American Shipbuilding Association

American Shipbuilding Association
Unveils Its 2002 Legislative Priorities

The U.S. Navy and the shipbuilding industry are intricately linked. America will not have a Navy without a shipbuilding industry, and the industry cannot exist without a Navy. Unfortunately, America is losing both. This is the year for all of us in this industry and in Congress to redouble our efforts to rebuild the Navy, strengthen the industry, and secure the future safety of all Americans. To this end ASA asks Congress to act on the following priorities:

• Add dollars and ships to the Navy’s ship procurement budget;

• Enact H.R.2189/S.666, Tax on Delivery for naval ships;

• Appropriate $50 million for the Title XI Ship Loan Guarantee Program;

• Rebuild an American merchant marine fleet, to augment DOD sealift in times of crisis; and

• Oppose all efforts to repeal or undermine the Jones Act and the Passenger Vessel Services Act.

Each of these program initiatives deserves strong congressional support and leadership to promote the enduring strength of America, and the industry upon which her strength depends. An expanded explanation and description of each of these national requirements follows.

Increase the Naval Shipbuilding Rate to Maintain A Navy:   Unless immediate action is taken to add money and ships to the Navy’s budget, the fleet will continue its dive toward 180-ships or fewer. Woefully inadequate budgets of the past decade have already put the Nation on course to a 258-ship Navy. The Bush Administration’s 5-year shipbuilding plan will drop the force to 244-ships. The first installment in the process of restoring the Navy’s fleet to the bare bones minimum, defined in the 2001 QDR, is to add one (1) DDG-51 destroyer, one (1) LPD-17 amphibious transport dock ship, complete the purchase of the LHD-8 amphibious assault ship, and add advanced procurement dollars for an economic order quantity production of the Virginia Class submarine in FY 2003.

Senator John Warner (R-VA) in a recent letter to Secretary of the Navy Gordon England and the Chief of Naval Operations Admiral Vernon Clark, encouraged the Navy’s leadership, “to correct the steadily declining number of ships in the naval fleet.”  Senator Warner added, “With this budget, we must ensure that the decline has bottomed out and that we turn the curve back up to build the number of ships the Navy needs to defend this great nation.” Senator Warner’s letter went on to point out that the Afghanistan campaign has reminded the American people about the important role of Sea Power, as Navy ships have been largely responsible for launching and sustaining air strikes, helicopter operations, Marines, and special operations forces in the war on terrorism.

“Tax on Delivery” for Naval Ships:  H.R.2189/S.666 will correct an inequity in the tax code that severely penalizes naval shipbuilders and strengthen the shipbuilding industry’s cash flow, to allow for greater investment in facilities, technology, and people to reduce the cos of naval ships. It will also allow shipbuilders to pay vendors in a timely fashion.  Under the current Tax Code, naval shipbuilders must estimate what their profits may be three to seven years into the future and pay taxes on a percentage of their “anticipated” income annually.  This “Percent of Completion Method of Accounting” diverts critical financing funds needed in a ship’s construction phase to income tax payments that may or may not be realized and severely limits the cash flow of the industry.  These bills will change the tax code to allow a shipbuilder to pay taxes on income earned upon delivery of each ship. The builder will pay the same amount of taxes, but pay them when the profit is known and earned.

Mr. John Young, Assistant Secretary of the Navy for Research, Development & Acquisition, recently sent a letter to ASA expressing support for “Tax on Delivery” legislation. In the letter the Assistant Secretary noted, “The Navy has an interest in maintaining the health and long-term viability of the industrial base that supports the nation’s defense programs. …We recognize that the uniquely long periods of performance associated with many shipbuilding contracts intensify the pressures on contractor cash flow.”  Mr. Young’s letter then states, “We are, therefore, supportive of initiatives such as [S.666 & H.R.2189] the pending legislative reform that allows shipbuilders to use [a modified form of] the completed contract method of accounting.”

Promote Title XI Financing for Commercial Ship Construction: Increase the Maritime Administration’s FY’03 budget for Title XI by $50 million to help meet the national goals of increased energy self-sufficiency, increased commerce, and a strengthened defense industrial base. The Title XI Ship Loan Guarantee Program, managed by MARAD, makes financing available to small and medium sized ship operating companies at comparable terms and rates as those available to large corporations. This program is directly responsible for the U.S. construction of 10 double-hulled oil tankers, Roll On/Roll Off cargo ships, and other vessels to expand U.S. commerce. Commercial shipbuilding reduces the cost of naval ships and sustains the skilled workforce and vendor base of the defense shipbuilding industry during historically low rates of naval ship production.  Today there are pending applications for six more environmentally safe double-hulled oil tankers, a chemical tanker, and potential for 20 to 40 double-hulled offshore shuttle tankers to serve the growing Floating Production, Storage and Offshore Loading (FPSO) market in the Gulf of Mexico, along with numerous other ship construction projects to replace and expand the U.S. fleet.

