Pa. OKs $42 million for Aker shipyard

Aker Philadelphia Shipyard has received a $42 million lifeline from Pennsylvania taxpayers that enables the nation's second-largest U.S. commercial shipbuilder to stay afloat and construct two more oceangoing vessels on spec without buyers.

Without the state money - and private construction financing that Aker says it has lined up - the shipyard might have closed by July.

Calling the shipyard "the best commercial shipbuilding facility in the nation," Gov. Corbett said Thursday it was "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."

Corbett's support for the shipyard funding had not been assured until now.

Aker, which once employed more than 1,000 at the Navy Yard, has laid off nearly 700 workers since July.

Before any taxpayer money is disbursed, Aker must secure all its remaining financing requirements, have lined up at least $50 million of working capital, and spend at least $40 million on the first of the new ships. Only then can the shipbuilder request the first installment of $21 million from the state, according to the terms.

Aker must commit $210 million to complete the two ships through private investment - its own equity, through a guarantee from its Norwegian parent company, Aker ASA, and private construction financing.

Under the deal, the City of Philadelphia has agreed to defer $8 million in tax-settlement payments due from the shipyard. "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," Mayor Nutter said.

The shipyard is "vital" to the city's economy and "has meant high-paying jobs for our citizens and has become truly an anchor tenant at the Philadelphia Navy Yard," Nutter said.

Of 500 union Aker employees on the workforce in July, only 120 remain, said Gary Gaydosh, president of the Philadelphia Metal Trades Council, which represents 11 unions. In addition, there are an unspecified number of subcontractors still working, and management.

Aker says about 400 remain on the payroll.

"I'm glad that they might stay in business, but they still have these subcontractors," Gaydosh said. "I'm not glad that they are employing subcontractors while my people are laid off." Some subcontractors do welding, ship-fitting, and pipe-fitting work that Gaydosh contends under the collective bargaining agreement should be done by Aker union employees.

Manuel "Manny" Stamatakis, chairman of the Philadelphia Shipyard Development Corp., predicted that employment would increase over the next six months with construction of two new tankers - the 17th and 18th to be built - with full employment "likely reached upon commencement" of ships 19 and 20.

Gaydosh doubts the shipyard will ever have 500 Aker union employees again.

"I think their goal is to keep maybe about 200 of us around, and have the rest of the work done by subcontractors. The European subcontractors are the ones who are left - the Norwegians and the Germans."

Temple University economics professor William Dunkelberg said the deal violated the principle of not throwing "good money after bad."

"It looks like the politicians have found a good reason to do this with everybody else's money, This is a 'political' expenditure, not a good investment. Maybe the $42 million could be used to retrain workers, or move them to where jobs are growing and still have $10 or $20 million left over! I am sure relatively few workers are impacted," Dunkelberg wrote in an e-mail.

Dunkelberg wrote, "It's very expensive per worker." If Pennsylvania taxpayers were asked whether they wanted to spend their money this way, "they would say NO. It's a cost to them with no benefit unless they live here."

In his last months in office, former Gov. Ed Rendell authorized $42 million in capital spending for Aker. The deal required the approval of Corbett, who was state attorney general at the time.

In return for $42 million, the Philadelphia Shipyard Development Corp. will acquire all existing capital assets of the shipyard. Aker leases the yard for $1 a year, having taken it over from predecessor Kvaerner Philadelphia Shipyard in 2000.

In late 1997, Rendell as mayor and then-Gov. Tom Ridge 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 ASA 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.

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 16th ship, which has a buyer, will be completed in May. Because of the economy and a downturn in shipbuilding, Aker has no new orders.

"You have to ask a series of tough questions: whether this money will generate a big enough benefit for the state that it's a good use of public money," said Stephen Herzenberg, executive director of the nonprofit Keystone Research Center, an independent economic research group.

When the $400 million went to Kvaerner, "there were a set of hand-waving promises. Has there been delivery on those promises?" Herzenberg asked. "There's a lot of discussion in Philadelphia now about offshore windmills, with some thinking the Philadelphia shipyard might get a new lease on life catering to that market, which people see becoming big in 5 to 10 years."

Aker Shipyard chief executive officer Jim Miller expressed appreciation for Pennsylvania's continued support. "The forecast for the shipbuilding industry indicates that the demand for new Jones Act ships should increase significantly by 2013. With the construction of ships 17 and 18, we will be well positioned to win this and other heavy manufacturing work," he said.