Vigor Alaska, the private operator of the state-owned Ketchikan Shipyard, was notified that the state won’t be extending the shipyard operating agreement with Vigor once the current agreement expires in November.
Citing lower-than-full utilization of the shipyard and increasing unfunded maintenance at the facility under Vigor, the shipyard’s owner Alaska Industrial Development and Export Authority is potentially giving Vigor through March 1, 2026, to wind down its operations and demobilize from the site.
That’s according to a Friday letter from AIDEA Executive Director Randy Ruaro to Vigor Alaska President Adam Beck.
“This letter serve’s as AIDEA’s notice to Vigor Alaska… that AIDEA has decided not to extend the final ten-year extension under the Ketchikan Shipyard Operating Agreement,” Ruaro wrote. “After reviewing Vigor’s Long term-economic performance projections, extensive studies, repair budgets, and other documentation relating to the Shipyard, AIDEA has reasonably determined that Vigor has not demonstrated its ability to fully utilize all of the Shipyard’s economic capabilities.”
In addition, Ruaro wrote, Vigor’s contributions to the shipyard “Repair and Replacement” account are inadequate to maintain the shipyard in good condition.
“Accordingly, Vigor’s term at the Shipyard expires of Nov. 30, 2025,” wrote Ruaro, adding near the end of the four-page letter that, although Vigor’s current 10-year extension ends on Nov. 30, “AIDEA is willing to discuss a plan for wind-down and demobilization of up to one year through March 1, 2026.”
As of Monday, Vigor is still reviewing the assertions made in the AIDEA letter and reviewing its options, Vigor spokesman Benton Strong wrote in an email reply to the Daily News.
“Please (note) we were prepared to continue operating the shipyard as we have and did not anticipate this action from AIDEA,” Strong wrote.
Strong’s email included a statement from the company at large.
“AIDEA’s unexpected announcement impacts nearly 100 family-wage jobs in Ketchikan, with no clear understanding of who might take over or whether the facility will even continue to operate as a shipyard,” according to the statement. “Vigor has been a strong operator of the Ketchikan Shipyard, investing millions in the facility, employing more people and generating more revenue than any previous operator, and triggering profit-sharing with AIDEA for the first time in the yard’s history.”
Originally owned by the Alaska Department of Transportation, the Ketchikan Shipyard got its start in the 1980s with a single floating dry dock at the site next to the Alaska Marine Highway System ferry terminal in Ketchikan.
After a period of operational instability, the Ketchikan-based firm Alaska Ship & Drydock began operating the facility, which was expanded over time to include a second dry dock and an assembly hall.
The operating agreement between AIDEA and Alaska Ship and Dryock was renegotiated in 2005 with a 10-year term and the potential for two 10-year extensions, according to AIDEA information
AIDEA in 2012 approved the sale of Alaska Ship & Drydock to Vigor Alaska, a subsidy of the Vigor Industrial firm that operates several facilities in the Pacific Northwest.
AIDEA approved the first 10-year operating agreement extension in 2015, with the possibility of a second 10-year extension this year.
However, Ruaro’s letter of Feb. 28 made it clear that AIDEA does not believe that Vigor has performed well enough to allow for an extension. That includes revenue and workforce measures.
“Vigor’s total revenue at the Ketchikan Shipyard as decreased substantially over the current term of the Operating Agreement from 2015 to 2025,” Ruaro wrote. “Likewise, average annual headcount has trended downward over that time period. These are significant indicators that the shipyard is not working at its full economic capabilities.”
Ruaro wrote that the shipyard has dropped from an annual full-time equivalent employment of 154-184 FTEs in 2015-2018 down to 67-75 FTEs in 2021-2023.
“Halving the number of jobs at the Shipyard over a decade is strong evidence that Vigor is not fully utilizing the Shipyard’s economic capabilities,” Ruaro wrote.
The letter contained another reference to the strong economic performance by the shipyard in the 2015-2018 period, again contrasting it with current performance. But it did not note what shipyard activity contributed to that employment and economic performance.
In late 2014, Vigor began construction of the two Alaska-Class ferries, the Tazlina and the Hubbard, at the Ketchikan Shipyard.. The Tazliina was christened in 2018; the Hubbard was completed in 2019. Those were the most recent ferries constructed by the Alaska Marine Highway System.
