Bath Iron Works
Address:
700 Washington Street
Bath, Maine 04530
U.S.A.
Telephone: (207) 443-3311
Fax: (207) 442-1567
http://www.gdbiw.com
Statistics:
Wholly Owned Subsidiary of General Dynamics Corporation
Incorporated: 1884 as Bath Iron Works, Ltd.
Employees: 7,700
Sales: $936 million (1998)
NAIC: 336611 Ship Building and Repairing; 54133 Engineering Services
Company Perspectives:
BIW employees are premier designers and builders of complex, technologically advanced naval ships. Since the 1950s, BIW has served as lead shipyard for 10 non-nuclear surface ship classes produced by the U.S. Navy, more than any other U.S. shipyard. In 1995, BIW was purchased by General Dynamics, further enhancing the company's technological expertise and capabilities through key investments and access to the complementary capabilities of other General Dynamics companies.
Bath Iron Works today is the lead designer and builder of the ARLEIGH BURKE Class AEGIS guided missile destroyer, the most technologically advanced surface combatant in the world.
Key Dates:
1884: Thomas Worcester Hyde starts Bath Iron Works in Bath, Maine.
1893: BIW delivers the U.S. Navy its first steel ships.
1899: High-speed torpedo boats launched.
1908: The Chester becomes the first turbine-propelled ship in the Navy.
1909: BIW builds its first destroyers.
1928: Former manager William Newell resuscitates BIW after post-World War I failure.
1936: An initial public offering is launched.
1943: Employment peaks at 12,000 during World War II.
1968: BIW merges with flooring producer Congoleum-Nairn Inc.
1986: New York investment firm acquires BIW in a leveraged buyout.
1995: General Dynamics acquires BIW.
Company History:
For more than a century, Bath Iron Works (BIW) has been building ships, chiefly for the U.S. Navy. From its mile-long stretch of waterfront along the Kennebec River have come more oceangoing vessels than from any area of similar size in the world. In its busiest period, BIW built a quarter of the Navy's destroyers launched during World War II. The fourth largest shipyard in the United States and the largest private employer in Maine, BIW has not built a commercial vessel since 1984 and, with the end of the Cold War and diminishing naval contracts, has sought to supplement its business, investigating, for example, the prospect of building large carriers to transport automobiles and trucks. Its 1995 acquisition by General Dynamics Corp., however, has allowed the company to focus on Navy vessels.
Origins
The history of Bath Iron Works is a vital chapter in Maine's seafaring history. Not more than a dozen miles away from the town of Bath, settlers established the first colony in New England--13 years before the landing of the Mayflower--and built the first oceangoing vessel made by Englishmen in America in order to take themselves home. But curiously, the company owes its origin to a soldier rather than a sailor. The scion of a prosperous Bath merchant family, Thomas Worcester Hyde was a Civil War army officer who rose to the rank of brigadier general in the Union Army at the age of 23. Hyde leased a local iron foundry after returning home and opened Bath Iron Works, Ltd. in 1884 as a family enterprise.
Starting with capital of just a little more than $40,000, Hyde raised another $60,000, purchased a defunct iron works along the Bath riverfront, and equipped it to make steel ships, which were rarities at the time. Producing a wooden steamer in 1890, before obtaining his first naval contract, Hyde delivered to the Navy the first steel vessels built in Maine--two gunboats with auxiliary sails--in 1893. Two years later the Navy ordered two more such gunboats. During this time, BIW built other wooden steamers, lightships for the United States Bureau of Lighthouses, and private yachts as well. In 1894 Bath built the largest and most luxurious American-built yacht of its time, the Eleanor, for William A. Slater, at a cost of $300,000. The ship immediately embarked on a two-year, around-the-world voyage with a crew of 30. The company also built the 302-foot-long Aphrodite in 1898 for Colonel Oliver Payne.
But the Navy remained Bath's primary customer. Between 1899 and 1901 the company delivered five very light and high-speed torpedo boats to the Navy. These pioneering craft were the Navy's first of this type until World War II's PT boats. A cruiser, the Cleveland, was built in 1904, and BIW's only battleship, the Georgia, was completed the same year.
The hull of the Georgia, however, was barely able to clear the riverbed in Bath, and as battleships graduated into the larger Dreadnought class, it became clear that Bath would have to confine itself to building smaller ships. BIW's scout cruiser Chester, completed in 1908, was the first turbine-propelled ship in the Navy and its fastest vessel, except for torpedo boats. In a race against two other ships of this type, it averaged 25.8 knots over 24 hours.
