Pa. shipyard owner reverses course

Kvaerner says change won't scuttle revival of Philadelphia yard

Shipbuilding

April 14, 1999|By William Patalon III | William Patalon III,SUN STAFF

Sixteen months ago, Anglo-Norwegian conglomerate Kvaerner ASA vowed to revive the United States' virtually extinct commercial shipbuilding business, extracting more than $400 million in public subsidies to transform the closed Philadelphia Naval Shipyard into one of the most modern commercial shipyards in the world.

Yesterday, as part of a plan to drain off debt, a foundering Kvaerner said it would jettison its worldwide ship-making business -- selling it, creating a joint-venture partnership or spinning it off to shareholders -- while promising none of these options would scuttle the "Philadelphia Experiment."

"Yes, that project will definitely go forward," Trond Andresen, a corporate vice president, said in a telephone interview from London. "We think this project is an asset" that makes Kvaerner's shipbuilding subsidiary more attractive to suitors or partners.

Despite the company's assurances that any buyer must agree to finish the project -- as well as assertions from Pennsylvania Gov. Tom Ridge and Philadelphia Mayor Ed Rendell that the agreement was ironclad, and meant "hundreds of millions in penalties" for Kvaerner if not fulfilled -- some were outraged at the company's reversal.

"I wish they had told us," said Angel Ortiz, a Philadelphia city councilman. "We gave up a whole lot [and] I learned about it from TV this morning. This is not the way you do business."

Kvaerner, with key offices in London, got in trouble after assuming $1.38 billion in debt to buy a British construction firm in 1996. The restructuring plan comes from new chief executive officer, Kjell Almskog, imported last year to fix Kvaerner after its share price fell.

In World War II, the United States was a shipbuilding powerhouse, with many of its yards on a ship-a-day schedule. But offshore rivals gradually overtook the United States. In today's ultra-competitive global seascape, Japan, Korea, Singapore and an up-and-coming China hold sway, a key reason the remaining U.S. shipyards build military ships, make seagoing workboats, or serve as fix-up stops for ships needing quick repairs.

A perhaps sentimental yearning to get back into the game, coupled with Philadelphia's desire to rejuvenate the naval yard closed by Congress in 1991, made the linkup with the Oslo-based Kvaerner attractive.

Kvaerner, an engineering, construction and manufacturing company, as well as the world's third-largest shipbuilder, proposed using the same plan it employed in reviving the 50-year-old Warnow shipyard in Germany -- which also involved $400 million in subsidies.

In December 1997, after two years of negotiations, Pennsylvania, Philadelphia and the federal government agreed to a $399 million financing package with Kvaerner Philadelphia Inc., insisting that the parent company guarantee the deal. The company had to inject $45 million of its own, but $30 million could come from a low-interest loan from the city and state.

In return, the company promised to outfit parts of the naval yard with the latest in automated shipbuilding technology, to invest $165 million of its own money over 15 years, to have ship construction under way by late 1999, and to build the first three ships "on spec" -- buying them for its own fleet, at cost, if no outside customer could be found.

The deal was projected to create between 6,000 and 8,100 jobs over five years.

But Kvaerner received more than money; it got a lot of autonomy, too. Though it had trumpeted the economic benefits to the region, it at the same time asked the federal government to make the shipyard a duty-free zone, meaning it could import ship parts without having to pay customs duties, according to published reports.

Today, however, officials connected with the project say it's progressing well.

Manuel N. Stamatakis, chairman of the Delaware River Port Authority, a co-signatory of the agreement with Kvaerner: "I talked to the yard in Philadelphia, and they told me that everything remains the same."

Pub Date: 4/14/99

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