Maritime Muscle

Posted on Dec 1, 2010 :: Cover Story
Margaret LeBrun
Posted by , Insight on Business Staff Writer

Photos by Shane VanBoxtel of Image Studios

Marinette Marine President Richard McCreary describes one of the first four missions of the Littoral Combat Ship, USS Freedom, early this year. “When Freedom deployed off the coast of South America, she was vectored into a boat that had 3 ½ tons of cocaine. It was dark, they put the helo (helicopter)up and it came around from the far side and Freedom came up at 46 knots in shallow water. Then both the ship and the helo hit the boat with spotlights, “Where did they come from?”

McCreary is enthusiastic about the future for the LCS, a 378-foot ship designed to patrol within 200 miles of shoreline for submarines, pirates, mines, drug runners or other threats. As the Navy shifts its fleet from massive aircraft carriers and destroyers to smaller, faster, more nimble craft, Marinette Marine is positioned to double its workforce building such ships.

The company’s second LCS, the USS Fort Worth, is about 81 percent complete and scheduled for launch into the Menominee River Dec. 4. For the next year, Marinette Marine will install and test systems that must occur on board the ship before sea trials in the fall of 2011.

The company anticipates that Congress will soon approve a contract for 10 more Littoral Combat Ships from Lockheed Martin Corp. to be built at Marinette Marine in the next five years, with one each in 2011 and 2012, then two ships each year through 2015.

The impact of the program, worth up to $4.8 billion, would create a splash more massive than any ship launching – and the ripples would continue for years: Marinette Marine would hire 1,000 workers, starting late summer 2011, with about 45 new hires each month. At least 250 subcontractors would be hired; including these, as many as 7,500 direct and indirect jobs could be generated region-wide from vendors, suppliers and service providers. Marinette County currently has the fourth highest unemployment rate in the state, at 9 percent.

“Obviously the impact is huge, not only in Northeast Wisconsin but also the UP (Upper Michigan),” where 40 percent of Marinette Marine’s current workers reside, says Don Clewley, executive director of the Marinette County Association for Business and Industry. “It has a huge impact on everything we do. There are many opportunities for small businesses to get a piece of the action, which I think is really exciting.”

The Navy plans to order at least 55 Littoral Combat Ships over the next couple of decades. Addressing a Green Bay Kiwanis Club meeting last summer, McCreary says he’s told Marinette Marine workers that a long-term LCS contract could keep them busy for eight to 20 years, that “your sons and daughters will grow old on this program.”

How did Marinette Marine, a 68-year-old company in a small northern city, transform itself from an incidental shipyard with weeds growing in the yard and barely 50 employees in the 1980s into a mid-tier shipbuilding firm taken seriously by the Navy for multi-billion dollar contracts to build sophisticated warships?

McCreary, wooed to Marinette from a Southern competitor in 2005 – before the company was sold by Manitowoc Company to Italian shipbuilder Fincantieri – says the factors that led to the company’s current good fortune were many, but one thing is certain: It has not always been smooth sailing.

WINNING A BID . . . AND SHARING IT
Marinette Marine and lead contractor on the LCS, Lockheed Martin, have been waiting all year for the Navy’s decision for the 10-ship contract. Originally meant to be a winner-take-all award, the Navy in November recommended that the same contract for 10 ships also be awarded to the competing bidder, General Dynamics Corp. and its Alabama shipbuilder, Austal USA.

“This option … enables us to buy more ships for the same money and allows us to lock in a lower price for all 20 ships,” Secretary of the Navy Ray Mabus said in a prepared statement.
McCreary is happy with the decision.

“Instead of a down-select where we were obviously in a close competition, this actually becomes a very, very, smart move on behalf of the Navy,” McCreary said following the announcement of the LCS contract in the hull block erection building at Marinette Marine with Gov. Jim Doyle and other elected officials Nov. 5.

“It not only brings ships into the fleet faster, it brings them in at an incredibly low price on the basis of the block buys, and for each shipyard, Austal and ourselves, it creates a tremendous amount of jobs for the economy.

“It’s still an active competition going forward,” McCreary is quick to add. “Being selected to build one of the lead classes (of Navy ships) pretty well means with good performance and continued price control, that you should be able to build half the class, of somewhere in the neighborhood of 27, 28 ships.”

