Development and Construction
Lusitania and her sister ship Mauretania were commissioned by Cunard, responding to increasing competition from rival transatlantic passenger companies, particularly the German Norddeutscher Lloyd (NDL) and Hamburg America Line (HAPAG). They had larger, faster, modern, more luxurious ships than Cunard and were better placed, starting from German ports, to capture the lucrative trade in emigrants leaving Europe for America. In 1897 the NDL liner Kaiser Wilhelm der Grosse captured the Blue Riband from Cunard's Campania, before the prize was taken in 1900 by the HAPAG ship Deutschland. NDL soon wrested the prize back in 1903 with the new Kaiser Wilhelm II and Kronprinz Wilhelm. Cunard saw their business steadily declining as a result of the so-called Kaiser class ocean liners.
The American millionaire businessman J. P. Morgan had decided to invest in transatlantic shipping by creating a new company International Mercantile Marine (IMM), and in 1901 purchased the British freight shipper Frederick Leyland & Co. and a controlling interest in the British passenger White Star Line and folded them into IMM. In 1902, IMM, NDL, and HAPAG entered into a "Community of Interest" to fix prices and divide between them the transatlantic trade. The partners also acquired a 51% stake in the Dutch Holland America Line. IMM made offers to purchase Cunard which, along with the French CGT, were now their principal rivals. Cunard declined the offer, but lacked the financial resources to respond with new ships. Cunard chairman Lord Inverclyde thus approached the British government for assistance. Faced with the impending collapse of the British liner fleet and the consequent loss of national prestige, as well as the reserve of shipping for war purposes which it represented, they agreed to help. By an agreement signed in June 1903, Cunard was given a loan of £2.6 million to finance two ships, repayable over 20 years at a favourable interest rate of 2.75%. The ships would receive an annual operating subsidy of £75,000 each plus a mail contract worth £68,000. In return the ships would be built to Admiralty specifications so that they could be used as auxiliary cruisers in wartime.
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