THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Tuesday, January 16, 1996 TAG: 9601160291
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER
LENGTH: Medium: 99 lines
A Houston tanker operator has sued the Maritime Administration in an effort to block federal loan guarantees that would finance the construction of seven to 16 tankers at Newport News Shipbuilding.
A Washington federal court will hold a hearing today or Wednesday on Kirby Corp.'s request for a temporary restraining order against MARAD that would stall the agency's approval of up to $700 million in shipbuilding loan guarantees.
If successful, Kirby's court action could disrupt Newport News Shipbuilding's plan to save jobs by diversify into commercial ship construction.
The suit would also hold up approval for the financing of six tankers to be built at Avondale Industries Inc. in New Orleans.
Kirby, based in Houston, also home to Newport News Shipbuilding's parent Tenneco Inc., wants to block the pending loan guarantees until it can make its economic arguments against them.
In the suit, Kirby argues the loan guarantees would create unfairly subsidized competition for its tanker operation, Dixie Carriers Inc., which operates eight tankers and two tank-barges and controls 15 percent of the domestic producttanker market.
The pending tanker orders are crucial to Newport News Shipbuilding's commercial renaissance. The giant Peninsula shipyard is constructing four tankers for a Greek shipping line, but those are the initial vessels in what the yard hopes to develop into a lengthy production run.
Shipyards typically lose money on the first few vessels in a series due to upfront engineering costs and a building learning curve. Newport News Shipbuilding took a $14 million charge against its third quarter earnings for 1995 to cover these costs.
Newport News Shipbuilding is waiting for MARAD to approve loan guarantees for two subsequent buyers. American Marine Tankships Inc. has a pending order for two tankers with an option for four more and Hvide/Van Ommeren Tankers has an order for five with an option for five more.
Combined the deals are worth nearly $750 million to the shipyard, which employs about 18,500 people.
If financing for both orders is approved, the big shipyard, which has relied on Navy orders for aircraft carriers and submarines since 1981, would control a substantial slice of the worldwide tanker building market.
Avondale Industries Inc. of New Orleans, which is also trying to decrease its dependence on the Navy, recently got an order from Maritrans Ocean Transport Inc. for six tankers that is pending approval of loan guarantees.
Maritrans, a Philadelphia-based tug-and-barge operator active in petroleum transport, had joined Kirby last summer in voicing disapproval of the Title XI guarantee applications. Title XI guarantees provide federal backing on up to 87.5 percent of a vessel's building cost for 25 years. The program was established to help revitalize the U.S. shipbuilding industry.
Without federal support, commercial financing for ship construction in U.S. yards would be nearly impossible to obtain. Subsidized foreign shipyards, with commercial experience and less expensive labor, can build ships for less than U.S. yards. The long-term, federally backed financing balances the competitive scales.
Still, Kirby argues in the suit, MARAD approval of the three applications ``will add unnecessary excess tonnage to a . . . market segment already subject to a glut of over-capacity.''
But shipbuilding consultants say the product tanker market is about to boom. With petroleum demand rising and U.S. refineries operating at peak capacity, more oil products will need to be imported, according to a shipbuilding industry study released in September by IMA Associates Inc. of Washington.
Also, an aging fleet of single-hulled tankers faces the scrap yard as more and more nations including the United States require double-hull tankers to help prevent devastating spills. Shipbuilders will benefit from the replacement market and the need for expanded capacity, the IMA study concluded.
Kirby is also arguing that the secrecy surrounding the loan guarantee approval process makes public review and protest of the applications impossible.
Neither Kirby nor MARAD would comment on the suit, which will be defended by the Justice Department.
Hvide/Van Ommeren has filed a brief supporting MARAD. Newport News Shipbuilding does not plan to intervene in the suit, but supports Hvide/Van Ommeren in the action, a spokeswoman said.
In a separate development, Avondale said it won't build seven oil tankers for Russia's second-largest tanker company. Primorsk Sea Shipping, which had ordered the seven tankers last August, was unable to get financing for the $245 million order. Avondale's double-hull tanker design competes with the Double Eagle offered by Newport News Shipbuilding. MEMO: The Journal of Commerce contributed to this report.
ILLUSTRATION: An ilustration of Newport News Shipbuilding's design for the
Double Eagle product tanker.
Graphic
[For a copy of the graphic, see microfilm for this date.]
by CNB