At what used to be the Philadelphia Naval Shipyard, dozens of workers are taking apart some of the same ships that thousands once built there.

The Navy is paying $8.5 million to Philadelphia Ship Repair L.L.C. to pull out the marine jet engines, propellers and shafts, power transmissions, sonar systems, and compressors from five 1970s-era guided-missile frigates.

The Navy is salvaging those systems so they can be used in surviving frigates - some in U.S. service, some in the navies of Australia, Bahrain, Egypt, Pakistan, Poland, Spain, and Turkey.

"In these tough budget times, to see the Navy investing in a project is a good thing," says Ashley Auteri Ferguson, the Villanova University-trained engineer who sends old propeller shafts to Erie Forge & Steel Inc. in Erie and to other private plants in Norfolk, Va., and other cities so they can be recycled back to sea.

Time was, the Navy might have just scrapped them and ordered more. But this program is designed to appeal to budget-cutters: "This has the potential to save $100 million" in parts-replacement costs, said engineer E. Alan Karpovitch, who heads the Navy's propulsion-management program.

Karpovitch cheerfully calls Ferguson the "grim reaper" of Philadelphia's fleet of mothballed ships, visible to travelers on Interstate 95 where it passes above the yard and its five old dry docks.

The Navy and its business dealings are sometimes a very small world: Philadelphia Ship Repair is part of a Boston company owned by J.F. Lehman & Co., which is headed by Reagan-era Navy Secretary John F. Lehman, a St. Joseph's University and University of Pennsylvania grad who turned industrial investor and military contractor after ending his government service in 1988.

An earlier job of dismantling Philadelphia-based cruisers - bigger ships - was managed by the local Rhoads Industries Inc., Karpovitz said. All Star Metals of Brownsville, Texas, agreed this year to scrap the aircraft carrier Forrestal, also stored in Philadelphia, where it underwent its last big overhaul before the nearly 200-year-old yard shut down in 1991.

Philadelphia remains a storage point for inactive Navy ships in part because it's one of the few big U.S. ocean ports on fresh river water, not corrosive salt water. The base surrounding the old yard is still the working home for 1,600 Navy engineers and technicians, the Navy's ship propeller shop, and other surviving installations among the yard's rows of specialized metal and systems shops. Barracks have since been shut and converted, or, more often, leveled to make room for gleaming new office buildings, and, maybe soon, apartments.

Karpovitch says Philadelphia Ship Repair will keep 30 to 50 workers busy for the next year salvaging what is usable from the frigates.

The five old dry docks, where ships were built and floated at the heart of the former yard, have varied uses. Docks Four and Five are still used in shipbuilding by state-subsidized Aker Philadelphia Shipyard, which depends on new orders for crafts to haul loads on government-protected intra-U.S. shipping routes. Dock One is used by the neighboring Urban Outfitters headquarters. Lehman has endorsed suggestions that the U.S.S. Olympia, the Spanish-American War flagship now rusting at Penn's Landing, could be left there as a permanent attraction. Dock Two is used by Rhoades. Dock Three is used by Philadelphia Ship Repair.

As ships are completely salvaged for parts, they will likely follow the Forrestal into the scrap yards, the planned obsolescence that awaits a dominating Navy whose vessels are seldom lost at sea.