The state of Wisconsin is providing $49 million tax credits to the company to help cover payroll and worker training costs as well as investments in a plant or equipment. U.S. Sen. Herb Kohl and U.S. Rep. Steve Kagen of Wisconsin, who have spent a lot of time advocating the contract for Marinette Marine, as well as Michigan Sen. Carl Levin, who is chairman of the Armed Service Committee, say Congress will likely award the contracts before they expire Dec. 14. If Congress misses that deadline, a new round of contracts could push the decision well into next year – or, the Navy could go ahead with just one LCS design. Could Marinette build it better?

“We would like to think we can,” McCreary says.

Both the Marinette and Austal ships can cruise at speeds of 40 knots (46 miles per hour), are heavily automated and operate with as few as 40 crew members. Each model is designed to land helicopters and change equipment to transform from an underwater mine hunter to a surface war vessel.

The USS Fort Worth, based on Marinette’s LCS prototype design for the USS Freedom (only better, for reasons we’ll get to) has a more conventional, single-steel hull. Its beam is just 57 feet wide, but its surface area for parking aircraft is 4,680 square feet, about 1,200 square-feet larger than the Austal version. It sits 19 feet above the water, making it easier to launch small boats.

The USS Independence, the LCS prototype built by Austal, has an aluminum hull, which is unconventional for a warship but increases speed and fuel efficiency. A trimaran style – a narrow central hull and two outrigger hulls that support a broad deck – makes it unusual and especially stable, but too wide for narrow passages such as the St. Lawrence Seaway. Last year, Austal began building its second LCS for the Navy, the USS Coronado.

The Navy likes both models for different reasons. While the bid price of each LCS contract was not revealed, the Navy capped the cost at $480 million each. McCreary says considerable efficiencies were identified since the design and construction of the USS Freedom: They have already saved 1 million man hours of work, plus $13 million in management reserve.

THE FREEDOM FIASCO
While Forth Worth is “exactly on cost, on schedule,” according to McCreary, he is matter-of-fact when he describes how the USS Freedom was quite the opposite.

“When I came in 2005, the business was trying to do everything possible to execute but there were a number of inhibitors in the way,” he recalls.

The Navy had commissioned the LCS from both builders with designs based on commercial ships and technologies, a philosophy the Defense Department embraced in the mid- 2000s, according to an April 2008 New York Times article, “Lesson on How Not to Build a Navy Ship.” During the construction process, the Navy continually changed design requirements, which led to enormous cost overruns and delays. While each ship was slated to cost $220 million, the USS Freedom came in at $637 million and the Austal-built USS Independence cost $704 million, according to a June 2009 article in Defense News.

“It was increasingly frustrating because of the way the whole first LCS build process was so screwed up, frankly,” McCreary adds. “If you are a welder or fitter and you’re on your third iteration of putting something in a ship after it’s been cut out twice before, it’s kind of inevitable you get the attitude, ‘Well, obviously nobody else cares, so why should I care?’

“I characterize the first build process as kind of a knife fight, because in a knife fight, everybody gets bloody. You don’t escape from a knife fight without being cut, and it was like that.”

Much of what happened was out of Marinette Marine’s control, says Jim LaCosse, program manager for the LCS. Materials were not always available, such as steel that was sent to other contractors working to armor vehicles for the Iraq war. Problems with a reduction gear delayed the project for almost nine months.

“Freedom was a lot of hard work, it was very difficult – many challenges popped up,” LaCosse recalls. “But we identified the issues, solved the problems and implemented the work-around so that we were able to build the ship and deliver it to the Navy. As far as we can tell, they were a very satisfied customer. All indications are that the ship is performing very well, we’re quite pleased.”

The Navy’s ship inspection service, INSURV, gave USS Freedom high marks, McCreary points out.
“They told us that it was the best first-of-the-class INSURV inspection that they had had in over a decade. And considering how badly the process was in getting that ship to trials, that was very high praise.”

Under the operational control of U.S. Naval Forces Southern Command/U.S. 4th Fleet, the USS Freedom has already intercepted drug runners on four occasions in the Carribbean and off the coast of South America, seizing more than five tons of cocaine and capturing 13 suspected drug smugglers. Its home port is in San Diego. The Austal ship, USS Independence, is still conducting sea trials.

