BEHIND THE SHIPYARD DEAL: A 'HAIL MARY' THAT WORKED
THE NEGOTIATIONS INCLUDED EAGLES GAMES AND CAPITOL HILL INTRIGUE. RISKS WERE TAKEN - BY BOTH SIDES.
BYLINE: Howard Goodman and Russell E. Eshleman Jr., INQUIRER STAFF WRITERS, Inquirer staff writer Craig McCoy contributed to this article.
SECTION: LOCAL; Pg. A01
The clock was ticking on the Philadelphia Naval Shipyard in the late summer of 1995, and the city's desperate play for resurrection - a deal with the German shipbuilder Meyer Werft - was collapsing, too.
A week before the end, Terry Gillen saw it coming. Freighted by foreboding, with 2,000 jobs on the block, the city official looked upon a sea of faces at a union meeting.
"What are we going to do with all these people?" she thought.
She was still wondering when the yard formally closed, on Sept. 15, 1995, then again a few days later, when the Meyer Werft deal died.
Yet within two weeks of that debacle, Gillen and William Hankowsky, both of the Philadelphia Industrial Development Corp., sent letters to every shipbuilder big enough to possibly expand here.
It was a short list, about two dozen companies. They read a simple plea: We have idle dry docks and a pool of public money; are you interested?
It was a long shot, a Hail Mary, a message in a bottle.
But word came back.
Through the industry grapevine, the Philadelphians heard that one company, the Norwegian conglomerate Kvaerner ASA, might bite.
So began a secret, two-year courtship between a region with a sadly abandoned industrial asset and a global high-tech business giant with a niche to fill.
The mating dance culminated last week in celebration - over the signing, in one of Kvaerner's seven European shipyards, of a memorandum of understanding that pledges the shipbuilder to bring heavy industry and at least 700 jobs to Philadelphia. Officials are hoping for a final agreement before January.
Getting there took trust-building, risk-taking, negotiating - even a cameo appearance by Mike Tyson, the glowering former heavyweight champion.
The Norwegians quietly cased out Philadelphia's facilities, met with city leaders, and unexpectedly got their pictures snapped at Veterans Stadium with visiting first lady Hillary Clinton.
Pennsylvanians took trips to Europe, scented shipbuilding's future, and came back smitten.
In this romance story, the prenuptial agreement was the tough part. The Europeans initially expected more public money than the Pennsylvanians thought reasonable. Kvaerner changed its thinking, but the state and city still faced a staggering price tag.
Leaders had to convince themselves the deal was a sound investment. Then they had to round up the money. In one stealth operation, Pennsylvanians on Capitol Hill engineered a $50 million appropriation - while hiding it from Southern legislators, who, it was believed, would have loved to sandbag the deal and snare Kvaerner for Charleston, S.C.
Somehow, local politicians tempered their egos, refused to blame one another for failures, and reached together for the prize.
The result promises to breathe new life into the deserted Navy Yard, decommissioned after 194 years of service by the exigencies of peace. Kvaerner is to build three, and possibly as many as nine, cargo ships in the first part of a 15-year, $165 million commitment. Thousands of more jobs could be created through ancillary industries and future shipbuilding contracts.
Gov. Ridge and Mayor Rendell agreed to ante up some $400 million in public funds to upgrade the yard and train the workforce in Kvaerner's exacting, modern methods.
The comeback began amid the dust of Meyer Werft. That deal crumbled, but local leaders had shown they could assemble some $150 million.
"We decided we'd make one stab at getting another shipbuilder," said Hankowsky, the soft-voiced president of PIDC, a private-public agency that spearheads economic development in the region. "If it didn't work, we'd mothball the effort for a few years."
Meantime, Thomas B. Hagen, then Pennsylvania's commerce secretary, traveled to Oslo with a ship designer who hoped to do business with Kvaerner. Hagen carried a letter from Ridge authorizing him, as the governor's emissary, to discuss future shipbuilding in Philadelphia.