In 1909 BIW built its first two torpedo boat destroyers. This new type of craft was designed to counter the smaller torpedo boat, yet carry its basic weapon. The name was soon shortened to simply 'destroyer,' and by 1912 BIW was the Navy's chief specialist for this kind of light, fast warship, which would become the most versatile of modern naval vessels. The destroyer has served as an escort ship on convoy duty and performed many other essential functions, but its chief mandate--especially since World War II--has been to detect, hunt down, and destroy submarines.
BIW briefly came under the control of Charles Schwab's U.S. Shipbuilding Trust between 1902 and 1905, and when this enterprise failed it was sold to John S. Hyde, the late general's younger son, for $275,000. Hyde died in 1917 while the shipyard was awash in World War I orders, and his heirs promptly sold out to a banking syndicate for $3 million. The investors awarded themselves big dividends during the fat war years, however, leaving BIW no margin for coping with the inevitable postwar bust. The naval disarmament treaty of 1921 sealed the company's doom. BIW went into receivership in 1924 and shut down operations the following year. In 1927 the idle facilities were slated for conversion&mdashø the task of turning out paper pie plates.
Renewed Under Newell in 1928
Nevertheless, the shipyard was saved from this fate by its former works manager, William S. 'Pete' Newell. He leased it for $17,000 a year, established the Bath Iron Works Corp. with $125,000 in borrowed capital, successfully bid on three fishing trawlers, and won an order for a 240-foot yacht. Between 1928 and 1937 BIW built and delivered 18 trawlers. The company also constructed seven Coast Guard cutters designated for combating rumrunners during the Prohibition years. In 1931 BIW won the contract for the Dewey and Farragut, the first destroyers authorized by the Navy since 1918.
Building yachts for captains of industry proved a profitable sideline. For J.P. Morgan II, BIW built the 343-foot-long Corsair IV, which was launched in 1930. Although the Great Depression ended, in large part, Bath's yachtbuilding operations, in 1936 Harold S. Vanderbilt commissioned the company to build a racer to defend the America's Cup. The resulting Ranger was the last of the J class sloops to defend the Cup, defeating the Endeavor II in four straight 1937 races.
In 1936 BIW offered stock to the public, for the first time, on the New York Curb Exchange (later the American Stock Exchange). This action placed the company on a sounder financial basis, enabling Newell to pay off the company's outstanding first mortgage bonds and to augment its working capital. By the time BIW was registered on the New York Stock Exchange in 1940, it had paid off all its bank loans.
During World War II, BIW employment peaked at 12,000 (1,600 of whom were women) in 1943, compared with 300 a decade earlier. Between Pearl Harbor and the war's end, BIW built 82 destroyers--one-fourth of the total ordered by the Navy--launching one on an average of every 17 days. Only eight of the ships were sunk during the war. Bath also established, jointly with Todd Shipyard Corp., a facility in South Portland to build 30 British cargo ships. This yard, which turned out Liberty ships for the U.S. Maritime Commission, was closed after the war.
Following a familiar pattern, employment sank to 350 in 1947. But BIW had already begun work on the first of 32 trawlers commissioned by the French government. Moreover, the company soon received new orders for destroyers from the Navy as well as contracts for frigates, ocean escorts, and LSTs (landing ship-tanks). Yachtbuilding also resumed. John R. Newell succeeded his father as the company's president in 1950.
Part of a Conglomerate: 1968
By 1968, however, the company was beset by managerial and economic problems. That year the parent holding company, Bath Industries Inc., merged with Congoleum-Nairn Inc., a manufacturer of flooring materials. Troubles continued, with BIW losing out on major naval contracts and incurring losses on others because its fixed prices did not allow for the rapidly rising inflation of the early 1970s. In 1974 the shipyard lost $10 million.
The following year the parent company (now called Congoleum Corp.) brought in John R. Sullivan, Jr., a chemical engineer, to run the yard. Although Sullivan had never seen a shipyard, he set about putting Bath on a sounder basis. Sullivan made the yard's modular construction system, which had been adopted from Japanese practice, effective at BIW for the first time. Bath was the first U.S. shipyard to employ this technique, which involved building a hull out of modules constructed indoors and fitted there with electrical wiring, plumbing, ventilation, and hydraulic equipment. These modules were then hauled outdoors by crane and welded together. By 1981, Bath's safety record, once one of the worst in the industry, had become one of the best.
By this time BIW had built 13 of 24 FFG 7-class guided-missile frigates for the Navy, completing each in less than two years. The project was 99 weeks ahead of schedule and $44 million under budget. Bath's operations were comfortably profitable, and there was a backlog of $800 million in military orders.
