Pink slips will go out soon at Aker Philadelphia Shipyard to an undisclosed number of workers because the shipbuilder does not have new orders or enough work to keep 1,000 people busy all the time.
Aker has three product tankers in various stages of production, all of which have been sold. The last tanker is scheduled for completion in 2012.
Aker has ordered parts for two additional tankers but still does not have financing or buyers.
With credit tight and the economy crimping demand for petroleum products, offshore drilling, and new ship orders, Aker chief executive officer Jim Miller met with union leaders and employees this week and said there would be layoffs at the South Philadelphia yard.
"We continue our efforts to either secure buyers and/or financing to continue building new ships into the future," Miller said in a written statement. "In the meantime, we are reducing our workforce in line with our current backlog."
Aker is the second-largest U.S. commercial shipbuilder behind General Dynamics Nassco, of San Diego.
The layoffs do not come as a total surprise. In September, Gov. Rendell wrote Vice President Biden that without short-term credit help, the Philadelphia shipyard was "in danger of beginning the systematic closure of its operation in March 2010."
Financing is needed to build the two future tankers after the current backlog of three. Aker tried to get a $150 million loan from the Maritime Administration of the U.S. Department of Transportation.
To secure the loan, an additional $15 million was needed. The money was supposed to come from an existing maritime appropriation for a FastShip Inc. project in Philadelphia that was never spent. However, legislation was required in Congress to "reprogram" the grant, and that did not happen.
Aker has not said how many will be laid off.
"Our labor agreement is clear - all the subcontractor employees have to go first, before regular Aker employees are laid off," said Gary Gaydosh, president of the Philadelphia Metal Trades Council, which represents 11 affiliated unions.
Aker employs 643 union and nonunion shipyard employees, and an additional 500 subcontractors at the Navy Yard. The total workforce is more than 1,000.
On Tuesday, Miller met with employees. "He said that they tried to get money from the federal government for a bridge loan, and that didn't pan out," Gaydosh said. "They are trying to secure work, and trying some other avenues for financing, but until that happens, there are going to be rolling furloughs throughout the shipyard."
Gaydosh plans to meet with Aker officials Tuesday.
U.S. Rep. Bob Brady (D., Phila.), whose district includes the Aker yard, said: "We are trying to get a bridge loan to get them by. It's not done yet, but we're still trying."
Sen. Arlen Specter (D., Pa.) said: "We have a number of irons we are looking at for Aker." The atmosphere in Washington is "gridlock" and "generally nothing is happening on anything," Specter said, adding that the shipyard told his office the furloughs "will be on contract workers first, and not regular Aker employees."
Manuel "Manny" Stamatakis, chairman of the Philadelphia Shipyard Development Corp., said the global economic crisis had devastated ship orders. "There's a state of uncertainty," he said.
"The BP oil spill isn't helping. People say they are going to stop drilling - that doesn't help," Stamatakis said. "All of a sudden, somebody who was getting ready to buy a tanker to distribute oil says, 'Maybe I'll wait.' "
"It's hard to get financing without a buyer," Stamatakis said. "It's doable - they are trying to do it. They are looking at ways to finance the ships on spec."
It takes Aker about 16 months, and costs about $100 million, to build a 10,000-ton tanker.
Aker, a unit of Norway-based Aker ASA, builds ships under the U.S. Jones Act, a 93-year-old law intended to protect national security and U.S. shipbuilding by allowing only U.S.-made vessels to carry cargo between U.S. ports.
In 2000, Aker took over the predecessor Kvaerner Philadelphia Shipyard, which got started with a $429 million taxpayer-funded shipbuilding subsidy in the 1990s.
Aker sees the current challenge as short-term. By 2015, many older tankers at sea must be replaced because of a law that single-hull ships must have double-hulls - an additional layer between the oil tank and the ocean - to comply with an oil-pollution act passed after the Exxon Valdez oil spill.
"There are ships out there that are going to need to be replaced between now and 2015," Stamatakis said. "The question is, how long will it take for things to turn so they can start building ships. I know Aker is working on alternatives."