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New owner wants to bring back Navy shipbuilding at Philly Shipyard

Hanwha, which agreed to pay Aker $100 million for the dry docks, cranes, and other shipbuilding facilities, promises to expand the yard and seek Navy work.

Philly Shipyard, next to the mouth of the Schuylkill as it dumps into the Delaware River, as seen from southbound I-95. The two ships, Patriot State (left) and State of Maine (closest to the Delaware), that are still under construction are federally funded National Security Multi-Mission Vessels (NSMVs) for the U.S. Maritime Administration. The shipyard, whose owners led by the Norway-based Aker industrial group have agreed to sell the yard for $100 million to the South Korea-based Hanwha group, is building five such vessels. It expects to lose money on the contract, due partly to a scarcity of skilled U.S. shipyard labor.
Philly Shipyard, next to the mouth of the Schuylkill as it dumps into the Delaware River, as seen from southbound I-95. The two ships, Patriot State (left) and State of Maine (closest to the Delaware), that are still under construction are federally funded National Security Multi-Mission Vessels (NSMVs) for the U.S. Maritime Administration. The shipyard, whose owners led by the Norway-based Aker industrial group have agreed to sell the yard for $100 million to the South Korea-based Hanwha group, is building five such vessels. It expects to lose money on the contract, due partly to a scarcity of skilled U.S. shipyard labor.Read moreAlejandro A. Alvarez / Staff Photographer

Twenty-eight years after the Philadelphia Naval Shipyard closed, the current and future owners of the commercial shipyard now located on its peninsula between the Delaware and Schuylkill are taking steps to resume building ships for the U.S. Navy.

The South Korea-based Hanwha group has agreed to buy the private Philly Shipyard on the former Navy site from its current owners, led by Norway’s Aker ASA, for $100 million, pending U.S. government approval. Philly Shipyard in its most recent yearly report to shareholders said it’s been in talks with the Navy’s shipbuilding arm to “compete and win contracts” to start building Navy combat-support and auxiliary vessels in Philadelphia, while also continuing to build commercial ships.

But Philly Shipyard also warned that the money-losing yard will need new capital investment, more facilities, and more skilled labor to turn a profit.

Hanwha says it is ready to provide those resources. The group in 2022 bought Daewoo’s sprawling shipyard complex on Geoje Island, off Korea’s south coast, which designs and builds naval frigates, destroyers, and submarines, among other ships.

The company says it also has naval ambitions for Philly Shipyard. Hanwha plans to expand into naval vessel production, using new technology that will “bring badly needed capacity to the U.S. Navy” and create local jobs, said Hanwha spokesperson Debra DeShong, a veteran Washington lobbyist and former U.S. Senate aide.

The proposed sale is awaiting approval by the federal Committee on Foreign Investment. The company hopes to complete the deal this year. Navy Secretary Carlos del Toro and other top officials have encouraged Hanwha and other Korean defense contractors to invest in key U.S. military industries.

Privately, people familiar with military procurement caution that it can take years for Navy projects to materialize. Many companies, including large foreign manufacturers like Hanwha and its Korean rival Hyundai, which signed a government-contracting deal with Philly Shipyard earlier this year, seek U.S. government business, putting them on course to compete with entrenched ship contractors such as General Dynamics. It can take relentless development cycles, in the face of changing priorities, and steady support from allies in Congress, to help land these expensive projects.

Navy ships of any size would be a big step for the Philadelphia yard. Since its 1998 rebirth as a private, for-profit facility with more than $300 million in federal and state subsidies and incentives, welders and other skilled workers at the complex of dry docks, cranes, and other specialized equipment have built 30 tanker and cargo ships for private owners.

After cycles of hiring and layoffs, the yard won a string of contracts since the late 2010s that will keep workers busy for at least the next few years.

Philly Shipyard now employs 1,700 — mostly contractors, many from out-of-state ― the most since the Navy shut the yard. Philly Shipyard says it is now the busiest of the handful of private U.S. shipyards kept afloat with help from the federal Jones Act requiring cargoes to Puerto Rico, Hawaii, and other U.S. islands be carried on U.S.-built vessels.

Yet, busy as it is, the company is losing money — $68 million last year, on sales of $441 million. The company mostly blames a shortage of skilled labor, made worse as aging workers retired during the pandemic, which forces it to hire expensive contractors. Other industrial employers have made similar complaints. That’s especially true in shipbuilding, said Philly Shipyard spokesperson Kelly Whitaker.

Philly Shipyard expects to lose money on its first civilian federal shipbuilding contract, a series of five “multi-mission” vessels it is constructing for the U.S. Maritime Administration. One of the vessels, the Patriot State, is due to be christened at the yard on Sept. 9, with federal officials on hand to celebrate the occasion.

Under the current union agreement, wages for veteran shipyard workers — direct employees and contractors — will rise to $40 an hour in 2027. Many are working 10 or more hours overtime each week, bring total pay by the end of the contract toward $100,000 a year, plus longevity bonuses, retirement, and other benefits.

“It’s hard work, but it pays well,” said Lou Agre, the lawyer and Democratic ward leader who heads the Philadelphia Metal Trades Council, the union group representing shipyard workers. More than 100 apprentices are currently training, and the company wants more. Agre said Hanwha has agreed to continue the collective-bargaining union labor agreement, which runs until 2027.

There’s more work ahead if the yard can find people, space, and capital, according to the company. Now it will be up to Hanwha to find those resources.

Hanwha’s purchase will include shipyard facilities and equipment. It is also in line to inherit a lease with the nonprofit Philadelphia Shipyard Development Corp., chaired by longtime Pennsylvania insurance and investments magnate Republican fundraiser Manuel M. Stamatakis. The nonprofit leases land, docks, and piers to the shipyard, and can cancel the lease if yard owners stop building ships.

The naval base that includes the shipyard employed nearly 50,000 at its peak during World War II, including the future science fiction writer Isaac Asimov and Comcast founder Ralph Roberts.

Yard employment fell to 2,000 by the time it closed amid the military budget cuts that followed the dissolution of the Soviet Union.

Aker’s predecessor, Kvaerner, collected extensive state subsidies and tax breaks to reopen the yard, plus aid from the Delaware River Port Authority, after then-Gov. Tom Ridge’s administration balked at a larger joint Pennsylvania-New Jersey subsidy for a German firm that wanted to build cruise ships.