As New USCG Icebreaker Breaks Shipyard, Bollinger Expected To Take Over Halter Marine

While nothing is certain, Bollinger Shipyards is expected to announce Monday morning that it is assuming ownership of Halter Marine, a troubled Gulf Coast shipbuilder. Bollinger executives, contacted Friday, did not comment, but offered to arrange an informational interview on any business changes on Monday, in advance of any formal announcement. But, after learning Bollinger Shipyards discussed the matter with at least one other media outlet before the Monday interview, we are publishing what we know, now.

It is no secret that the future of Halter Marine rested on building the Coast Guard’s next fleet of three heavy icebreakers on time and on budget. But with the Pascagoula shipyard struggling to build the 460-foot, 23,000 ton Polar Security Cutters, it was logical that ST Engineering, Halter Marine’s Singapore-based parent company, would seek to distance itself from a what was shaping up to be a catastrophic shipbuilding blowout.

With the rumored deal coming days after U.S. shipping company Matson awarded Halter Marine’s rival, Philly Shipyard, a billion dollar order for three Jones Act containerships, Halter Marine was clearly running out of opportunities to offset a potentially large loss on the Polar Security Cutter program.

Halter Marine’s U.S. government customers were reluctant to comment “on record” regarding the impending change in shipyard ownership. Contacted on Thursday, the Coast Guard referred all questions to the U.S. Navy. Tiara Robinson, a public affairs specialist with the Naval Sea Systems Command, offered a terse Friday afternoon email, snapping that “The Navy does not comment on the internal workings of private businesses.”

A Good Time To Exit:

it is obvious that Halter Marine’s parent company, ST Engineering, has been positioning itself to put Halter Marine on the market for some time.

The Singapore-based company, which did not respond to emails, likely recognized the risk wrapped up in Halter Marine was too much for ST Engineering to absorb. The contract for the first Polar Security Cutter is a lean-and-mean $745.9 million fixed price, incentive-firm arrangement. In total, the shipyard was set to get about $1.94 billion if the Coast Guard exercised all three options. That sounds good, but it’s a very, very low-priced bid, and, to profit, the shipyard had to perform perfectly.

Halter Marine wasn’t getting it done.

Given the contract’s structure, Halter Marine—and ST Engineering—had a lot to lose if the shipyard was unable to meet the price target. With a fixed price target, even a modest 10% overage on a $2 billion construction contract is a tough pill to swallow for any parent company, no matter how big.

After more than three years of work, ST Engineering has a pretty good idea of how the program was shaping up, and likely decided that a head for the exits was prudent.

A timely exit, before the Polar Security Cutter program implodes, makes a smart diplomatic move. ST Engineering is a state-owned enterprise. With Singapore’s state holding company, Temasek Holdings, owning just over 50% of ST Engineering’s stock, big problems with a high-profile U.S. military shipbuilding project could easily spill over into the tough geopolitics of Southeast Asia.

Though Halter Marine is nominally insulated from foreign influence, a wholesale collapse of America’s premier polar icebreaker program could well lead to some potentially uncomfortable examinations into Chinese Communist Party influence upon Singapore. China does not want America in any position to engage at either the North or South Poles, and snarling a major icebreaker recapitalization in the production phase offers a logical, neat, and cost-effective means to constrain American influence. A timely divestment offers a chance for a U.S.-owned company take outright control over what is an important naval shipyard.

If a deal is on offer, VT Halter may not be the first of ST Engineering’s marine property to be put on the market. ST Engineering may well be setting the stage to exit shipbuilding altogether. While a targeted divestment of Halter Marine makes certain business sense, an outright divestment of ST Engineering’s entire maritime sector—two shipyards in Pascagoula and two shipyards in Singapore—is not out of the question.

Shipbuilding is, at best, a low-margin revenue generator that, in diversified conglomerates, often struggles to compete against flashier, higher-margin product offerings. Over the past two years, ST Engineering’s maritime sector has been de-emphasized companywide. ST Engineering has gradually downgraded the largely independent marine business sector, folding it into a new and diverse “Defense and Public Security” line of business. It is a poor fit. ST Engineering’s marine businesses do a large amount of civilian work, which can be something of an irritation in a defense-focused business.

The PSC Broke A Shipyard Before Breaking Any Ice

To industry observers, it is obvious the Polar Security Cutter was breaking Halter Marine. To outsiders, the Polar Security Cutter program might seem relatively healthy, and a great boon to any shipyard holding the contract. The program has great top-cover in Washington, with both the White House and Congress eager to fund the new ships. In the Service, the program is a major, eagerly-awaited priority. And Admiral Linda Fagan, the current Coast Guard Commandant, as one of the few high-ranking Coast Guard officers with first-hand experience aboard heavy icebreakers, seems well-positioned to push the program towards a successful completion.

