THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Wednesday, November 1, 1995 TAG: 9511010483
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER
LENGTH: Long : 104 lines
Newport News Shipbuilding took a $20 million hit against its third-quarter income to pay for ongoing work force reductions and its return to commercial ship construction, the shipyard's parent company announced Tuesday.
The charges cut the big Peninsula shipyard's operating income to $35 million in the third quarter, compared with $52 million in the same quarter last year, Tenneco Inc. said. It was the yard's fifth consecutive decrease in comparable quarter earnings.
Despite the charges and the earnings decline, Dana G. Mead, Tenneco chairman and chief executive, said he's ``very bullish'' on the shipyard's future.
News of the charges and Mead's comments came as Houston-based Tenneco announced that its third-quarter earnings surged 42 percent to $214 million, or $1.23 per share, from $151 million, or 81 cents per share, a year earlier.
Even as earnings slipped at Newport News Shipbuilding, revenues rose and the backlog remained stable at $4.9 billion as new orders replaced work completed during the third quarter.
The yard's future appears increasingly secure with several opportunities for more shipbuilding orders on the horizon and continued success at pushing overhead costs down to compete with other builders.
``Costs keep coming out of the yard,'' Mead said. ``The yard will soon be competitive, on a per ton basis, with every other shipyard in the world except the Koreans and we're chasing them as hard as we can.''
Reductions in employment are part of that cost-cutting drive. Because of several layoffs, an early retirement program and attrition, the labor force at the yard will decline to 18,500 by the end of the year from nearly 20,000 in January.
About 600 workers took the yard's early retirement offer in May. Employees 55 and over with at least 10 years experience in the yard were eligible. Seven in 10 of the laborers who accepted the offer were over 60, a shipyard spokeswoman said.
To pay for the early retirements and other reductions, the shipyard cut its third-quarter earnings by $6 million to pay for the reductions.
Newport New Shipbuilding plans today to revise its 1994 projections that it would reduce its work force to under 15,000 by the end of 1996.
The shipyard also took a $14 million hit to cover costs associated with its return to commercial ship construction. The shipyard has an order to build four double-hull petroleum product tankers for a Greek shipping company.
In addition to the charges, Newport News Shipbuilding didn't profit during the third quarter on its conversion of two cargo ships for the Military Sealift Command, despite earning $9 million on the work in the year-earlier quarter, Tenneco said. It expects to recover some of the decline related to contract changes from the Navy. Productivity improvements will also offset some of the the decline, it said.
Work on the aircraft carrier Ronald Reagan, which was ordered last November, and on nuclear engineering projects boosted the yard's quarterly revenues to $445 million from $424 million during the same period last year.
New orders, including overhaul contracts on the carrier Dwight D. Eisenhower and a destroyer and design work on Seawolf-class submarine, sustained the shipyard's backlog at $4.9 billion, the same as at the end of the second quarter.
New orders could substantially add to the yard's backlog by the end of the year, too.
Newport News Shipbuilding President William P. Fricks said the yard hopes to have an announcement within six to seven weeks about federal shipbuilding loan guarantees for two companies that want to build at least seven more tankers at the yard. Both orders are contingent on the guarantees and the companies also hold options to buy another nine tankers.
Additional orders for the 600-foot-long tanker, dubbed Double Eagle, will allow the shipyard to realize the benefits of modern serial production. Shipbuilding analysts say the yard probably isn't making any money on the first several tankers as it tools up and relearns commercial construction. The $14 million charge seems to bear out analysts' projections.
The charge is a write-off of ``start-up costs'' associated with the new product line, such as the yard's engineering and design costs, Fricks said.
The yard also expects to hear by year-end whether the United Arab Emirates has selected it to build four to eight fast frigates for the oil-rich Persian Gulf nation's navy. ``I feel very good about the frigate, which could add as much as $800 million to $1.5 billion to the backlog,'' Mead said.
Newport News Shipbuilding also has bid to build four frigates for Kuwait and six for Turkey. It has hosted interested delegations from the South Korean navy and the Philippines as well.
While the shipyard is making progress on its drive to reduce reliance on Navy shipbuilding, it got good news about future Navy work during the third quarter.
Next year's defense budget is still being hammered out, but it appears Congress will let it build one of the first two New Attack Submarines and put subsequent subs in the $50-billion-plus program out for competitive bidding.
The Navy also intends to order another Nimitz-class aircraft carrier to be built early in the next decade. Newport News Shipbuilding is the only U.S. yard capable of building such a carrier.
On Tuesday, the shipyard also won a $5.2 million addition to a Navy contract to provide nuclear reactor planning yard services for submarines.
Meanwhile, Tenneco's revenues declined to $2.1 billion from $3 billion, due to Tenneco's ongoing sale of its stake in tractor-maker Case Corp.
Besides Newport News Shipbuilding, Tenneco owns a sizeable natural gas production and transportation company, a growing automotive parts manufacturer and Packaging Corp. of America, which is buying Mobil Corp.'s plastics division for $1.27 billion. Tenneco attributes much of its income gain to the packaging company where operating income surged 76 percent to $111 million. by CNB