THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Saturday, February 10, 1996 TAG: 9602100278
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER
LENGTH: Medium: 77 lines
Newport News Shipbuilding has won another order for commercial ships, further weaning it from dependence on building Navy warships.
The U.S. Maritime Administration announced Friday approval of $215 million in loan guarantees to build five double-hulled petroleum product tankers at Newport News Shipbuilding.
The tanker orders will help sustain more than 1,250 jobs at the shipyard through the end of 1998. Newport News Shipbuilding is the state's largest private employer, with 18,000 workers.
The loan guarantees will officially be announced Monday in Washington by Transportation Secretary Federico Pena.
The guarantees were approved despite criticism that there will be too many tankers chasing too little shipping business.
The new order brings to nine the number of commercial tankers on order at the shipyard. It is now building four for a Greek shipping firm.
Commercial shipbuilding is a tiny fraction of the shipyard's $4.6 billion backlog. At an estimated $40 million to $50 million each, it would take nearly 100 tankers to match a single aircraft carrier order.
Yet the order has been called a ``major stepping stone to financial viability in the commercial shipbuilding market'' by W. Greg Cridlin Jr., the shipyard's vice president of marketing.
Newport News Shipbuilding has built only carriers and submarines for the Navy since 1981. But Navy orders have fallen off since the end of the Cold War, forcing the yard to pare its work force by 12,000 since 1990. So the company began trying to return to commercial shipbuilding several years ago.
The federal loan guarantees make U.S. yards competitive with shipyards in Europe and Asia. The guarantee assures a very low interest rate on financing that can be repaid over 25 years.
The five tankers are being ordered by Hvide Van Ommeren Tankers, a group of limited partnerships managed by Fort Lauderdale, Fla.-based Hvide Marine Inc. Investors include Hvide, the Dutch shipping giant Van Ommeren N.V. and a union-owned insurance company. But the largest investor is reportedly Newport News Shipbuilding itself.
William P. Fricks, the shipyard's chief executive, called the tankers ``a good investment.''
Hvide Van Ommeren has an option to order five additional tanks.
A shipyard frequently loses money on the first few ships in a new series as it develops and learns to build them. Newport News Shipbuilding took a $14 million charge last year to cover those losses.
But the yard learns to take advantage of assembly-line efficiencies to build later ships in the series at a profit. The first tanker will take 15 months to build, but the yard unveiled a process improvement program Wednesday that should cut that time to seven months by the fifth or sixth ship in the series.
Loan guarantees for the Hvide Van Ommeren vessels had been stalled because of concerns about demand for new product tankers.
The tankers will primarily transport products such as gasoline and heating oil between refineries on the Gulf of Mexico and East Coast cities.
Kirby Corp., a Houston company that controls 15 percent of the domestic tanker trade, unsuccessfully sued to block the guarantees in January.
Kirby argued that the order is speculative and a risk to U.S. taxpayers, who ultimately back the loans. Guarantees also amount to government-subsidized competition for its aging fleet of tankers.
A Maritime Administration study seems to validate concerns about the need for new tanker. It says that new tankers will not be able to break even for several years, according to a Journal of Commerce newspaper report.
Hvide officials are confident the tankers will be a commercial success. They believe petroleum shippers will prefer to charter its newer, safer ships rather than older, single-hulled tankers.
Half the domestic tanker fleet will be scrapped before 2005 under the Oil Pollution Act of 1990, which requires that all tankers entering U.S. waters by 2015 be double-hulled to protect the environment from devastating oil spills. by CNB