RISING TO THE CHALLENGE
Until the last decade, Marinette had been an enigma in the shipbuilding industry, seen as a small, insular company with limited capabilities, McCreary says. It hit its low point in the early 1980s, when contracts slowed and it was reduced to about 50 employees. Among the few projects they built were three mine-sweepers for the Navy, then a couple of barges for the Coast Guard. Work began to pick up when they landed contracts for several Coast Guard buoy tenders, says Duane Roehm, vice president of Programs at Marinette.

“The Coast Guard showed tremendous faith in hiring a company that had a facility – but inside that facility had little resources,” Roehm recalls. “We laugh about now; in our launching areas there was brush growing up because we hadn’t launched anything in such a long time. The shipyard almost looked ghostly.”

Substantial new work from the Coast Guard, including some 30 buoy tender ships and two ice cutters, changed everything. As the shipyard matured, it built three Staten Island Ferries for New York City, vessels for the Navy’s Improved Navy Lighterage System and other projects.

“The Coast Guard deserves a lot of credit for where Marinette is today, because they patiently grew us as an organization – in training, offering advice and leadership,” Roehm says.

McCreary, an Illinois native, had a degree in naval architecture, an MBA from the University of Chicago and a depth of leadership experience at shipbuilders in the South when he left Halter Marine of Pascagoula, Miss., to join Marinette Marine. The company was owned by Manitowoc Corp. at the time, which had purchased it from private owners for $48 million in 1999.

Ten years later, Manitowoc sold its Marine Group (which also included Bay Shipbuilding in Sturgeon Bay and Cleveland Ship Repair in Ohio) to Fincantieri for $120 million.

McCreary was impressed with the quality of craftsmanship, experience and stability of the workforce – turnover is just 5 percent at Marinette, compared to 25 percent annually at Southern shipyards. But back at Halter, when he had bid against Marinette for projects, he sensed that the company needed more savvy in preparing bids.

“They had taken on a couple projects that were extremely unprofitable because of pricing levels and how they bid them,” McCreary says. “I had a pretty good sense of that because one of them was the Improved Navy Lighterage System. I was the second lowest bidder – and I was $100 million above Marinette’s price at the time.”

McCreary recruited several top managers nationally. They put great effort into improving efficiencies in the design and construction of new projects, in particular the USS Fort Worth. They’ve reduced the number of miles traveled by workers building modules on the LCS by 13 miles. “It’s very significant, and it’s all part of what we’re trying to do to provide the lowest cost alternative to the Navy,” he says.

McCreary’s leadership has had a positive impact on the company as well, top managers say.
“Richard has brought a lot of stability to the company,” says Roehm. “He’s a very forward thinking person. He doesn’t dwell on the past, he looks for process improvements and he empowers people to do their jobs and hold them accountable. Out of the people that I’ve worked for in my 27 years here, he’s the best one for that.”

FINCANTIERI INVESTS FOR THE LONG TERM

McCreary looks out his office window and watches the construction of the new $12.5 million expansion to Building 10, where Fort Worth is now under construction. While it’s expensive to keep such a building heated to 50 degrees in the winter, he points out the ability to work indoors is a great advantage over Southern shipyards that build outdoors all year. When it’s complete, the company will be able to build two littoral combat ships in either end, plus up to two smaller ships in the middle.

The expansion is part of Fincantieri’s five-year, $100 million plan to modernize its U.S. shipyards. Three-quarters of that commitment is going into Marinette Marine and most of the balance into Bay Shipbuilding.

Under Fincantieri, an international company with a legacy of more than 200 years building some 7,000 ships, Marinette Marine’s experience has been “very positive,” says McCreary.
“They very much wanted to get into the U.S. market because they see tremendous potential in the U.S. market for shipbuilding. Fincantieri is not a short-term investor, Fincantieri is a shipbuilding firm, and that’s the business they’ll stay in. This was viewed as more of a strategic acquisition for the long term.”

In November, the hull block erection building was nearly complete, says Scott Smet, president of general contractor Smet Construction, Green Bay.

“It’s right on schedule and it’s all enclosed now, which is good this time of year,” Smet says. About 70 workers are involved in the building construction and Smet expects to ramp up to as many as 125 in the coming year. Smet is preparing to start work on the next construction phase, a 150,000-square-foot building for panel-line construction.

