Any ship you may have will remain through the (upgrade), it is only the campaign that is affected. Which is a rather major part of the game. :(
1.1 unfortunately broke compatibility with 1.0 savegames. 1.2 restores compatibility to 1.0 and loses some with 1.1 in the process. It's painful, but 1.0 is still far more widely distributed, so it was important to rectify the mistake.
1.1 savegames should survive the transition to 1.2 if you never had a reminder from a fixer about your mission ("Why are you still here?"). Otherwise problems can occur. You can try rolling back the campaign a bit: in the savegame file, reduce the number after privateer_campaign to roll things back. Make a backup first. :)
Failing that, one can always go back to 1.1 and things should work fine again. All future versions of the Remake and Gemini Gold will have compatibility with 1.0/1.2, so it's best to make the jump sooner or later.