Shipyard sees growth in jobs, profit despite past difficulties; Refittings still at core; Navy contract a bonus; Shipping

THE BALTIMORE SUN

Baltimore Marine Industries Inc. executives are clear on one thing: The shipyard first and foremost is in the repair and conversion business. But it sure wouldn't hurt if the company could land a pending deal with the Navy worth about $500 million -- nearly 10 times the revenue it had last year.

The shipyard had been on a fast track to permanent mothballing two years ago, and the fact that it's earning any money at all seems remarkable.

In 1997, Bethlehem Steel unloaded its unprofitable BethShip shipyard onto a New York-based merchant banking fund for nearly half the asking price. Hundreds of workers were laid off with little hope they would return, and the yard's future was at best in jeopardy.

The newly incarnated BMI has gone from a skeleton staff of 25 to more than 750 employees -- about 50 more than BethShip had just before it was put up for sale -- and about 150 contract workers.

The company has started turning a profit, although last year's revenue of $58.3 million fell short of the $70 million projected, mainly because the Army Corps of Engineers canceled plans to overhaul a dredging ship at the yard.

"It hasn't been all hearts and flowers," BMI Vice President Steve Sullivan said of the past two years. "But I think the mood is positive and the market outlook speaks for itself."

Two potential Navy contracts could boost BMI's revenue significantly: A $500 million project that would make the yard a portable-pier manufacturer, and a potentially lucrative contract to break down old ships for scrap.

At the same time, the Navy is taking away another potential source of money. In July, the Navy announced that ship repairs lasting less than six months must be done at shipyards within 75 miles of a Navy home port -- making BMI ineligible to bid on Navy jobs originating from the Norfolk, Va., home port.

Although BMI has never bid on such a project, the company had hoped to do so in the future.

But BMI is concentrating on what might be, not what could have been. The company has already begun work on the four-phase portable-pier project. About 200 workers are building trailer truck-size steel components that fit together like Legos to create various ways of getting military cargo off ships when a port is not available.

They can be formed into floating piers, roads, landing platforms or self-propelled ferry boats. Unlike the older systems used by the military, which can be assembled and used only in calm waters, this system is designed for use in waters with waves up to 7 feet high.

The project is now in its second phase, with BMI, working as a subcontractor, building a limited number of the "joint modular lighter systems" -- the name comes from the fact that ships become lighter once cargo is removed.

"Desert Storm was an ideal war, if you can call it that," said Richard B. Ralph, BMI's program manager for the project. "Countries with piers welcomed us, but that will not always be the case. This allows ships to unload offshore to the beach on pier modules. It really is a way to build a port."

CDI Marine Co., an engineering firm in Jacksonville, Fla., won the contract and hired BMI to manufacture the modules. Another Maryland company, Band, Lavis and Associates of Severna Park, designed the modules' connector system -- bowling ball-size spheres that fit into sockets -- and helped win the bid. Band, Lavis was acquired by CDI in May 1998.

"We went exclusively to BMI," said CDI's John Ricciardi, the joint modular program manager. "They are the manufacturer because of past and ongoing watercraft experience."

BMI is in the process of building 60 lighter modules, each 40 feet long and 8 feet high, that will be tested this spring. If all goes well, BMI can move into phase three -- limited production.

But it's the fourth and last phase that will make it all worthwhile. Phase four, scheduled for May 2001, would mean the production of more than 2,000 modules. That alone would give BMI five years of work, employ more than 450 people and provide about $500 million in revenue.

CDI and the shipyard will have to bid for the last phase, but BMI President and Chief Executive Officer David Watson is confident. "I'm not afraid of competition; I believe we've got the best product," he said. "The first phase is tough, the second is easier and then you can do it with your eyes closed. It's not an easy box to build, it's like a jigsaw puzzle and if all the pieces don't fit, you're screwed."

Assistant Deputy Undersecretary of Defense Daniel L. Winegrad agreed, saying: "They should have an advantage since they will have already built and tested them."

BMI hopes to win another lucrative Navy contract. A year ago, after a series of articles in The Sun detailing the dangerous conditions under which old U.S. ships were being dismantled overseas, the White House instituted a one-year ban on foreign sales of ships for scrapping. U.S. Sen. Barbara A. Mikulski of Maryland helped create a pilot program, included in the fiscal year 1999 defense appropriations bill, to dismantle ships in the United States.

BMI bid to scrap one ship at cost plus a fee. The Navy will issue contracts to four companies -- two on each coast -- and after the four ships are dismantled it will evaluate the different procedures and then take bids to scrap nearly two dozen more.

The Navy is expected to announce which companies will be awarded the contracts sometime this month.

Sullivan declined to discuss details of the bid, but said one shipbreaking contract would probably take four months and bring BMI less than $10 million. The real money would be made once the yard received a healthy volume of ships to scrap, he said.

The thought of going after such huge contracts would have been unthinkable two years ago.

The shipyard employed more than 8,000 people during World War II, and the number was still at a healthy 4,000 in the mid-'70s. But the business and number of employees steadily declined, and Bethlehem finally decided that it was time to get out altogether.

It put the yard up for sale in 1996 and saw two deals, including one with attorney and Baltimore Orioles principal owner Peter G. Angelos, fall through. It eventually sold the yard to Veritas Capital Inc. for $16 million -- far less than the $30 million it had originally sought.

Veritas was able to nail down the deal in part through concessions from the workers, who took a 75-cents hourly wage cut, to $12.75, in return for profit-sharing and jobs in an industry they thought had deserted them.

"People with 35 years' experience walked out of here believing they were not coming back," said Sullivan, who, like Watson, worked at BethShip for more than three decades.

Now, many of those workers are back.

BMI is currently finishing a four-barge project for Vane Brothers Co. of Baltimore and Elk of Marine Transportation Inc. of New York. The shipyard is also doing a five-month, $10 million overhaul of the USNS Santa Barbara -- a ship built by BethShip 30 years ago -- and is working on two Maritime Administration ships worth $3 million apiece.

"We're doing well," Sullivan said. The joint-module and shipbreaking projects "are essentially work that was not envisioned when our first business plan was developed. We will still be overhauling ships -- that's our core business, and we do not want to abandon our core business."

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