New Partnership to Guarantee Construction of Two New Vessels at Philadelphia Shipyard

Plan can preserve up to 1,000 jobs and "bridge the gap" to anticipated future orders

Feb 17, 2011, 09:33 ET from Philadelphia Shipyard Development Corp.

PHILADELPHIA, Feb. 17, 2011 /PRNewswire/ -- Seizing the opportunity to capitalize on the competitiveness of the Aker Philadelphia Shipyard as America's premier commercial shipbuilding facility, the Commonwealth of Pennsylvania today announced a new partnership with Aker Philadelphia Shipyard Inc. (APSI) that can preserve up to 1,000 direct jobs over the next three years by guaranteeing the construction of two new oil tankers at the Yard over the next two years.

The partnership between APSI and the Commonwealth follows months of bipartisan negotiations to forestall the imminent closure of the Yard in the wake of a lull in so-called "Jones Act" shipbuilding throughout the United States.  The plan guarantees continued shipbuilding in Philadelphia by building two new oil tankers by 2013, by which time experts believe there will be renewed demand for Jones Act commercial vessels like those that can be built at the Shipyard.

For its part, the Commonwealth will invest $42 million in capital funds to acquire all of the existing capital assets of the Aker Philadelphia Shipyard, which were originally purchased by APSI over the last 10 years. The City of Philadelphia also will agree to temporarily defer $8 million in tax settlement payments due from APSI.  In return, APSI will commit $210 million to complete the project through private investment -- both its own equity and through private financing -- and to guarantee the completion of the 17th and 18th ships to be built in Philadelphia since 2000.  One of only two commercial shipyards in the United States with sufficient capacity and expertise to build large ocean-going ships, APSI has built more than half of all new American-made commercial ocean-going ships in the last decade.  

"I have had the opportunity to review the merits of this transaction, and it has become clear that the Philadelphia Shipyard is the best commercial shipbuilding facility in the nation," said Governor Tom Corbett.  "The Yard is uniquely positioned to successfully compete for future orders for commercial ships that must be built in the United States, and this partnership allows the Shipyard to retain its extraordinary workforce and remain in operation until that time."

"Governor Corbett is to be commended for his decision to affirm the Commonwealth's longstanding commitment to sustain commercial shipbuilding in Philadelphia," said Manuel N. Stamatakis, chairman of the Philadelphia Shipyard Development Corporation, which owns the site.  "It is a commitment that is based on the strength of the Yard's reputation for excellence built over the last decade.  Like former Governors Ridge and Rendell, Governor Corbett concluded that the Commonwealth's participation allows the Yard to maintain its competitive advantage and bring back the Yard's high-skill, high-wage jobs in the process."

"The Commonwealth is purchasing the remaining assets of the Shipyard, which have significant value regardless of whether APSI remains in Philadelphia or not," Stamatakis said. "Taxpayers are getting full value for their participation, and this transaction preserves shipbuilding and the thousands of jobs that are connected to it directly and indirectly."

Stamatakis noted that the Commonwealth's approval of the transaction authorizes the parties to proceed to the next step in the transaction, which requires the completion of certain conditions by APSI before taxpayer funds are disbursed.  The conditions, designed to safeguard the public's investment, include evidence that APSI has secured all of its remaining financing requirements, that at least $50 million of its working capital is in place, and that it has spent at least $40 million on Ship 17.  Only then can it request the first installment of $21 million from the Commonwealth.

Experts agree that the recent lull in orders for so-called Jones Act ships (by federal law, ships trading between U.S. ports must be built in the U.S.), driven by the economic recession, is likely to end as orders increase over the next three years.

Stamatakis said that without the new partnership, the Shipyard would have faced almost certain closure within the next 90 days.  Nearly 700 workers have been laid off over the last six months as the Yard awaited the opportunity to commence Ship 17.  Stamatakis said that employment levels will increase over the next six months as construction on Ships 17 and 18 begins, with full employment likely reached upon commencement of Ships 19 and 20.

"Keeping the Shipyard working is an economic imperative for the region," said Greater Philadelphia Chamber of Commerce President Rob Wonderling.  "Its impact cannot be overstated: up to 1,000 direct shipbuilding jobs over the next three years and up to 7,000 indirect or related jobs held by suppliers and other vendors who count on the Shipyard for their livelihood.  The continued operation of the Shipyard is critical for our economic security."

A U.S. Commerce Department report on shipbuilding and repair concluded in 2001 that "[a] domestic capability to produce and repair . . . commercial vessels is not only a strategic asset but also fundamental to national security (emphasis added)."  A domestic commercial shipbuilding capacity has been required under federal maritime law for more than 70 years: the U.S. Maritime Act of 1936 states that commercial ships "constructed in the United States" are "necessary for the national defense and development of its foreign and domestic commerce . . ."

The completion of Ships 17 and 18 over the next 24 months would support approximately 3,455 direct, supplier, and indirect jobs which would generate over $200 million in total direct, supplier, and indirect wages. The completion of Ships 17 and 18 also dramatically increases the likely construction of two additional vessels, Ships 19 and 20, which could generate an estimated $500 million in new revenue for the Shipyard while also maintaining direct employment levels that are expected to reach to 1,150 direct workers in the Yard, as well as more than 7,000 supplier and indirect jobs through 2013 and beyond.

"The Aker Philadelphia Shipyard is vital to the city's economy," said Mayor Michael A. Nutter.  "It has meant high-paying jobs for our citizens and has become truly an anchor tenant at the Philadelphia Navy Yard.  This investment preserves jobs and positions us to continue building new commercial ships for years to come.  Given the Shipyard's importance in the City's future, we were willing to extend the payment terms for taxes over the next few years, all without spending additional City tax dollars.  Governor Corbett deserves our thanks for his decision to continue the bipartisan commitment to shipbuilding in Philadelphia.  It is the right thing to do -- for the Shipyard, for the City, and for the entire region."

"The Governor's continuing commitment to the Shipyard is terrific news for our Commonwealth and our county," said Mike Brady, President of the Delaware County Chamber of Commerce, who said that 20 percent of the Shipyard's workforce comes from Delaware County.  "Governor Corbett made the right decision for southeastern Pennsylvania."

In support of the transaction, a recent economic impact analysis prepared by the Philadelphia Industrial Development Corporation concludes that the Commonwealth's investment is well within the acceptable standards for public economic development.  The study also concludes that if the Shipyard can successfully bridge the gap to complete the construction of Ships 19 and 20, the Commonwealth and the City would recapture their investment in five years and enjoy a net benefit of $8.5 million -- all while preserving Shipyard jobs and long-term growth for this vital manufacturing activity.

"We are delighted to join forces with the Commonwealth in this expanded partnership to sustain commercial shipbuilding in Philadelphia, and we deeply appreciate the Commonwealth's continued support," said Jim Miller, CEO of APSI.  "The forecast for the shipbuilding industry indicates that the demand for new Jones Act ships should increase significantly by 2014.  With the construction of Ships 17 and 18, we will be well-positioned to win this and other heavy manufacturing work."

SOURCE Philadelphia Shipyard Development Corp.