Hagen returned raving about the Kvaerner works: immaculately clean facilities, computer-driven cutting machines, huge Cape Canaveral-type buildings whose ceilings can be removed so that a 25-story high crane could lower precisely cut, massive pieces of metal for assembly - "like pieces of a jigsaw puzzle on top of one another," as Ridge recently described it.
"Tom came back saying: 'Unbelievable. You've got to see this. We've got to get these guys,' " Hankowsky recalled.
Many Philadelphians blamed the Ridge administration's tightfistedness for the collapse of the Meyer Werft rescue, but Rendell never publicly criticized Ridge for his performance in the shipyard negotiations. On the contrary, the Democratic mayor - and, many believe, a future gubernatorial candidate - went out of his way to compliment the Republican governor whenever their positions coincided.
It was a shrewd move.
"I knew we would need the governor's help down the road," Rendell said last week. "I knew that we would live to fight another day."
Gillen, 41, a Drexel Hill-born lawyer, has been the PIDC official in charge of civilian conversion of the Navy Yard since 1993. Her staff of 10 includes three former shipyard workers. They labored tirelessly to find new employers for the yard. For them, it was an imperative as much emotional as economic.
PIDC, on Rendell's behalf, sent Kvaerner officials a second letter in November. Might they see Philly in their future?
Yes, they said. They would send an executive named Eero Makinen to check out the Navy Yard.
But all negotiations must be strictly private, they told PIDC.
Makinen inspected the docks on a freezing Sunday morning, Dec. 10, 1995. Then, at Rendell's invitation, Gillen took him to the mayor's box at Veterans Stadium to watch the Eagles play the Dallas Cowboys.
The Scandinavian was dumbfounded that 60,000 people would sit in bitter cold to watch a sporting event, and he was baffled by American football. He was freezing. Gillen feared blowing the deal then and there.
But then they moved to a warmer part of the mayor's box. And "Iron Mike" Tyson, of all people, dropped by. Someone snapped a photo of Tyson and Makinen - a photo, Gillen is told, that
Makinen still keeps on the family piano.
"That," Gillen said, "was the beginning of the relationship."
Two months later, several more Kvaerner executives came to inspect the yard. On Feb. 14, they lunched in Harrisburg with Ridge administration officials and drank champagne in honor of Valentine's Day - a holiday the Norwegians knew nothing about, said Maria Keating Titleman, a Ridge aide.
Titleman bought valentine cards for the children of the Kvaerner people and plied the execs with Hershey's chocolate bars and Yuengling and Rolling Rock beer.
"It's little things like that," she said, "that set the tone."
In June, three PIDC officials, a Ridge aide, and a state ports official flew, via Kvaerner jet, on a whirlwind tour of three of the company's shipyards - from Oslo to west Norway to Germany to Finland and back to Oslo in two days.
Breathlessly efficient, "they never got more than five minutes behind schedule," Gillen said. "I remember flying over one country and they pulled out a fruit plate. It was meticulous. There was cheese, coffee, beverages. They were such perfect hosts.
"And it just hit me. I leaned over [to Hankowsky], and I said, 'Bill, I think these guys are serious.' "
The PIDC team came back with ink all over their passports and ideas firing their imaginations.
But what would it cost to land Kvaerner?
To find out, PIDC tapped $70,000 in federal defense-conversion funds for a Kvaerner team to study the Navy Yard and price the project. A team arrived in October 1996, taking measurements and jotting down notes: What was the yard's utility system like? How large was the likely workforce? What was its level of training? Where were the nearest suppliers, the nearest painters?
Rendell invited the Kvaerner people to dinner and to another game, Eagles-Carolina Panthers.
Summoned to the mayor's box, the Europeans met Hillary Clinton.
"I have a friend who has a picture with President Clinton," one told Gillen. "Now, I have a picture with Clinton's boss."
In January, Kvaerner presented its conclusions. To make a deal, it would cost the public entities about $200 million in hard costs and $200 million for job training.
Whoa.
"We were pretty daunted by the numbers," Gillen said.
