Ailing Todd Shipyards Files for Bankruptcy Protection
Todd Shipyards, the nation’s largest independent shipbuilder, filed Monday for protection from creditors under Chapter 11 of the federal Bankruptcy Code, the latest evidence of the decline of the shipbuilding industry in the nation and California.
Company officials said the loss-plagued firm will continue to operate while developing a plan to repay creditors and that the filing will not have any immediate effect on Todd’s San Pedro shipyard, the company’s largest and most modern. But job losses at the facility, where the work force has been cut to 1,500 from 5,200 four years ago, might continue next month if no new orders are received to offset declining orders from the Navy and other customers.
Todd said the filing was needed to preserve its assets and buy time to develop a long-term business plan to deemphasize shipbuilding and focus on repair and overhaul work.
“The bankruptcy filing will buy breathing time to try to get the company pulled together so we can survive and get going again,” David W. Wallace, Todd’s chairman and chief executive, said in a telephone interview.
Without the bankruptcy filing, the company might have been forced to suspend operations due to lack of insurance and cash, he said.
Todd’s entrance into bankruptcy marks a low point in the long history of the Jersey City, N.J.-based company, one of whose forerunners constructed the Civil War warship Monitor. The firm later became key to the nation’s shipbuilding effort in World War II.
Todd’s bankruptcy filing also reflects troubles of a number of shipyards nationwide and on the West Coast, which have shut down or entered bankruptcy in recent years, unable to compete with foreign shipyards. Those in South Korea and Taiwan, by virtue of their lower wage rates and government subsidies, have gained much of the world’s commercial shipbuilding business.
That has made U.S. firms almost totally dependent on military contracts from the U.S. Navy, which by law must direct its orders to American commercial shipbuilders or to its own yards. Until recently, that business had been strong because of the Reagan Administration’s buildup of the Navy fleet to 600 ships from 450.
But Navy orders have slowed, because it is expected to maintain its fleet at the 600-ship level, which will require construction by U.S. shipbuilders of only about 20 ships a year.
Todd has been hit especially hard by the Navy shipbuilding slowdown, having lost a number of key contract competitions while being plagued by cost overruns on other projects.
Calculated Strategy
“It’s been tough (for layoff victims) to find work; there are not a lot of jobs in the area,” said George Samanc, executive secretary of the Industrial Union of Marine and Shipbuilding Workers of America, Local 9, which represents 1,100 of Todd’s San Pedro workers. He said blame for the decline in the U.S. shipbuilding industry rests not with the wages of American workers but with foreign governments’ subsidies and the U.S. government’s failure to fight such tactics.
In making its bankruptcy filing in federal bankruptcy court in Newark, N.J., Todd is pursuing a risky but calculated strategy to help it pursue a previously announced restructuring plan under which it may sell assets and close several money-losing facilities, analysts said.
Todd’s Wallace, a specialist in revitalizing ailing companies who was named chairman and chief executive only last month, said repair and overhaul work is well suited to Todd’s remaining yards in San Pedro, Seattle and Galveston, Tex., and requires smaller shipyards. The firm recently closed other shipyards in San Francisco, Houston and New Orleans.
The filing also might ease the company’s worsening financial condition, analysts said. The company, which lost $44.1 million in the fiscal year that ended March 29, has been plagued by a cash squeeze aggravated by late payments from the Navy, cost overruns and declining orders.
Under Chapter 11, it can suspend rent and other payments to certain creditors while continuing to operate and developing a reorganization plan to make the payments at some later point.
As part of the bankruptcy filing, Todd said Monday that it has received a $50-million, two-year credit line from Chemical Bank of New York that is expected to help the firm overcome its cash squeeze. By making the loan, Chemical ranks first in line for repayment among Todd’s creditor banks.
The bankruptcy could also help the firm obtain new workers’ compensation insurance, because any insurance firm that provides coverage now would get paid before many other creditors, Wallace said. The firm’s current policy expires Sept. 1 and, without a renewal, the firm said it might have been forced to shut down at that point.
The bankruptcy filing also may help Todd win cost-cutting concessions and productivity gains from workers.
“We’re going to cut costs ruthlessly,” Wallace said.
But Todd’s bankruptcy status also has risks. It could lead to a loss of business as some customers, including the Navy, direct their business to financially healthier firms, Wallace said.
Todd’s profitable Aro Corp. subsidiary, which makes air-powered tools and other industrial products, was not included in the bankruptcy filing. The filing covered Todd and its Todd Pacific Shipyards, the subsidiary that operates the yards in Seattle and San Pedro.
A group of Dallas investors, which owns nearly 10% of Todd, has been seeking to buy Aro, but Todd said Monday that it has rejected the Texans’ $110-million offer as inadequate. Members of the Texas group were not available for comment Monday.
Todd’s stock fell $1.75 per share to close at $5.75 on New York Stock Exchange trading Monday.
