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Without financial aid, Aker Philadelphia Shipyard will close by July

Aker Philadelphia Shipyard, which once employed more than 1,000 at the Navy Yard and which has been a significant Philadelphia economic force for a decade, is just months from shutting down.

A worker grinds a weld on the bow of a tanker under construction in the yard's Grand Block Shop (Photo: Aker Philadelphia Shipyard)
A worker grinds a weld on the bow of a tanker under construction in the yard's Grand Block Shop (Photo: Aker Philadelphia Shipyard)Read more

Aker Philadelphia Shipyard, which once employed more than 1,000 at the Navy Yard and which has been a significant Philadelphia economic force for a decade, is just months from shutting down.

Aker's survival relies on several financial-rescue efforts coming together to finance the construction of two more oceangoing tankers.

"If they don't build these next two ships, this yard is shutting down," said Manuel "Manny" Stamatakis, chairman of the Philadelphia Shipyard Development Corp.

In May, Aker will complete its 16th ship in Philadelphia, for which it has a buyer. Battered by a troubled economy and the shrinking U.S. shipbuilding industry, Aker has no new orders.

Gov. Rendell, in his last months in office, authorized $42 million in capital spending to go to the nonprofit shipyard development corporation to help Aker build two more tankers - without buyers lined up - and stay afloat.

The deal requires the approval of the state attorney general, Gov.-elect Tom Corbett. A spokeswoman for the Attorney General's Office said Thursday the contract was under review.

Without state aid - and private construction financing that Aker is trying to line up - the nation's second-largest U.S. commercial shipbuilder will close before July, Aker says. Management has asked the union for contract concessions.

The Pennsylvania Office of Budget and the Department of General Services has approved the $42 million to go to the Philadelphia Regional Port Authority, a state agency, which, in turn, would give it to the shipyard development corporation.

In return for $42 million, the Philadelphia Shipyard Development Corp. would buy certain assets, such as equipment and buildings.

Aker leases the yard for $1 a year, after taking it over from predecessor Kvaerner Philadelphia Shipyard in 2000.

Kvaerner ASA came here in the late 1990s after receiving a $429 million public subsidy, including $182 million from Pennsylvania.

Aker has built and sold 15 oceangoing commercial vessels under the 90-year-old U.S. Jones Act, which requires U.S.-made and -operated vessels to transport goods between U.S. ports.

The $42 million is contingent upon Aker's getting construction financing, and a guarantee of $210 million from its Norwegian parent company, Aker ASA, to build Ships Nos. 17 and 18 on spec. A yet-unnamed private lender would be in the mix.

"The thinking was, if we purchase some of their assets and lease them back, they would put up the rest of the money and guarantee the construction of two ships," Stamatakis said. "That should keep enough people working at the yard that next year they can go after some big ship orders that they believe are imminent but won't come in until 2011."

In a memo to employees Dec. 21, Aker Shipyard CEO James Miller said that to secure financing and the "support of our lenders" the union needed to ratify a new four-year contract immediately.

The current contract expires Jan. 31, but Miller said that would be too late. "We cannot obtain the necessary financing" without "confidence and some certainty about the costs," he wrote.

Management has proposed about $9 million in increases in wages, pension, and health-care benefits through January 2015 but wants certain work-rule changes affecting personal time, overtime, and absences.

Aker union members rejected the pact Dec. 17. Miller has asked the leadership for a revote.

"If the current deal to construct ships 17 and 18 falls apart, we will have no foreseeable option other than to further adjust the workforce and cease all production activities," Miller said.

With too little work to continue full operations, Aker began laying off workers in July. Of 420 union employees on the job then, 207 remain, said Gary Gaydosh, president of the Philadelphia Metal Trades Council, which represents 11 unions.

Aker has also trimmed management jobs and cut from the ranks of 250 to 270 subcontractors, Gaydosh said.

The union contends that subcontractors, under the collective-bargaining agreement, should have been the first to lose their jobs, but they were not. The company disagrees.

"We are adjusting our workforce for the production activity that we have," Aker senior vice president Scott Clapham said. He acknowledged the workforce was about half the size it was in July.

Ship 15 was delivered two weeks ago. "We are ready to go on ship 17 as soon as we get these things solved," Clapham said.

The issue is getting all the required money. If more ships are built, some workers would be recalled, Clapham said.

In late 1997, then-Gov. Tom Ridge and then-Mayor Ed Rendell signed on to spend $429 million in taxpayer money; a combination of state, city, and federal grants; plus a $30 million loan to attract Kvaerner to rebuild the old Philadelphia Naval Shipyard and train workers.

Pennsylvania's share was $182 million for reconstruction of the yard. The remainder, largely for job training, came from the federal and city governments and the Delaware River Port Authority.

An analysis commissioned by Ridge and conducted by Carnegie Mellon University, estimated it would take two decades - until 2017 - to recoup the public spending in taxes.

In 2006, the Heinz School's Center for Economic Development at Carnegie Mellon assessed the shipyard's impact on the region: 1,069 jobs, with wages of $55.2 million; an "indirect" economic benefit, including suppliers and construction, of 7,874 jobs, with wages of $217.2 million; state taxes of $2.7 million, and total local taxes (city wage, property, and business income) of $7 million annually.

"We have the best shipbuilding facility in the United States, bar none," Stamatakis said. "We have averaged 1,000 jobs a year in that yard. The economic impact has been hundreds of millions of dollars."

The Shipyard's Economic Impact

Jobs: 1,069, with wages

of $55.2 million.

Direct and indirect employment (including suppliers and construction): 7,874 jobs,

with wages of $217.2 million.

Pennsylvania state taxes:

$2.7 million.

Philadelphia wage taxes:

$3.0 million.

City property taxes: $3.8 million.

City business income taxes: $246,882.

Total city taxes: $7 million.

SOURCE: A 2006 assessment by the Heinz School Center for Economic Development

at Carnegie Mellon University.