WASHINGTON — The bankruptcy protection sought by Global Marine, the Houston oil exploration giant, early this year came as no surprise to the offshore drilling industry. Idle $40-million oil drilling rigs already were scattered from Louisiana to Africa, world oil prices were plunging and it was no secret that Global Marine was struggling against a massive anchor-chain of debt.
Similarly, the collapse last spring of a grain barge owner, Shearson VI, and four related tax shelter partnerships, all trying to stay afloat in a Mississippi River market depressed by a barge glut, was virtually predicted by critical federal auditors three years before.
But it wasn't until this year that it became clear how hefty a price the American taxpayer will pay for the financial failures of these and scores of other debt-swamped shipping firms.
In the final hours of the most calamitous fiscal year in U.S. Maritime Administration history, taxpayers have spent a record $1.24 billion to bail out investors in ship mortgage bonds protected by an obscure federal loan guarantee program from the Depression era--Title XI of the Merchant Marine Act.
Devastating economic conditions in the shipping industry and the lingering legacy of what congressmen, federal auditors and industry critics have called "questionable" guarantee approvals in the past have left the Title XI portfolio awash in troubled loans that will almost certainly cost the government millions more in the next fiscal year, which begins Wednesday .
"We're looking at a disaster, and it's not over yet," Rep. Mario Biaggi (D-N.Y.), a longtime supporter of the Title XI program and chairman of the House merchant marine subcommittee, said in a recent interview.
Federal auditors privately warn that by the end of 1987--barring reversal of a stubborn shipping industry recession--the cumulative taxpayer cost to pay off defaulted vessel loans could approach $2.5 billion.
"The taxpayer has been gutted," one Texas shipping executive conceded.
The U.S. Treasury pay-outs have ranged from the relatively small $519,000 to bond holders of PAWG Marine's Lois and Delores river tug boats, to the record $232 million required to bail out Global Marine drilling rig investors. Some are controversial.
Two toxic waste incinerator ships, for example, won a pledge of $63.9 million in government guarantees, apparently without concern for potential environmental obstacles to their commercial operation. When the Environmental Protection Agency scuttled a bid for disposal permits the newly built ships went directly from the shipyard to default.
And when a Texas ship owner continued to do business with the Department of Defense after defaulting on loans that left taxpayers with a bill for $135.6 million, Biaggi threatened to draft legislation to ban the owner--and any other operators who default--from obtaining future government contracts.
Title XI, managed by the Maritime Administration, was created in 1938 to promote development of a U.S. merchant marine by ensuring financing for construction or refurbishing of ships. Occasional small defaults in the past always had been paid out of a self-sustaining fund built with fees charged to the companies that had applied for the guarantees. Years of success had kept political critics at bay.
Fund Ran Dry
Then last year the fund ran dry. And now the Reagan Administration wants a permanent halt to new Title XI approvals.
"No new (loan guarantee) commitments after 1986 are warranted given the record level of defaults . . . and the oversupply of vessels throughout the industry," the Office of Management and Budget asserted in a letter to the Senate earlier this month.
But Biaggi, among those in Congress who want to see the program nursed back to health, calls Title XI "critical to survival of an American merchant marine," and he advocates management reforms rather than elimination of the 48-year-old program. He also blames unforeseen conditions such as plunging oil prices, sluggish agricultural exports and the international shipping recession, in part, for the severity of the problems.
"All this blood-letting came about because everything that could go wrong did go wrong--simultaneously," he said.
And things continue to go wrong.
$1.24 Billion Paid in '86
For example, there seems to be little likelihood that much of the $1.24 billion paid out by the Treasury this year (and another $126 million lost in 1985) will ever be recovered. The few successful government sales of repossessed equipment have brought in only fractions of their original costs, and prospects of significant returns in the future are poor.
Maritime Administration officials say river barges, for example, that can cost $300,000 to $400,000 to build have sold in today's depressed markets for $40,000 to $80,000. Some offshore drilling rigs have sold for as little as 9 cents on the dollar at auctions in Louisiana.