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6/18/2019
KTN shipyard sees downturn: Looks to add Coast Guard jobs, considers financing
Storm clouds accumulate over the 256-foot offshore supply vessel (OSV) Ross Chouest, which was dry docked on June 4 at Vigor Alaska. The ship was dry docked for an oil change and maintenance work to the brake drums and bow thrusters. Staff photo by Dustin Safranek


By SAM ALLEN 

Daily News Staff  Writer

Vigor's executive vice president of ship repair, Adam Beck, outlined the company's strategies to increase its work at Ketchikan Shipyard during a Greater Ketchikan Chamber of Commerce luncheon recently.

The strategies include competing for U.S. Coast Guard jobs, looking for non-marine fabrication work and setting up a financing line through the Alaska Industrial Development and Export Authority.

AIDEA leases the Ketchikan shipyard to Vigor. AIDEA has a proposal to offer up to $10 million in financing for businesses.

“A lot of our smaller operators,” said Beck. “Particularly in Alaska — whether they're tug and barge, a fishing fleet, some of our boutique cruise operators, they have a challenge with their cash flow.”

Beck said that during their seasons they have money, but not in their offseasons.

“When they need to do their maintenance, or their large conversion work or their re-powers, they don't have the cash flow coming in and so it's hard for them to fund the work,” he said.

Beck said they currently have one such operator that is expected to move ship work to Ketchikan if the AIDEA board approves financial lending services. AIDEA's next board meeting is June 26.

Vigor also is trying to fight the slowdown at the Ketchikan shipyard through acquiring Coast Guard jobs.

Vigor has been unable to bid on most Coast Guard jobs because the company is too large, according to Senior Vice President of Public Affairs Jill Mackie.

There are several Coast Guard stations in Alaska, and many ships are homeported in Alaska. However, most of the repair work that is done for the Coast Guard is done out of state, according to Mackie.

“Doug (Ward, the former Ketchikan shipyard director), Adam, myself have spent seven years working to change the way the Coast Guard does its contracting,” said Mackie, “so that the Ketchikan shipyard can compete for Coast Guard repair work here and that that can support jobs here.”

Currently, Vigor is working with both Alaska senators Dan Sullivan and Lisa Murkowski to make changes to the Coast Guard Authorization Act. Such a change would allow Vigor to compete.

“The language actually is in the bill right now,” said Mackie, “and we have hope that it will survive and that that will change the trajectory in terms of our ability to do the work for the Coast Guard.”

Beck said that Vigor is working on bidding for a ship-repair job on a Coast Guard cutter. This job is one of the few that is not earmarked for small businesses.

“Keep in mind, all we're looking for is an opportunity to compete for this work,” said Beck. “We're not asking for a handout. We're not asking for anything to be given. We just want to be able to compete for work.”

In addition, Vigor is looking at expanding into non-marine fabrication work. Recently, they’ve done some work for Alaska Power and Telephone.

This comes as the shipyard in Ketchikan faces a large downturn in employment.

"Unfortunately for Ketchikan, and all of Vigor, there is not a single ship building opportunity we are bidding as a company right now. That's how depressed the market is," said Beck.

Beck said that it takes two to three years from the time an opportunity is identified to start building.

Vigor is coming off recent years of its highest employment at the Ketchikan shipyard. Due to the shipbuilding projects of the Alaska Class ferries, the number of skilled workers was above 200, according to Mackie. Now there are around 90 full-time employees.

And Vigor has been sending those employees to other shipyards for work. The goal is to provide temporary work, according to Mackie, so the company doesn't lose local talent.

"The goal is not to siphon them off to some other Vigor facility; we want people to succeed here," said Mackie.

However, there have been layoffs.

Beck said the company parted with all its contract labor first in order to keep its employees.

"Believe it or not, we've had very few actual layoffs," said Beck. "A lot of people left on their own."

He said the shipyard has maintained its core group of talent and can get anything done that's put in front of them.

Rep. Dan Ortiz, I -Ketchikan, who was at the luncheon, said as it stands there is still money for the replacement of the Alaska Marine Highway System vessel Tustumena. He asked whether Vigor would pursue that project.

Beck said there were many unknowns on the project because it has yet to come out, but if Vigor can compete and bid, it will.

"Unfortunately, in a very depressed market like we have, we have many, many ship builders that are desperate for work that don't do ship repair, that don't do other fabrication, that are literally buying jobs out there," said Beck.

While the amount of work the AMHS provides for the shipyard varies, both Mackie and Beck said on average more than 50% of their work hours come from AMHS-related work.

This year they have about 30% less work than they normally do on average, not factoring in work from the Alaska Class ferries from previous years.

Vigor's best case scenario is that the AMHS would only be cut 30%. Vigor estimates this would be about $10 million in work from the AMHS in the coming year.

Moving forward, Mackie said that in a worst case scenario, Vigor would anticipate $4 million in work from AMHS.

She described the future of the AMHS and how it relates to work for Vigor as a "big unknown."

In the upcoming years, Vigor estimates to have around 22% less work. However, that's if it gets access to Coast Guard jobs and AIDEA financing goes into effect, according to Beck.

"We talk about being a project-based business," said Beck. "We don't know what's going to happen two years from now, or what work's going to go, so we go on our historicals."

The Ketchikan shipyard, which was built in the 80s, was specifically built with the AMHS fleet in mind.

This has created challenges, according to Beck.

The industry is evolving rapidly. The shipyard isn't competitive for ship repair, said Beck.

"The vessels that we work on are getting bigger, they're getting wider, they're getting deeper and they're getting heavier," said Beck.

He said companies are carrying more capacity with less crew, burning less fuel, so they need fewer ships. And the Ketchikan shipyard doesn't have the infrastructure to accommodate the larger ships, he added.

"Our dry docks aren't big enough," Beck said. "We don't have enough power. We don't have enough cranes. Unfortunately, our ship repair business has actually declined over the last three or four years."

Also, the shipyard recently lost a "very large customer" called the Fishing Company of Alaska. It has since been sold. According to Beck, the new company is not offering the same ships and doing the same level of business and it doesn't come to Ketchikan shipyard these days.

"Vigor awards for shipbuilding have been limited to areas not available or within core capabilities of the Ketchikan shipyard," said Mackie.

When asked whether Vigor has had conversations about divesting itself from the shipyard in Ketchikan, Beck said it hadn’t.

“One thing we do want you to come away with today is an understanding (that) Vigor is committed to the success of the Ketchikan shipyard and to jobs here,” said Mackie. “And going forward we'll look for more opportunities to be proactive about communicating through and hopefully past the time of decline in terms of employment.”

The vessels that Vigor is building are passenger ferries for the state of Washington, which are required to be built in the state of Washington.

They also are building aluminum passenger vessels and work boats.

"These are specialized craft built in clean, smaller production environments," said Mackie.

And they're building Department of Defense boats that require facilities with physical and cyber security clearances.

Both these aluminum boats and military boats are being constructed at a new Vigor facility in Vancouver, Washington.

The 10-year contract with the DOD is valued at $1 billion, according to a 2017 DOD press release.

Right now Vigor has about $5 million in work that its waiting to hear back on.

"That's work for this summer," said Beck. "So these are, they're smaller vessels, but they're not small projects. In fact, if we were to get some of those, we'd be bringing people back to work."