE TAGORO, on order at Incat.

The Visentini option

In October last year, Naviera Armas signed a newbuilding contract with compatriot Hijos de J. Barreras for what was set to become its largest ever ro-pax ferry with a capacity of 2,800 freight lanemetres, 350 cars on a separate car deck, and 1,800 passengers, 650 of whom could be accommodated in cabins.

At times a company’s well-conceived newbuild plans can be altered by circumstances beyond its control. The group’s competitor Baleària previously experienced a high-profile setback with its newbuilding order at LaNaval, another Spanish shipyard, which ran into financial troubles. The company eventually opted for two LNG-powered Visentini Class vessels.

A similar scenario appears to be in the making for Armas, which will take Visentini yard number 229 on charter when delivered in May 2020. This scrubber-equipped vessel will be a lengthened and slightly modified version of the popular Visentini series with a higher capacity of 2,566 freight lanemetres on three enclosed decks, 260 cars on a lower car deck, an open upper deck, and 157 cabins. To be named CIUDAD DE VALENCIA, the ship will operate under the Trasmediterránea banner, connecting her namesake port with the Balearics in direct competition with Baleària’s LNG-powered Visentini Class MARIE CURIE.  

Visentini has one more sister ship of CIUDAD DE VALENCIA on order (yard number 230), which most likely will also be chartered by the Armas group.

Under the Acciona ownership, Trasmediterránea suffered from years of underinvestment. Naviera Armas is now rectifying the situation, but Armas Sr told us that there was no need to invest in more newbuilds, as vessels from the Armas fleet could be transferred to the newly acquired brand.

Challenging operational context

This year will be the first full year for Trasmediterránea under the Naviera Armas control and according to Armas Sr, 2019 will be a better year than 2018. The summer carrying volumes were encouraging. But it’s not all plain sailing, especially with a hard Brexit looming and the global 0.5% sulphur cap becoming mandatory on 1 January 2020.

Spain, the world’s number two tourist destination with a total of 83 million international arrivals per annum, remains the top destination for British travellers, with about 18 million of them visiting each year. “A hard Brexit might have an impact,” said Armas Sr. “But I’m pretty confident that the Brits will continue to come, as our culture, food, beaches, and sunshine will always attract them, regardless of Brexit. And don’t forget that we carry a mix of both tourists and local residents; the latter group being a way more important segment in the overall picture.”

Despite political uncertainties in the country, the Spanish economy is still growing. But Armas Sr said that he was not afraid of a shrinking economy. “The earlier crises had no major impact on our passenger carryings, as local people opted to take holidays in Spain; from which we benefited.”

What about low-cost airlines? Do they have an impact on Spanish domestic ferry services? “In the Balearics, yes,” said Armas, “but not so in the Canaries, as we are going from city centre to city centre; something airlines cannot offer. The situation is rather the opposite here; fast ferries are taking passengers away from the airlines.”

Only a few Mediterranean ferry operators have invested in scrubber technology in a move to comply with the upcoming 0.5% sulphur limit. Fast ferries will not be affected, as they already burn the compliant light fuel oil.

For the group, Armas Sr explained that the company’s ferries would switch primarily to low-sulphur-content fuels. In addition, seven of its current 26 ro-pax units would be equipped with closed-loop scrubbers, which he regarded as test cases. “If the results are positive, we will order more scrubbers,” he said.

Armas Sr is not in favour of using LNG, an alternative compliant fuel. “Besides the logistics problem in many ports, I am not convinced that LNG is the solution,” he told me. “After all it remains a fossil fuel and when you consider it from well to funnel, it’s equally polluting. It’s a so-called ‘green fuel’, but I believe this is a false description. Opting for scrubbers is equally a false notion. So far, we haven’t seen any major accidents with LNG-powered ferries. So it can generally be regarded as a safe fuel. But, did you see the pictures of this recent collision between a container ship and this Spanish LNG-powered ferry? Luckily, the ferry had its LNG tanks below deck. What would happen if it had on-deck tanks at the stern, just where it was hit by the container ship?”

Unhurried ambition, confronting competition

The group’s expansion ambition for now remains modest. Its core focus is firmly on the Spanish market besides a couple of minor, not always happy exceptions.

Until recently it operated a Mindelo-Porto Novo ferry service in Cape Verde. Following a disagreement with the local administration, it promptly decided to cease its activities and have its vessel MAR D’CANAL laid up. “It was not easy to do business in this part of the world,” said Armas Sr, commenting on the experience.

In cooperation with Empresa de Navegação Madeirense (ENM), Naviera Armas operates a summer service between the Portuguese mainland port of Portimão and Funchal, Madeira. The service also extends to the Canaries.

Armas Sr signalled that the group was willing to explore other markets, but for the moment its priority rested elsewhere and its ambition was unhurried, not yet aiming at becoming a pan-European player like Stena Line, Grimaldi Group, and DFDS. “We are consolidating our position as the leading ferry operator in Spain,” he said.

Despite the consolidation in the Spanish marketplace, competition remains fierce. In the Balearics Trasmediterránea competes head-to-head with Baleària and in the Canaries with Fred. Olsen Express. In the Spain-North Africa trade, the picture is mixed. Armas does not regard FRS, Africa Morocco Link (AML), and Inter Shipping as significant competitors. There have been reports that BMCE Bank, which controls 51% of AML, would reduce its holdings in the company. But Armas is not interested in a minority stake in this business. “Even if the Moroccans would withdraw completely and give us all the necessary licences, we still would not be interested,” said Armas Sr.

Following the takeover of Trasmediterránea, the CNMC adjudicated that Naviera Armas had to surrender its weekly Huelva-Canaries service to FRS. Then in November last year the newly created Canary Bridge Seaways, a joint venture between Fred. Olsen Express and Baleària, started a thrice-weekly freight-oriented Huelva-Las Palmas de Gran Canaria-Santa Cruz de Tenerife service. To what extent would this affect Trasmediterránea’s service from Cádiz to the Canaries? “Not much,” said Armas Sr. “It’s mainly competition for OPDR and others, rather than for us.”

Summing up, he told us that a smooth integration of Trasmediterránea was topping the group’s agenda. “It has not proved easy to merge two groups with so different cultures. It will take some time to fit all the pieces of the jigsaw puzzle, but we have a clear vision and will definitely succeed. We have emerged as the strongest ferry group in Spain, which consists of two leading brands in their respective markets.”

Naviera Armas Group key figures at a glance:

Number of passengers: 5.2 million/year

Number of private cars: 1.4 million/year

Cargo lanemetres: 8.1 million/year

Number of owned ships: 23

Number of chartered ships: 13

Ship types: 26 ro-pax ferries, 8 high-speed ferries, and 2 ro-ros

Employees: About 2,000

Annual turnover: EUR 617 million (2018)

EBITDA: EUR 75.2 million (2018)

Number of routes: 34

© Shippax / Philippe Holthof