Shipbuilding loan guarantee program faces torpedoes

SOME CRITICS OF a government loan guarantee program for the construction of commercial ships, barges and oil rigs would like to see it sunk. Led by Sen. John McCain of Arizona, the critics contend that the loan guarantees are a federal subsidy that promotes the construction of vessels that aren't

The critics recently got some new ammunition in their fight against the program: A cruise line that was using the program to help finance a $1 billion project to build two luxury liners at Northrop Grumman Corp.'s Ingalls shipyard in Pascagoula declared bankruptcy.

The loan guarantee program is called Title XI, after the section of the maritime code that authorizes it. It has helped spur construction at south Louisiana shipyards and helped some local ship operators build up their fleet.

"Title XI has been a huge boon to Louisiana," says Allen Walker, president of the Shipbuilding Council of America, an Arlington, Va., lobbying group that represents a number of Louisiana shipbuilders.

Still, many in the businesses the loan guarantee is supposed to help are wary of it.

Walter Blessey, who is president of a Harahan company that operates a fleet of barges and tugboats, says he has steered away from the program. Blessey Enterprises has six tugs and 12 barges under construction.

Barges and tugs are typically financed over a 15-year period; the Title XI program allows fleet owners to finance over a 25-year period. While that reduces the payments all owner makes on the note, it also creates a false sense of security, Blessey says. When the owner gets hit with the bills for refurbishing a barge that usually appear when it is about 10 years old, the owner risks becoming overburdened with debt.

"People go for low-paying bills," Blessey says. If they kept socking money away to pay for the repairs it wouldn't be so bad. But that's not human nature."

Larry Rigdon, executive vice president for Tidewater Inc., says the supply boat operator hasn't used Title XI in decades. He says the easy financing led to a huge oversupply of vessels in the 1980s. With too many supply boats in the oil patch, the rates supply boats could charge were so low that the entire industry was ailing, Rigdon says.

President Bush didn't include any new funding for Title XI in the budget he sent to Congress, but a coalition of legislators from shipbuilding states has worked to boost the funding. A House of Representatives appropriations bill includes $30 million in funding for Tide XI, which is administered by a Department of Transportation office called the Maritime Administration. The Senate version of the bill has set aside $100 million in funding for ship loan guarantees. Legislators will have to work out the difference in a conference committee. Walker of the Shipbuilding Council says the funding level will likely be somewhere between $30 million and $100 million.

Walker points out Title XI has a default rate lower than 1%, and the loan guarantees have encouraged the creation of shipbuilding jobs. Although critics call the loan guarantees a subsidy, Walker points out that it is pretty mild considering the foreign competition U.S. shipbuilders are up against.

A recent European Union study estimated that Asian countries subsidize about 50% to 50% of the cost of vessels built in Asian shipyards, he says.

Walter Berry, chief operating officer of Bollinger Shipyards Inc., says the Lockport-based shipbuilder has assembled several ships for customers whose loans are guaranteed by Title XI. While the program probably spurs a little shipbuilding activity, he says he doesn't think the controversy surrounding the program will have much of an impact on Bollinger. He says most Bollinger's customers can get financing without the Title XI program.