Taking a hard look
at Navy ship repair
in Norfolk"We could save the American taxpayer $100 million a year"
Like some pale rider out of the Old West, B. Edward Ewing has
ridden into town with his guns blazing for one purpose--to put an end to business as usual. His bone of contention: the U.S. Navy's current policy of shuttling most of the non-nuclear ship repair work to its Norfolk Naval Shipyard, leaving the private sector in Norfolk, Va., with little work to bid on.
So why should this concern someone who most recently hailed from San Diego? Because Ewing is the president and chief executive officer of United States Marine Repair (USMR), America's largest non-nuclear ship repairer with some $400 million in annual revenues and whose subsidiaries include Norfolk Shipbuilding & Drydock Corporation (NORSHIPCO), Norfolk.
USMR was established last month to serve as the umbrella corporation for the shipyards comprising Southwest Marine Holdings, Inc. Besides recently acquired NORSHIPCO, the other shipyards in the USMR network include: Southwest Marine in San Diego and San Pedro, Calif., and Ingleside, Texas; San Francisco Drydock Company, San Francisco.
Ewing unveiled the new corporate identity at a press conference in Norfolk. He also announced that the company would be relocating its headquarters to Norfolk.
The South Tidewater Association of Ship Repairers, Inc., whose members include a number of the Norfolk-Hampton Roads-Newport News ship repairers, would also like the Navy to change its practices.
Leo J. Marshall, executive director of STASR told Marine Log,"The Navy estimates a somewhat level funding (ship repair awards) for the private sector in the coming fiscal years. For Hampton Roads (excluding Newport News Shipbuilding, which does nuclear ship repair), the FY 98 funding was 74% public yard and 26% private yard. In FY 99, the projection is not much better for non-nuclear ship repair work: 70% for the public yard and 30% for the private yards.î Marshall states, ìThe Navy can save on their budget dollars by making more use of the less expensive, and yet more productive, private yards. The STASR trade association has made this case to our congressional representatives"
Marshall says there are 13,000 ship repair workers in south Hampton Roads and annual repair sales of about $1.2 billion, and $941 million in employee earnings.
TURNING IT AROUND
AT NORSHIPCO
One of the first moves made by Southwest Marine on acquiring NORSHIPCO was to cut some 800 of its 1,400 workers, due in part to the dearth in Navy repair work.
"The business was losing money every month. We didn't have a choice but to make this reduction" said William E. Conway, managing director of the Carlyle Group, a Washington, D.C., private investment firm. The group, whose board is chaired by Frank C. Carlucci, the former Secretary of Defense, is the principal investor in USMR.
"The government says to the American people that the move towards privatization is the right thing to do," Ewing told Marine Log during an exclusive interview."But in Norfolk, Va., we laid off 800 workers that didn't even get a chance--that were lower cost and better quality--to bid. That's not fair. That's not America. And I don't believe that that is the intent of [the Navy]."
Ewing says. based on his company's analysis, by allowing the private yards to bid on the repair work--instead of just sole sourcing it to the public shipyard-- the American taxpayer would save $100 million a year.
Adds Ewing, "Do you know what they could do with that? They could: (A) do more repair and (B) buy more things to defend our country. And what is tragic about the practice is that 800 workers at NORSHIPCO, some with 20 and 30 years of service, who could do the job at higher or equal quality and lower cost and save the American taxpayers $100 million, lost their jobs."
Continued Ewing,"Why are we moving our corporate headquarters here? Because I don't believe that's fair. I have confidence our Navy will fix it. And if our Navy won't fix it, which I believe it will, then our politicians certainly will. Because our politicians, elected by the people, care about that."
USMR plans to discuss the findings of its analysis with the Navy.
Couldthe Navy repair gap be filled with commercial work? "That," says Ewing, "is a perception shared by many inside and outside of this industry. What is the size of the world repair market? Well, I'll tell you today, with the best tools I could find, it's $8.5 billion. Then I'll tell you that $500 million to $600 million of that is in the United States. The commercial repair market, on its best day, is one-quarter of the government repair market [$2.5 billion].
"What was interesting is my colleagues in the ship repair business all said that, as the government repair business went down, from $3.5 billion to $1.8 billion, that they'd fill it with commercial. But unless you are Houdini, you can't fill a $1.4 billion downer with $500 million of work!"
" [NORSHIPCO] won commercial work on average at a 30% loss. So you ask me, how am I going to stay in business for 84 more years and serve the customer and community? I say to you this, winning more commercial work at a 30% loss, I'm probably not going to be here another 84 more days.Look, I'm not going to do commercial jobs at a loss anymore.I will do your work better for you than anyone else, but I want a fair profit."
Ewing cites the turnaround at Southwest Marine's shipyards in California, which were losing money two and half years ago. "We have not lost money since," he declares. "Our results have been very, very successful so far."
Part of USMR's strategy for NORSHIPCO is to duplicate the success at its other shipyards. That means changing from a rigid cost structure. "In this business," says Ewing, "work comes and work goes. You have to have a cost structure that is fluid, that will enable you to go up for down within 24, 48, or 72 hours. Change the cost structure and line it up with the volume of work that you have won, with a chance of profitability"
Down the road, USMR might consider going public, but its not in the cards right now.
Ewing concludes,"We're privately owned and other than my partners in the Carlyle Group, I am the major share holder in this company. So, I've bet a lot of my own money on the ability to change this industry. We're just busy right now growing this company into the largest non-nuclear ship repair yard in the country and maybe acquiring other shipyards that we think would be synergistic to us, and implementing the things Iíve just talked about.."