Still, they formed a negotiating team, including: Robert G. Benko, state deputy secretary of community and economic development; Manuel Stamatakis, head of the Delaware River Port Authority; Steve Kohler, director of the Governor's Action Team; Hankowsky; and Gillen.
Last April, they met Diderik Schnitler, chief of Kvaerner's shipbuilding division, at the Willard Hotel in Washington. Schnitler laid out Kvaerner's "expectations." He noted that Germany - where Kvaerner built a futuristic shipyard on the Warnow River in 1992 - had poured millions of dollars into an escrow account that Kvaerner could spend as needed.
"They wanted the money up front," Benko said, "and to be in a position to draw down from it."
That isn't exactly the American way, and the negotiators told Schnitler as much when he came to Pennsylvania in June.
The state would invest in a capital facility and job training, Benko told them, "but when it comes to operational assistance, forget it."
Schnitler said OK. And, visiting Harrisburg, he beamed when Ridge gave him an 18-by-24-inch cardboard map of Southeast Pennsylvania that showed Boeing, Lockheed Martin, and a star where Kvaerner would be. The title on the map: "Silicon Valley of the 21st Century Transportation Production Industry."
"In Schnitler's vision, they belong in that league," Benko said. "And they do."
Kvaerner, after all, is building the world's two largest cruise ships, a billion-dollar bridge in Turkey, and - as partners with Boeing, Russia and Ukraine - a floating satellite launcher.
The sides grew closer in July during a long negotiating session at PIDC's 26th-floor offices over West Market Street.
In Washington, Rep. John P. Murtha (D., Pa.) steered $50 million in defense appropriations toward the Kvaerner project - and kept it a secret from such savvy colleagues as Sen. Strom Thurmond (R., S.C.).
Murtha's method, Gillen said, was to use language so abstruse that no one would understand it. Others in the state delegation - Sens. Arlen Specter and Rick Santorum and Reps. Bob Borski and Curt Weldon - kept watch to make sure the clause wasn't dropped in committees.
In August, PIDC officials met at the White House with John Podesta, Clinton's deputy chief of staff and a fan of Rendell's. He vowed to dig for more federal money, Gillen said.
The defense appropriation passed Congress, but the $50 million put in for Kvaerner faced another hurdle: Clinton's brand-new line-item veto. In and out of the White House, pressure mounted for him to cut pork.
"We had to have the Podesta team talk to the veto team," Gillen said.
The money came through.
Erik Tonseth, Kvaerner's chief executive, flew here at summer's end to meet Rendell and Ridge.
"I think he was looking for a sign that these top leaders were seriously committed," Hankowsky said. "And he saw, emphatically, that they were."
Eventually, the region's package came together: $182 million from the state, $65 million from the port authority, $50 million from the feds, $50 million from the city (in the form of a combination of property-tax breaks, a federal Housing and Urban Development loan, and federal defense conversion funds), and $20 million from the Norfolk Southern and CSX Railroads.
A potential $40 million from the federal Labor Department - needed to complete the deal - is pending, with help from the White House, Gillen said.
The final push began Tuesday, Oct. 14. Kvaerner representatives and the city-state team dug in for 2 1/2 days of talks at the Saul, Ewing law offices in Center City.
By 4:30 a.m. Friday, the differences boiled down to a single word. Where Kvaerner said it intends to invest in the shipyard, the Pennsylvanians wanted the word shall.
Stamatakis and Paul Tufano, Ridge's top lawyer, awakened the governor in a Bethlehem hotel room and asked him to call Tonseth in Norway. Not yet 6 a.m. here, it was nearly lunchtime
there.
Ridge told Tonseth that the state had "demonstrated extraordinarily good faith."
"He needed to understand, from my perspective, that part of the support we were able to generate from the state legislature was that they would invest," Ridge said in an interview Friday. "I thought it was important to have a guarantee. . . .
"They said, 'We've never done that.' I said, 'You have to understand: Pennsylvania has never made this kind of commitment.'
"There was a few minutes of discussion. He said, 'I understand, Governor. I will take care of it.' "
Ridge got the shall he wanted.
The deal was clinched.
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