Leveraged in the 1980s
In early 1980 Congoleum went private in a leveraged buyout. Several insurance companies joined the company's management in borrowing heavily to buy all the outstanding publicly held stock for about $450 million. Prudential secured 29 percent of the company, with Aetna, Travelers, and Connecticut General investing as well.
A Forbes article published in September 1984 indicated that this move was paying off. BIW's frigates were still coming in ahead of schedule and under budget, and the company's earnings for the past five years were estimated at about 15 percent on sales of about $400 million annually. In 1982 Bath won a contract to build the Thomas S. Gates, the first of eight Ticonderoga-class Aegis cruisers it was to build through 1991. More good news came on April 2, 1985, when Bath won an order worth about $322 million to build the Arleigh Burke, first of the DDG 51 Aegis destroyer class. By mid-1986, BIW had a $1.4 billion backlog in naval orders, including these Aegis-class cruisers and destroyers.
On this prosperous note, Congoleum's investors were ready to cash in, but before doing so management determined to make BIW even more attractive by putting a lid on labor costs. This initiative met with protest, however, as BIW workers walked out for 14 weeks in 1985. Labor and management eventually agreed to a wage freeze, with bonuses equivalent to an increase of three percent over three years.
In another leveraged buyout, announced August 21, 1986, the closely held New York investment firm of Gibbons, Green, Van Amerongen Ltd. bought BIW for an estimated $500 million. BIW then became a subsidiary of the new Bath Holding Corp., which itself became a subsidiary of the Fulcrum II Limited Partnership, the managing partners of which were Edward Gibbons, Todd Goodwin, and Louis van Amerongen.
New Markets After the Cold War
By late 1992 BIW had a backlog of $2 billion worth of orders carried through 1997; in 1994, the backlog of 14 Burke-class destroyers extended through the year 2000. Aware, however, of impending defense cuts in the wake of the Cold War, company managers began looking for ways to solicit civilian work. Bath had not built a civilian craft since 1985 and had 'no contingency plan whatsoever,' according to its president, Duane D. 'Buzz' Fitzgerald, who sent a four-man team to Holland to 'benchmark' ten shipyards there.
Fitzgerald replaced William Haggett as BIW's chief executive officer in September 1991, when Haggett opted to resign his posts as CEO and chairperson. A BIW official for 23 years, Haggett announced at a news conference that year that he had violated business ethics, admitting that he had ordered the photocopying of a government document, inadvertently left behind at the BIW shipyard by Navy officials. Although the document, which had included cost reviews of work performed by Bath and its chief competitor, Ingalls Shipbuilding of Pascagoula, Mississippi, had reportedly not been used to BIW's advantage, Haggett and two BIW vice-presidents involved in the photocopying resigned in 1991.
Under the leadership of Buzz Fitzgerald, BIW continued to be a major supplier to the Pentagon. The company was asked to build three $850 million Burke-class Aegis destroyers for the Navy in June 1994. Moreover, in an effort to diversify, BIW joined with American Automar Inc. and Great American Lines Inc. in 1993 to develop carriers of automobiles and other vehicles that could also meet military needs. Also participating in the $14 million project were a giant Japanese shipbuilder and the Canadian ship-designing subsidiary of a Finnish group. This program received a $5 million federal grant and was being coordinated by a special Pentagon agency intended to foster ties between shipyards, carriers, university research centers, and the federal government. According to a 1994 Bath press release, the company was 'on course to be competitive in the world commercial shipbuilding market by 1997.'
A New Dynamic in 1995
Employment at BIW fell from 12,000 in 1989 to 8,300 in 1995 as military procurement slowed in the wake of the Cold War and consolidation spread throughout the defense sector. Prudential Insurance Co., BIW's largest shareholder, began looking for a buyer in April 1995 and specifically targeted General Dynamics Corp. (GD), the $3 billion defense conglomerate based in Falls Church, Virginia. In August, GD announced plans to buy BIW for $300 million.
GD's purchase, considered a bargain, allowed BIW to remain focused on military ships, said Duane 'Buzz' Fitzgerald, BIW president. The commercial market had been saturated anyway. The previous owners, laden with debt, had not invested much in modernization, while GD invested $200 million in updating BIW's facilities between 1997 and 2000.
GD already supplied the Navy through its Electric Boat division, which built nuclear submarines. It had sold off its computer, missile, aircraft, and rocket divisions over the previous four years but was attracted to BIW for its $2 billion backlog (orders for 11 Arleigh Burke-class DDG-51 destroyers). In spite of a recent labor accord aimed at raising productivity, GD planned to cut costs at BIW even further to become more competitive.
