THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Sunday, March 19, 1995 TAG: 9503190312
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER
LENGTH: Long : 148 lines
When they met before Christmas, Richard du Moulin wanted Edward Waryas Jr. to tell him how Newport News Shipbuilding had managed to sell two tankers to a prominent Greek shipping company.
Du Moulin is the chief executive of Marine Transport Lines, a New Jersey-based shipping company. Waryas is the giant Peninsula shipyard's director of commercial marketing.
Newport News Shipbuilding had signed a contract in late October worth up to $152 million to build up to four petroleum-product tankers for Eletson Corp. of Piraeus, Greece.
Du Moulin was intrigued. His company saw an emerging market for double-hull tankers, and Newport News was the only U.S. yard that appeared to meet its needs.
His meeting with Waryas culminated March 11 in a letter of intent to build two tankers for a joint venture between du Moulin's company and Bethesda, Md.-based American Automar, another shipping company. The joint venture, known as American Marine Tankships, has an option to order four more tankers.
A contract for the vessels will be signed if American Marine Tankships gets loan guarantees from the federal government under a program to support U.S. shipyards. The review process is expected to take up to three months.
Newport News Shipbuilding has burst onto the world commercial shipbuilding scene in the past six months with these two deals. It has positioned itself to take advantage of an expected boom in tanker-building and taken the first steps down its planned road toward reduced dependenceon Navy shipbuilding.
``I think we just kind of shocked the world because nobody thought a U.S. yard could become so quickly competitive,'' Waryas said.
Newport News, the state's largest private employer with about 19,500 workers, is emerging as a global competitor thanks to the loan-guarantee program, crucial support from its parent, Tenneco Inc., and plain old gumption.
``They're by far the most aggressive U.S. yard,'' said James R. McCaul, a shipbuilding consultant and president of IMA Associates in Washington. Other U.S. shipbuilders ``just aren't doing it.''
Newport News is telling the world that it intends to be a player in the commercial market with these two contracts. But orders it has received so far are small first steps on a long road toward commercial viability.
``You have to sell a lot of tankers to make up for an aircraft carrier,'' McCaul said.
At an estimated $35 million a copy, it would take more than 100 tankers to come close to the value of an aircraft carrier. The company is building three carriers now.
Still, tankers are about to become a booming market and should give the yard a leg up on relearning the commercial shipbuilding business.
``Aging, inefficient tanker fleets are being scrapped in favor of better designs and tougher environmental standards,'' Forbes magazine reported last year.
With the average age of the world tanker fleet nearing 20 years, many are at the ends of their useful lives and are about to be retired. In addition, older tankers don't have the double hulls that are increasingly being required worldwide under laws aimed at preventing oil spills.
``It's a great market,'' McCaul said. ``We see the tanker business as being the base business for shipyards - particularly smaller tankers, the product tankers.''
A report by McCaul's IMA Associates indicates that nearly 300 of the 900 tankers larger than 20,000 tons operating worldwide will need to be replaced in the next five years.
Newport News Shipbuilding's 46,000-ton Double Eagle product-tanker design fits the market's needs nicely. It's no supertanker, for which demand has dwindled; neither is it too small. It's designed to carry petroleum products such as refined gasoline, rather than crude oil.
More and more refining capacity is moving away from consuming markets to be closer to producing regions as air-quality restrictions become tougher.
The quality of the Double Eagle design was recognized by the order from the Greek shipping company Eletson, which operates one of the world's most modern and best-regarded tanker fleets.
``Eletson could have gone just about anywhere,'' Waryas said. ``They're currently building tankers in the Ukraine, and they've built in Japan before.''
The order raised Newport News Shipbuilding's profile worldwide and attracted the interest of many other potential buyers, including Marine Tankship Lines and American Automar.
``Ever since we signed that contract, there's been a flurry of activity - people calling us wanting to build all kinds of ships,'' Waryas said. ``We do have a number of additional owners interested in Double Eagles.''
The ship owners are drawn to Newport News also, however, because of the Title XI loan-guarantee program run by the U.S. Maritime Administration. The program helps buyers of ships built in U.S. yards get low interest rates on long-term loans, which reduces the ultimate cost of buying a ship.
``Title XI gets you the same interest rates as any AAA-rated company can get,'' McCaul said.
The window is closing on Title XI, though. The program guarantees 87.5 percent of a ship's construction costs for up to 25 years. In the event of default, the government would assume the debt. Under a worldwide agreement to eliminate shipbuilding subsidies, loan guarantees would be limited to 12 years and a smaller percentage of the total cost.
To qualify for the existing program, loan guarantees must be approved by the end of 1995 and the ships delivered by the end of 1999.
With the deadline nearing for the best available financing, Newport News could see more orders soon.
Houston-based Tenneco's commitment has been key too, Waryas said. ``If you want to improve your productivity, it takes capital.''
And Tenneco has been providing capital. It's spending $68 million to upgrade and automate the yard's design and steel-fabrication areas. It is also investing $35 million to lengthen the shipyard's largest dry dock so it can assemble an aircraft carrier and a commercial ship at the same time.
Newport News also has become competitive internationally on wage costs. ``Our labor rate is less than the Japanese and in some cases the Koreans,'' Waryas said. ``So it comes down to productivity, how efficiently can you build a ship.''
U.S. wages have stagnated for years as German, Japanese and Korean wages have risen dramatically. At the same time, the dollar has fallen in relative value to other worldwide currencies, making purchases of both products and labor in the United States more affordable.
Newport News expects to learn how to become more efficient at tanker-building. In modern serial shipbuilding, a shipyard builds a number of nearly identical ships. The more ships that are built, the easier it is and the more money the shipyard can make. Shipyards often lose money on the first few ships in a series as they learn the process.
It remains to be seen whether Newport News can make the transition easily. ``I think it's a very tough call,'' said Paul Slater, chairman of First International Financial Corp., a ship financing agency with offices in London and Boca Raton, Fla.
``We build all our ships, I must confess, in the Far East,'' Slater said. ``The efficiencies of shipyards in Japan, for example, will be very difficult to match. American shipyards need to change everything.''
Newport News is scheduled to deliver the first tanker to Eletson at the end of 1996. The yard expects to be able to produce one every three months after that.
``The series of ships that they've undertaken, starting with Eletson and continuing with ours, as well as their commitment to succeeding as a commercial shipbuilder, enabled them to give us the price to make it economical,'' said J. William Charrier, chief executive of American Automar, one of the partners in the company that signed the letter of intent for two tankers March 11.
Perhaps more important than all that, however, is the attitude of the shipyard. Newport News is taking its effort to re-enter commercial shipbuilding very seriously.
``They're doing everything that's required to gain entry to the market,'' McCaul said. MEMO: Related articles on page D1 and D2.
ILLUSTRATION: Color drawing
Newport News Shipbuilding's Double Eagle tanker design.
KEYWORDS: COMMERCIAL SHIPBUILDING NEWPORT NEWS SHIPBUILDING by CNB