THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Wednesday, July 27, 1994 TAG: 9407270360
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY DAVE MAYFIELD, STAFF WRITER
LENGTH: Medium: 96 lines
Though its previously announced layoff of thousands of workers is irreversible, Newport News Shipbuilding's fortunes have recently improved and the shipyard ought to remain highly profitable for many years, Tenneco Inc. Chairman Dana G. Mead said Tuesday.
``We feel that we've arrested the slide,'' Mead said in a telephone conference call with reporters. ``The prospects are much better than they were a year or a year and a half ago.''
Tenneco, the shipyard's Houston-based parent, reported Tuesday that the yard's second-quarter operating profit totaled $53 million, the same as in the 1993 second quarter.
But the latest number was an improvement over this year's first quarter, when Newport News Shipbuilding's profit fell 13 percent from the year before.
Mead said the biggest reasons for the latest profit improvement are productivity and quality gains at the yard. He said Newport News is the first Tenneco subsidiary to adopt the company's ``Project 5,'' a program that encourages a high level of employee involvement in problem-solving, including the use of so-called self-directed work teams.
If the yard continues its cost-saving efforts, gets to build a new aircraft carrier, and wins more contracts to build and repair commercial ships, Mead said it should manage to stabilize its annual operating profit at about $200 million for some years.
The most important ``if'' is the carrier. But Mead said Tenneco and shipyard executives are becoming increasingly confident that Congress will pay the yard more than $3 billion to build the vessel. Both the House and Senate have passed separate bills authorizing the warship. On Monday, the Senate Appropriations subcommittee on defense gave its go-ahead.
``We're further along now than we ever anticipated we would be,'' Mead said of the carrier's funding.
Last year, shipyard executives said that without the new carrier, the yard's work force of about 20,500 would drop to 9,000 within a few years. With it, they said, the drop would be significantly less - to 14,000 by the end of 1996.
``We're scrambling and doing everything we possibly can to build as big a backlog, both commercially and on the Navy side, as we can,'' Mead said, ``to try to . . . mitigate those very, very deep cuts.''
More work on the horizon may allow the shipyard to drag out layoffs longer than year-end 1996 or, perhaps, stabilize its employment at a level slightly higher than 14,000, Mead said.
Anything more than that is unrealistic, he indicated, because even with the new carrier, Newport News' Navy workload will be well below its peak in the mid-1980s.
Commercial shipbuilding and repair work is increasing in importance.
But it's still relatively minuscule, Mead pointed out. The yard's revenues for commercial ship work in the first half of 1994, he said, were less than $25 million out of total revenues of $867 million.
Nevertheless, he claimed, ``The yard is rapidly becoming the yard of choice for major (commercial) repairs on the Eastern Seaboard.''
Newport News is also having some success pursuing commercial shipbuilding contracts, Mead said.
In May the yard announced a letter of intent to build as many as four double-hull tankers for a Greek company. Preparations for the first two ships are well under way, he said, and shipyard executives expect the Greek company to exercise options for the remaining two tankers.
Analysts estimate the four-ship job is worth more than $150 million.
Mead also disclosed Tuesday that the shipyard is one of four finalists - the only one from the United States - for a contract to build fast frigates for the United Arab Emirates.
Mead didn't disclose the potential value of the frigate contract. But it could be significant if it gave the winner a leg up on frigate construction for several other countries now planning to acquire such ships.
Mead said Newport News executives have already talked to government officials in Turkey, Saudi Arabia and several Southeast Asian nations about such a job.
Cost reductions will be the biggest factor in helping Newport News win such contracts, Mead said.
``Unless we get our costs in line with the other shipyards in the world with whom we compete,'' he said, ``we won't be able to compete successfully.''
Mead indicated that cost controls remain a top priority throughout Tenneco - even though the company reported Tuesday that its second-quarter earnings hopped 67 percent, to $142 million, on essentially flat sales of $3.5 billion.
Tenneco has started a six-month assessment of its administrative costs, he said, with an eye toward reducing those costs by as much as $200 million a year.
Mead conceded that white-collar layoffs may result from the shakeout.
Besides the shipyard, Tenneco has major interests in natural gas pipelines, farm and construction equipment, packaging, auto parts and chemicals. ILLUSTRATION: FILE PHOTO
Tenneco's chairman, Dana G. Mead: Gains in productivity and quality
boosted the yard's profits.
by CNB