But the program, awarded back in 2019, is not doing well. After slipping two years from a hoped-for “accelerated” 2023 delivery, the Coast Guard now appears to lack confidence that the icebreaker will arrive even by 2025. In early 2022, Coast Guard leadership expected Halter Marine to start cutting steel this year, but, with less than two months left in 2022, the shipyard shows no sign of getting started. To mitigate the risk of further delay, the Department of Homeland Security is already enacting a contingency plan and asking Congress for funding to purchase one of the few commercially available polar icebreakers able to serve in the Coast Guard fleet.

Even worse, the prospects that the Government might help defray risk by other means is quite limited. The European factory building the engines used to power the big cutter is set to decommission after the third Polar Security Cutter power plant rolls off the production line, making the odds of an easy follow-on order rather limited.

At the shipyard, few of the leaders who crafted Halter Marine’s original bid are still with the company. While many have been replaced with competent people who have a strong record of delivering for the Coast Guard, a wholesale pruning of the yard’s executive and engineering leadership—folks who were “instrumental in supporting the company’s winning bid”—indicates that ST Engineering had little confidence in the original proposal or the original contract terms.

As I warned in 2019, Halter Marine has a long-held tendency to lurch between cycles of boom and bust—underbidding when desperate, and then collapsing under the workload. A new ownership team, experienced at managing boom-bust cycles, may prove helpful

If Halter Marine offered too optimistic a bid, the Polar Security Cutter has likely proven better at breaking a shipyard than it will be at breaking ice.

Time To Enter?

Few companies are eager to take on a troubled shipyard and assume a risky government contract.

It doesn’t happen often. But when it does happen, the government customer can seize the opportunity to renegotiate the contract, resetting a problematic program. In 2021, Bollinger Shipyards bought the builder of the Navajo-Class (T-ATS) towing, salvage and rescue ship, Gulf Island Shipyard, only to see the Navy shift the bulk of the program to rival shipbuilder, Austal USA. And while that may seem cruel, the Navy did give Bollinger breathing space to fix the yard, and, potentially, compete for more T-ATS hulls later.

Something similar could happen at Halter Marine. Anyone who does take on the effort of purchasing a troubled shipyard faces a grueling effort of recalibrating staff, reorganizing programs and troubleshooting, and the Coast Guard might well jump at the opportunity for a fresh start. And while the Department of Homeland Security is unlikely to cancel the Polar Security Cutter outright, the Coast Guard certainly could “re-baseline” the contract and offer a new buyer a programmatic clean slate.

A new owner at Halter Marine could shape the outcome of the T-AGOS ocean surveillance ship contract. Halter Marine has a long record of building complex surveillance ships, The yard built the current T-AGOS fleet-a critical type of ship used to track submarines. The U.S Navy has delayed the expected issuance of the seven-ship T-AGOS contract award, and, with new ownership at Halter Marine, the Navy may revisit the contract, and shape it to give any new owner of the Halter Marine yard extra breathing room.

Any new owner of Halter Marine has their work cut out for them. Not only must the new owner get the Polar Security Cutter back on track, but the new owner needs to break from Halter Marine’s boom-bust business cycle. It also needs to sustain the yard’s ongoing effort to improve the yard’s once-ugly safety record, and build a stronger workforce—a workforce that is likely highly populated with castoffs from large Huntington Ingalls shipyard, just a few short blocks away.

The new owner, if it can straighten out the existing shipyard and stabilize the ongoing projects in the yard, has a real opportunity to make a play for wider government business, either by supporting the Navy as a second yard for the Constellation Frigate (FFG-62) program, or as a yard helping out on submarine fabrication.

If Bollinger Shipyards—partially owned by the family that operates Edison Chouest Offshore—does take over Halter Marine on Monday, there a a lot of opportunities to spread work around, and continue making the two privately-held companies into a real force in Gulf Coast shipbuilding. Both Chouest and Bollinger have a history of taking over troubled yards, repurposing and reinvigorating them. With both Bollinger and Chouest directly operating some 15 U.S. based shipyards between them, the opportunities for interesting operational synergies are enormous. Parts of the Polar Security Cutter could be built at various locations, and workers could be leveraged to help stabilize the destructive “boom-bust” cycle Halter Marine struggled to overcome.

If other parts of the SE Engineering Marine infrastructure are in play, the deal could end up opening interesting opportunities to explore business in the busy waters of Southeast Asia.

In addition to managing dispersed shipyards, both Bollinger and Chouest have an opportunity to support the Coast Guard’s work at the Poles. Bollinger, of course, already has a long relationship with the Coast Guard, and is preparing to close out the Fast Response Cutter production line. Edison Chouest Offshore, as owner/operator of one of the few U.S. built heavy icebreakers—the M/V Aiviq—would be set to take on the job of becoming America’s polar operations specialist—providing vessels, contract support or harbor operations. Both yards would also be well positioned to take on the job of building the next generation of smaller Coast Guard icebreakers, advancing the Coast Guard’s growing book of work in both the North and South Poles.

If the deal goes through—as expected—there are plenty of opportunities to unlock real profits in the Halter Marine yard. It just depends on how hungry Bollinger and Chouset might be for a tough new challenge—and on just how eager ST Engineering is to avoid one.