“We’ve been holding our breath because there is potentially a lot more work for us. We expect to keep busy in the coming years.”

RIPPLE EFFECT OF THE LCS

Hundreds of subcontractors have already seen their businesses grow as a result of the LCS contract.

Among them is a Sherwin Williams paint store in Marinette. Store manager Paul Miller says his store has supplied about 20,000 gallons of paint per ship, mostly red, black and gray and all in 5-gallon buckets workers can haul up to the ship.

“The mood in Marinette is very positive,” Miller says. “Everybody’s been waiting for close to a year now to hear if Marinette Marine was going to get this contract. We supply a very large percentage of the paint, epoxy, silicones and anti-solvents to them. We work on a just-in-time inventory system that we have partnered up with Marinette Marine to make sure the paint is there when they need it.
“We’re down there probably every other day, usually two or three times a day. I see a truck backing in right now and it’s probably paint for them.”

Marinette Marine recently joined forces with the six other shipbuilding companies in Northeast Wisconsin to form the North Coast Marine Manufacturing Alliance, an industry cluster that is seeking ways to collaborate in employee training and other efficiencies. Northeast Wisconsin Technical College, along with the University of Wisconsin-Marinette, has been responding to the needs of the group.

Within days of the LCS announcement for Marinette Marine, the phone began ringing in the office of NWTC Maritime Coordinating Instructor Bob Egger.

“I knew my life was going to change real quick,” Egger says when he first heard the contract was recommend by the Navy. “The intensity changed.”

In January, NWTC will offer a new evening course, “Intro to Maritime Technology” on the Green Bay campus. NWTC is also developing two new academic programs for the fall 2011 semester: an associate’s degree in Marine Engineering Technology and a technical diploma in Marine Construction.

“What I am envisioning is taking programs we already have, and tailoring them and adding additional classes to highlight shipbuilding and marine specifics,” Egger says.

Such training will be important, says McCreary, especially since the company is negotiating a new, entry-level position that will start at about $10 per hour. With training, those employees will have the opportunity to advance.

Whether Congress approves the LCS program or not, Marinette Marine is building or bidding on several other major projects. Work recently began on the $140 million Alaska Regional Research Vessel for the University of Alaska-Fairbanks (half funded by the stimulus bill), and on an ocean-going vessel for the National Oceanic and Atmospheric Administration, the $72 million NOAA Fisheries Survey Vessel.

Marinette Marine is also in the midst of an eight-year, $600 million contract for 180 aluminum-hull, medium response boats for the Coast Guard (RBMs), with half the work being done at ACE Marine in Green Bay (the aluminum production plant employs 80 and has a long-term lease with Marinette Marine) and half at Kvichak Marine Industries in Washington.

Looking forward, Marinette Marine has spent more than $1.5 million preparing a bid with subcontractor Boeing for the Navy’s Ship-to-Shore Connector, a type of hovercraft designed to carry heavy loads at high speeds; the Navy wants 72 of them. The $4.5 billion contract will be awarded in the first half of 2011 and on its own would generate “a couple hundred jobs,” according to McCreary.
“Quite honestly, Richard McCreary is extremely good at tipping over the rocks and looking under there for new business,” says Roehm. “He has a lot of good contacts from his previous experience. He’s very in touch with that need and understands that we can’t turn something we’re awarded today into work physically into our plant for nine months, a year.”

Keeping workers on the job is a top priority for McCreary. Two years ago, the company lost a bid to build 34 Coast Guard cutters and laid off about 150 workers. Marinette Marine has been at full employment for most of this year, but expects to lay off about 150 in the first half of next year as they prepare to start the next LCS. Such is the nature of contract work.

“When you have big swings in the amount of work you have in the yard, obviously not only does that lead to temporary layoffs – which are never good – but it also leads to a program that isn’t very ratable or predictable,” McCreary says.

The 10-ship contract for the LCS will allow more predictability for Marinette Marine and help the company avoid big layoffs in the future, he says. Workers in the shipyard express confidence that they’ll stay busy for some time.

“The LCS is great for the future of Marinette Marine and the community,” says John Krueger, steel superintendent.

“We look forward to building more of these. We want to make it better, we want to make it faster and our goal is to maintain that and show we can do this.”

Margaret LeBrun

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