Aker Philadelphia Shipyard sees glimmer of hope from tentative deal

Aker Philadelphia Shipyard sees a glimmer of hope amid the sobering prospects for its near future of too little work to continue full operations. The shipyard has signed a "letter of intent" with a New York firm to build five container ships that would be part of a marine-highway system to transport goods among ports from Maine to Texas as a way to move cargo efficiently and get it off congested roads and rails.
Aker is one of two U.S. shipyards - the other is in Green Bay, Wis. - that have agreements with American Feeder Lines Holdings L.P. to build five ships each, and perhaps as many as 50 over time.
Just one hitch: Aker must solve its current funding crisis to stay in business until the container-ship construction begins, likely in 2012.
American Feeder Lines also must raise $750 million in debt and equity financing, which it is seeking from hedge and investment funds. The firm wants to own and operate the nation's first "short sea" feeder container service, based on a business model in Europe, Asia, and South America.
"Aker is the best shipyard you have in the United States from the layout and the production line," said Tobias Koenig, chief executive and cofounder of American Feeder Lines with Percy Pyne IV, of the New York real estate investment and consulting firm Pyne Companies Ltd. "It's just that we have to have their funding secured for the future, as well as ours, and then we get going."
Confirming the letter of intent was Scott Clapham, senior vice president of Aker, which on Saturday launched the 10th product tanker in a series of 12.
Aker will complete the last tanker for which it has a buyer in 2011. The South Philadelphia shipyard has no new orders, and it recently began layoffs, giving pink slips to 47 employees out of a workforce of more than 1,000.
More layoffs are expected, a union official said.
With the global economic downturn, all shipbuilders are in a slump. General Dynamics Nassco, of San Diego, said in May that it may cut one-fourth of its workforce, or 1,150 jobs. Avondale Yard, near New Orleans, risks being shut because it lacks orders beyond 2012, Bloomberg News has reported.
"Aker is a gem. They are an efficient shipyard and have the capacity to build a lot of ships. We think 20 ships a year would be the right number," said Pyne, who was in Washington last week to meet with officials at the Pentagon and in Congress.
Koenig, a Hamburg, Germany, financier and ship owner, recently met with Aker officials in Philadelphia. "We gave them the [ship] designs," he said. "We really want to build ships at this shipyard, provided that they are there to do it. Aker is in a very difficult financial situation."
Converto Capital Fund, a holding company for Aker A.S.A. of Norway and majority owner of Aker shipyard, is "willing to discuss structural changes, i.e. changes in ownership [of the yard], if this is a way to facilitate orders for more work," said Aker A.S.A. spokesman Atle Kigen.
The key for the yard is more work.
"Aker has to stay in business - it doesn't matter how," Pyne said. "We are talking every day to people to try to persuade them to buy the yard." He said Aker has the capability to build everything - wind ships, product tankers, container ships, roll-on/roll-off vessels. "They just have to get past this period where they have no new orders."
Ships on the marine highway would operate as a "hub and spoke" network. International containers would arrive at "hub" ports and transfer cargo to smaller ships to take to "spoke" ports, similar to the airline industry, said Koenig, whose Hamburg shipping and investment firm owns and manages 80 ships.
"It's for efficiency, and it's everywhere in the shipping world. Except the U.S., where you can only call a few ports, and all the distribution from there is by truck or rail," he said.
Cargoes are expected to increase in 2014, when the Panama Canal is expanded and mega-ships from Asia arrive directly at the East and Gulf Coasts.
"People in this country don't fully appreciate how containers move in other parts of the world," Pyne said. "In Europe, 40 percent of all container cargoes move on ships between ports, while in the Far East, it's about 63 percent, compared to less than 1 percent in this country."
American Feeder Lines hopes to secure part of a $160 billion U.S. infrastructure investment Tiger 2 grant for the marine highway.
"We filed our application with the Department of Transportation," Koenig said. "We have people in the U.S. on the West Coast calling, saying, 'Can we charter the ships you want to build?'
"It would bring more business to the Delaware River. It would distribute more evenly from the large ports to the smaller ports, and bring more work to the ports because you would have more handling of containers," Koenig said.
"The ships we have designed are totally green," he said. "They are going to burn on very low-sulfur fuel or biodiesel."