SHIPBUILDERS STRUGGLE TO STAY AFLOAT
By ANDREW E. SERWER

(FORTUNE Magazine) – A sea change is ready to sweep through the sleepy streets of Bath, Maine, a shipbuilding town for more than three centuries. The 111-year-old Bath Iron Works shipyard, or BIW, now owned by Prudential Insurance and New York buyout firm Gibbons Goodwin & van Amerongen, will be sold shortly to General Dynamics, according to sources close to the deal. The buyout reflects the relentless rerigging of the nation's naval defense industry.

In 1985, in the flood tide of the Reagan military buildup, the Navy poured $11.1 billion into the construction of new ships and subs amid discussion of a 600-ship navy. This year the admirals will spend only $5.1 billion to keep 372 ships afloat. There aren't enough new keels for the nation's four big yards: Bath; GD's Electric Boat submarine facility in Groton, Connecticut; Tenneco's Newport News yard in Virginia; and Litton's Ingalls Shipyard in Pascagoula, Mississippi. In fact, to keep Electric Boat afloat, Washington will spend $1.5 billion for a third Seawolf submarine that critics say the Navy needs about as much as it does cloth sails.

General Dynamics is getting BIW on the cheap, reflecting the outfit's declining value as a stand-alone boatbuilder. When the Pru and Gibbons bought BIW in 1986, they paid a reported $580 million. Today analysts say the yard will fetch $250 million to $275 million, though the seller begs to differ. "Let me tell you, it's worth more than that," says Edward Gibbons, a partner in the firm.

Certainly GD sees economies of scale in operating New England's two shipyards, but another consideration is political. With BIW, GD will be gaining a pal in Washington, namely Maine Senator William Cohen, chairman of the seapower subcommittee, who would be certain to look after the new owner of BIW, which with 8,300 workers is Maine's largest private employer. Bath is currently battling Litton's Ingalls--considered the better-run yard--over contracts to build 57 $900 million Arleigh Burke class destroyers.

So for Bath's yardies, it's a time of uncertainty. Ask John "Stoney" Dionne, the head of Local S6 of the International Association of Machinists, a bearded 17-year vet whose family has worked there for generations. Says he: "When Prudential owned us, they pretty much left us alone. Now we don't know what to expect."

-- Andrew E. Serwer