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San Diego Shipyard to Cut 2,300 From Payroll After Ingalls Gets Navy Contract

September 13, 1986|BILL RITTER | San Diego County Business Editor

SAN DIEGO — National Steel & Shipbuilding Co., the West Coast's largest shipyard with 3,800 workers, will cut its work force to about 1,500 by the end of the year after failing to win a contract--with a potential value of up to $1.2 billion--to build three Navy helicopter landing ships, the company said Friday.

Faced with a shrinking workload, Nassco, a division of Idaho-based Morrison Knudsen, has already laid off 1,200 workers--both blue- and white-collar--since Jan. 1. Its work force peaked at 7,600 in 1980.

Nassco officials had hoped for a turnaround by building the three Navy landing helicopter (LHD) ships, called "baby flattops" because they resemble aircraft carriers. Nassco previously valued the work at about $2 billion; it would have been the company's largest contract ever.

But the Navy awarded the contract to Ingalls Shipbuilding of Pascagoula, Miss., a division of Litton Industries, which is in the midst of a four-year, $882-million contract to build the Navy's first LHD ship.

Having already paid engineering, design and other start-up costs gave Ingalls the upper hand in winning the new $402.5-million contract to build the second LHD and options to construct two additional ships, Ingalls spokesman A.C. Weeks said. The total value of the new work could be $1.2 billion, he said.

"We've been working for two years . . . to get our production costs to the level we wanted to bid on these ships," he added.

Ingalls' current employment of 12,700 will rise to 14,000 by the end of the decade, with about 6,000 of those employees working on the LHD ships, Weeks said.

The other losing bidders were Newport News Shipbuilding & Drydock Co. of Newport News, Va., and Avondale Industries of New Orleans. Newport News management would not comment on how its 30,000-member work force would be affected; Avondale officials could not be reached for comment.

Aside from Ingalls' built-in advantage as the first contractor on the LHD, Nassco was hurt in the bidding competition by labor and fringe benefit costs that average 15% higher than those paid by Gulf Coast competitors, according to Fred Hallett, Nassco vice president of finance and corporate relations.

Nassco may cut its work force to as low as 1,000 by June, Hallett said, when the shipyard completes work on two Navy hospital ships and two oil tankers for Exxon Shipping.

The company is bidding on a Navy oiler that also carries munitions and on a Navy guided-missile destroyer. However, contracts are not expected to be awarded until at least the first quarter of next year and production would not be in full swing until the second quarter of 1988.

So, even if Nassco successfully wins those contracts, it could be at least a year before many of the laid-off workers are called back to their jobs, Hallett said.

The cutbacks mean that Todd Shipyard in San Pedro, with 2,300 workers, will become the West Coast's largest shipyard.

Hallett said Nassco is "disappointed" at losing the LHD contract but that officials remain optimistic about future contracts. "Shipbuilding attracts people who are willing to fight it through and wait for contracts," he said.

But the wait can be painful. Nassco revenues for the six months ended June 30 dropped 20% to $181.5 million and operating income--before taxes and general, administrative and interest expenses--dropped 18% to $20.3 million.

Nassco will continue to bid on smaller Navy repair contracts, Hallett said, while also seeking new areas of work for its remaining employees. New work could include bidding on an eastern extension of the San Diego Trolley line light-rail system, as well as making steel for buildings, bridges and roads, he said.

The impact of Nassco's cutback will be more acutely felt in San Diego's ailing shipbuilding industry than in the county's general economy, area economists said Friday.

Nassco's layoffs "won't have a major influence on the total San Diego economy," according to Max Schetter, director of the San Diego Chamber of Commerce's Economic Research Bureau. "But the impact is very significant for the shipbuilding industry. We're looking at thousands of people who either have to find jobs in other sectors or wait it out (in hopes of a new contract) or relocate."

Employment in San Diego's shipbuilding industry last year averaged 7,500; as of July the average had dropped to 6,300, Schetter said.

State labor analyst Jack Nowell said it would be a "couple of months before the impact" of the Nassco layoffs is reflected in San Diego's unemployment rate. Unemployment in the county in July was 5.7%, and the Nassco cuts could increase that by 0.2%, he added.

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