The BIW acquisition helped GD raise profits 35 percent in 1995, even as business declined at its other divisions. Operating profits at BIW were $50 million on revenues of $830 million. The unit's performance was sluggish in 1996, however, leading GD to reorganize steel fabrication and materials handling operations there.
BIW had won, though, a $217 million contract to build an amphibious assault vehicle (AAV) for the Marine Corps that had the potential of bringing in $4 billion through 2014. It also won a $9.6 billion contract to build 12 LPD-17 transport ships for the U.S. Navy. BIW won that bid over a consortium including Lockheed Martin, Litton Industries, and Newport News Shipbuilding & Drydock Co. BIW was part of a consortium led by Avondale Industries of New Orleans that won the LPD-17 contract in December 1996. Senate Majority Leader Trent Lott, hoping to secure work for his constituents in Mississippi (home of Ingalls), vigorously protested the Navy's selection.
In October 1998, General Dynamics announced that it was buying its third shipyard (after BIW and Electric Boat). It paid $370 million in cash and assumed $45 million in debt to acquire Nassco Holdings Inc., parent of National Steel & Shipbuilding Co. in San Diego. Nassco repaired combat ships and built smaller Navy vessels and commercial ships.
BIW teamed with Energy Research Corporation in 1999 to develop new fuel cells to bring electric power to military ships. The Direct FuelCell Ship Service Power Plant promised to be efficient, quiet, and clean to run. Another high-tech joint venture launched in 2000 tested HyperSonic Sound Technology (HSS) aboard an Aegis destroyer under construction. American Technology Corp.'s proprietary HSS system could focus sound in a tight beam, like light through a lens. Still another project announced in June 2000 teamed BIW with Kronos Air Technologies in studying electronic wind generation for use in bunk installations. The Kronos device used no moving parts yet could circulate and clean air silently.
In December 1999, BIW won a $324 million contract modification to build an additional Arleigh Burke Aegis Class guided missile destroyer in 2000. Nine DDG 51 class destroyers remained in BIW's backlog, with 16 having been delivered. BIW joined Ingalls in the two-member DD-21 Shipbuilder Alliance, charged with designing the next generation of surface combatants.
Principal Divisions: Engineering; Purchasing; Shipbuilding.
Principal Competitors: Ingalls Shipbuilding (Litton); Newport News Shipbuilding & Drydock Co.
Further Reading:
Alpert, Bruce, 'Billion-Dollar Contracts Ignite Heated Struggles; Avondale Victory Pits Lott Vs. Livingston,' Times-Picayune, June 2, 1997, p. A1.
Biesada, Alexandra, 'Strategic Benchmarking,' Financial World, September 29, 1992, pp. 30--31.
Buell, Barbara, 'Bath: A Tight Ship That Could Spring a Leak,' Business Week, May 20, 1985, pp. 88--90.
'City of Ships,' American Heritage, September 1991, pp. 28--30.
DeMott, John S., 'Bath's Fighting Company,' Time, October 12, 1981, p. 82.
Eskew, Garrett Laidlaw, Cradle of Ships, New York: G.P. Putnam's Sons, 1958.
Frank, Allen Dodds, 'The Bath Money Works,' Forbes, September 10, 1984, pp. 58--62.
Lewis, Diane, 'Bath Shipyard Accord Reflects Fight to Remain Competitive,' Boston Globe, September 5, 1994, pp. 1, 5.
Mintz, John, 'General Dynamics to Buy Shipyard for $300 Million; Deal for Bath Iron Works Called Shrewd Bargain for Defense Firm,' Washington Post, August 18, 1995, p. D1.
Payne, Seth, 'A Yard Sale Worth $600 Million?,' Business Week, June 23, 1986, p. 47.
Ricks, Thomas E., 'Navy Allocates Ship Contracts in Policy Shift,' Wall Street Journal, June 9, 1994, p. A16.
Rosenberg, Ronald, 'Company Buys Bath Iron Works; General Dynamics to Spend $300 million,' Boston Globe, Economy Sec., August 18, 1995, p. 35.
Shorrock, Tim, 'Maine Yard Gets US Aid in Designing Cargo Vessels,' Journal of Commerce, December 16, 1993, pp. 1A, 10A.
Stevens, David Weld, 'Floating the Navy the Bath Way,' Fortune, October 6, 1981, pp. 160--63.
'Vote of Merger Plan,' Wall Street Journal, September 9, 1968, p. 22.
Williams, John D., and Jan Wong, 'Congoleum Sells Bath Iron Works Unit in Buyout Valued at About $500 Million,' Wall Street Journal, August 22, 1986, p. 4.
Source: International Directory of Company Histories, Vol. 36. St. James Press, 2001.