Improve the Maritime Security Program (MSP): The Maritime Administration’s Maritime Security Program (MSP) promotes a U.S. Merchant Marine, and provides sustainment sealift to the Department of Defense in times of national emergency.  U.S. citizen operating companies engaged in international commerce that register their ships in the United States and employ U.S. citizen crews are eligible for a $2 million per ship subsidy to offset the higher cost associated with operating under the U.S. flag.  The program will expire at the end of 2005.  As discussion begins on reauthorizing the program, it is important to look at ways to improve MSP to enhance its role in meeting national security objectives in times of peace and war.  A glaring weakness in the program is that it does nothing to strengthen the defense shipbuilding industrial base, and in fact, weakens the base by encouraging U.S.-flag ship operators to buy their ships from foreign subsidized shipyards.  This practice actually strengthens the industrial capability of potential American adversaries, such as China, to the detriment of American sea power.  ASA will work with Congress and the Administration to foster American construction of the ships participating in the MSP fleet so that the program can better serve the Nation as the sixth branch of the Armed Forces.      

Support the Jones Act and Passenger Vessel Services Act:  These laws require vessels transporting cargo and passengers between two U.S. ports to be built in the United States and operated by U.S. companies employing American crews.  The purpose and need for these laws is to strengthen American sovereignty and the shipbuilding industrial base, including the highly skilled workforce on land and at sea, to meet America’s security requirements.

Vice Admiral Thomas H. Collins
Nominated for USCG Commandant

On February 6, 2002, President Bush nominated VADM Thomas H. Collins to be the 22nd Commandant of the United States Coast Guard. Vice Admiral Collins is currently serving as the Coast Guard’s Vice Commandant, the service’s second-in-command. Prior to that he served as Commander of the Coast Guard Pacific Area. Once confirmed by the Senate, Vice Admiral Collins will relieve the current Commandant, Admiral James M. Loy, at a formal change of command ceremony in Washington, DC. The ceremony is being planned for May 30, 2002.

U.S. Stands Firm Behind OPA-90

On February 12, 2002, the U.S. government filed a declaration with the International Maritime Organization stating that specific approval of the U.S. government will be necessary before revised Regulation 13G, the 2001 double-hull amendments, to the International Convention for the Prevention of Pollution from Ships (MARPOL 73/78) would enter into force for the United States. In this declaration, the U.S. cited specific technical differences between the revised MARPOL regulation for new and existing tankers and the Oil Pollution Act of 1990 (OPA-90).  By taking this action, the U.S. government has reaffirmed OPA-90 as the standard for all tankers entering U.S. waters.

Industry News

Shipbuilding Industry Loses Great Leader
Duane D. “Buzz” Fitzgerald

Duane D. “Buzz” Fitzgerald passed away on February 8, 2002, at Maine Medical Center. Mr. Fitzgerald was named President and CEO of Bath Iron Works in 1991, a position he served in until March of 1996. He was the founding Chairman of the American Shipbuilding Association, and served as outside counsel to BIW for 23 years prior to joining the company as Executive Vice President in 1987. Cynthia Brown, President of ASA stated, “Buzz Fitzgerald dedicated his career to the industry he loved – shipbuilding. His legacy will be his superb leadership at Bath and the establishment of ASA with a strong mandate to promote this industry and our Nation.” Mr. Fitzgerald is survived by his wife of 42 years, Sue; three children and four grandchildren.

ASA Welcomes New Partners!

• Spiritech Inc. of Johnstown, PA, specializes in cost effective precision waterjet cutting technology. Utilizing state-of-the-art Computer Aided Drafting (CAD) and Computer Aided Manufacturing (CAM) systems, combined with custom nesting software, to create a unique accurate geometry data transfer for the design and development of artistic, architectural, and mechanical projects. Spiritech has a proven track record for precision cutting of exotic metals and alloys including titanium, Inconel®, tool steel, as well as precision cutting of large items up to 10 inches thick. Spiritech performs work on naval nuclear components and has an exhaustive list of commercial customers throughout the world.
• Power Technologies Inc. (known as PTI) of Fitchburg, MA, is a world leader in power systems analysis. PTI provides advanced technical consulting services, world-standard analytical software programs, professional education in power systems engineering, and sophisticated instrumentation systems. Founded as an employee-owned company in 1969, PTI evolved into a world-class resource in the electric power industry. PTI has conducted business in over 100 countries and has proudly served clients in the electric utilities, government agencies, power generators, and manufacturing sectors.
• DRS Technologies of Parsippany, NJ, is a leading supplier of defense electronic systems. DRS provides high-technology products and services to government and commercial customers worldwide. The company develops and manufactures a broad range of mission critical products - from rugged computers and peripherals to systems and components - in the areas of communications, combat systems, data storage, digital imaging, and electro-optics. DRS's systems are deployed on the Navy’s most technologically advanced ships.

Ingalls Shipbuilding Delivers USS Shoup
With One At-Sea Trial – Saving Fuel, Time, and Money

On February 21, 2002, Ingalls Shipbuilding delivered its 16th Aegis guided missile destroyer, USS Shoup (DDG 86), to the U.S. Navy using streamlined testing that saved fuel, time and personnel costs. USS Shoup is the first Aegis destroyer to have only one at-sea trial, which was followed by a second trial held pier-side.  Previously, each ship underwent two separate sea trial evolutions. The USS Shoup accomplished her at-sea trial Jan. 22-25 and her equally successful pier-side trial Jan. 29-30.