Shipyard jobs are saved — for now
Nearly 250 industrial jobs at Pier 70 — some of the last such jobs on the largely gentrified San Francisco waterfront — were at least temporarily spared Wednesday after a dry dock operator agreed to keep the shipyard open for 90 days while it works out a legal dispute with the company that previously ran the facility.
Puglia Engineering, which took over the shipyard lease in January from longtime operator BAE Systems, agreed to a 90-day interim deal with the Port of San Francisco that will give both parties a window to hammer out a plan to get the money-losing dry dock back on solid footing.
It’s not going to be easy. Two weeks ago, Puglia, a relatively small ship repair business based in Washington state, filed a lawsuit alleging that BAE had misled it into thinking that the two dry docks at Pier 70 — one that services cruise ships and one that handles smaller vessels — were “well-maintained and could be put to immediate use.”
Instead, Puglia said, it discovered the smaller of the two dry docks, known as Eureka, had “deteriorated to an extent that it would cost $9 million” to render operational. In addition, Puglia’s lawsuit claims that an additional $12 million in dredging is needed just to be able to ensure that vessels could get into the dry docks. Last week, Puglia filed a notice of imminent closure of the shipyard with state labor regulators.
In total, according to the Puglia lawsuit, it would cost “$24 million in 2017 to get the facility to the condition which had been represented it would be from the beginning.”
BAE Systems, a publicly traded multinational corporation with a market capitalization of $25 billion, counters that Puglia knew exactly what it was getting when it took over the dry dock. Puglia paid $1 to take over BAE’s lease with the port, while assuming $36 million in pension liabilities.
In a cross complaint, BAE called Puglia a “sophisticated buyer” that spent more than a year conducting its own “due diligence of the business and its assets.”
BAE quoted a letter from Puglia CFO Scott Hendrickson stating that “no matter how I look at it, the S.F. site is slated to lose a lot of money in 2017 and may have lost money in 2016 from what it looks like.” Hendrickson also stated that the dry docks and equipment are in “very poor shape and will require heavy investment going forward to keep the site viable and operating.”
The stakes are high for the Port of San Francisco, which has been working to expand maritime work on the waterfront. While San Francisco has been losing shipping business to Oakland and other West Coast cities for decades, last summer there was a bit of good news as the port reached a deal with Pasha Automotive Services to import as many as 150,000 automobiles a year into Pier 80.
“Ship repair is incredibly important to the port’s maritime portfolio,” said Port Director Elaine Forbes. “It’s been here 100 years, and we aim to keep it in San Francisco.”
While BAE’s cruise ship repair business at Pier 70 was strong for most of the past decade, revenue started sinking in 2015 when a bigger $40 million dry dock opened in Portland, Ore. “We knew there was trouble, they were telling us there was trouble,” said Forbes. “It’s a competitive market, and any time a new yard opens the dynamics change.”
When BAE decided to cut its losses, the port was hopeful that Puglia, a family-owned business that had 125 employees before taking over Pier 70 and specializes in repairing smaller vessels for the Navy and Coast Guard, might diversify the pier’s revenue streams. That could still happen — assuming it can get the Eureka dock back in working order.
Peter Blake, who heads up General Engineering, a 50year-old San Francisco based ship repair business, was not optimistic about the shipyard bouncing back.
“This sounds like the death knell for the shipyard in San Francisco,” he said. “All my life those jobs have been there — high-paying, union, blue-collar jobs. Once they are gone, they will never come back.”