The following is text of a quarterly report from Philly Shipyard:
(PHILADELPHIA) — At the end of the second quarter of 2018, Philly Shipyard was building two containerships under contract with Matson (Hulls 029-030). Hull 029 (named Daniel K. Inouye) was christened at a ceremony at the Philly Shipyard on June 30. When delivered, this vessel will be the largest containership ever built in the United States.
Hull 029 production activities continue to progress in the commissioning dock and sea trials are expected to occur next month. Hull 030 production activities continue to progress in the building dock. The planned delivery dates for Hulls 029 and 030 remain Q3 2018 and Q1 2019, respectively.
While Philly Shipyard continues to actively seek the new orders and capital necessary to build vessels after Hull 030, it continues to adjust its operations and work force in line with its current order backlog. These adjustments include idling additional parts of its facilities and laying off some more of its employees. Since the beginning of 2018, Philly Shipyard has laid off approximately 25 percent of its employees in a series of layoffs.
The contract with Matson (Hulls 029-030) provides for shipbuilding activity with delivery dates through Q1 2019. As of June 30, Philly Shipyard had an order backlog of $65.2 million. The key focus area for Philly Shipyard’s operations continues to be the completion and delivery of the Matson vessels.
Philly Shipyard is in active discussions related to several potential new construction projects for other types of Jones Act vessels. In particular, on July 16, Philly Shipyard signed a non-binding term sheet with an undisclosed potential buyer for the construction and sale of two new state-of-the-art, cost-effective and eco-friendly 50,000-dwt class product tankers for operation in the Jones Act trade with targeted deliveries in Q4 2020 and Q1 2021. If built, these vessels will be substantially similar to the recently completed series of eight MT-50 class product tankers delivered by Philly Shipyard, except the main engines will be upgraded from Tier II to Tier III compliant.
The transaction is subject to agreement by the parties on definitive documentation and fulfillment of certain closing conditions, including, but not limited to, securing commitments for charters. The term sheet provides for a period of exclusivity to negotiate and complete the transaction. In order to support the delivery timetable, Philly Shipyard has initiated preliminary design work for the vessels. However, there can be no assurance that Philly Shipyard will obtain contracts or financing for this project or any other project. Furthermore, none of these possible projects alone will fully cover the estimated under-recovered overhead costs (i.e., overhead costs not allocated to projects) due to the lack of work.
In the near term, Philly Shipyard is expanding its search for new opportunities throughout the marine industry, including various specialized vessels such as fishing trawlers and cable layers, as well as vessels to support the growing offshore wind industry. Philly Shipyard is also exploring potential partnerships that can create a stronger entity to secure new work into the shipyard and create value for the Company and its shareholders.
In the longer term, Philly Shipyard is seeking to diversify its business beyond the traditional vessels it has built for the commercial market. In order to be able to maintain continuous shipbuilding activities, Philly Shipyard is pursuing opportunities to expand its base for operations also into new long-term projects for non-commercial end users.
Among other endeavors, Philly Shipyard has teamed with Fincantieri Marine Group and Vard Marine to compete for the detail design and construction (DD&C) of the U.S. Coast Guard’s next-generation heavy polar icebreaker. In support of this effort, the team is participating in a government-funded industry study to develop a baseline icebreaker design, cost estimate, and project schedule and refine key vessel features and performance requirements. The final request for proposal (RFP) was issued in Q1 2018, with bids due in Q4 2018 and award of the contract for DD&C expected in Q3 2019.