“In 2015 to 2018, if you recall, that would have been when we were building the Alaska-Class ferries,” Strong said in a telephone conversation with the Ketchikan Daily News. “Huge project. Where it is now is a more normal (level).”
The Vigor statement also noted the ferry construction project, among other Vigor projects.
“Over more than a decade operating the shipyard, Vigor employees have built Alaska Class Ferries, supported all of the Alaska Marine Highway System even as state funding has been reduced, and diversified our customer base to include the U.S. Coast Guard, among others.”
The AMHS, long the fundamental customer of the shipyard, has seen its fleet shrink during the past decade, as well. The mainline ferry Taku was sold in 2020, the fast vehicle ferries Chenaga and Fairweather were sold in 2021, and the mainliner Malaspina was sold in 2022.
AiDEA’s letter asserts that Vigor’s contributions toward the maintenance budgets for the shipyard have not been adequate.
Noting that the account balance in the Repair and Replacement fund on Thursday was about $240,000 against an annual maintenance obligation of about $420,000, the letter cited this year’s maintenance budgets as being nearly $1.1 million, with another approximately $58 million in identified rehabilitation needed in addition to an “unknown number of millions more” to address a repair or replacement of the shipyard’s “receiving slab.”
“Even at much higher gross revenue sharing amounts seen in 2015-18 (approximately $40-476,000 per year), the R & R account would fall far short of funding for the necessary projects to maintain the shipyard in good condition,” Ruaro wrote.
According to the letter, the next step is for AIDEA and Vigor to “work cooperatively on the demobilization and wind-down of Vigor’s operation at the Shipyard while ensuring the work scheduled during that period is appropriately accommodated,” state the letter.
It added that AIDEA will issue and “RFI” in the next few weeks to look for new opportunities for the shipyard.
“I expect that it will also be necessary to have on-site visits with prospective occupants; we will coordinate those with (Ketchikan Shipyard General Manger) Bergen Wieler and your Ketchikan staff to minimize disruptions,” Ruaro wrote.
Ketchikan’s state legislators and City of Ketchikan Mayor Bob Sivertsen spoke with the Daily News about the circumstance on Monday afternoon.
Sen. Bert Stedman said he’d received a copy of the letter on Monday, but knew that “there’s been a lot of discussion over the last several months with Vigor and AIDEA.”
The news represented by the AIDEA letter isn’t good news, and the Legislature’s role in this type of circumstance is limited, according to Stedman.
“Getting involved in contract disputes and negotiations is not an appropriate place for the Legislature,” Stedman said. “But with that being said, I just want to see that shipyard totally utilized. And there’s some maintenance issues that need to be need to get fixed and worked on.”
Stedman added that a concern he has with replacing Vigor is its his understanding that Vigor might own a lot of the equipment at the yard.
“What kind of condition that shipyard’s going to be in if they exit and take their equipment with them?” he said.
Having a new operator come in and having to recapitalize equipment could have implications for AMHS.
“I’m very concerned on the marine highway, (it’s) in a precarious position as we speak, with maintenance and operations,” Stedman said. “And this is not good news for the marine highway. If there’s a transition to a new operator in the shipyard, and there’s a significant amount of capital assets removed from the shipyard, there may be a cap on ability to maintain our marine highway. That’s something I think that we need to look into also as this evolves. My concern is that we keep the marine highway in as operational condition as absolutely possible, and this isn’t helpful.”
Stedman said that he’d received a call this past weekend that the AIDEA letter ws coming.
“I had encouraged a couple months ago, Vigor and AIDEA, to work it out, you know, come to terms,” Stedman said. “But my job is not to get involved in them, but to encourage them just to come to an agreement. This is not the agreement I want them to come to.”
The City of Ketchikan and Ketchikan Gateway Borough have been involved in the overall picture for the shipyard over time, in part via utility cost structures on the part of the city and property tax relief by the city and borough.
City of Ketchikan Mayor Bob Sivertsen said Monday that he was not surprised by the AIDEA letter.
ˆI think this has been discussed in the past numerous times about getting that shipyard busier and making sure it’s in good shape,” Silverstein told the Daily News in a telephone interview. “Those conversations have been going on for years.”
During the 20-minute interview, Sivertsen discussed aspects of Vigor’s participation with the shipyard; the types of work that it has pursued or not pursued; and keeping the facility, which has some top-quality infrastructure but some problem areas as well, as a positive overall asset for the state.
“The shipyard is only going to get older, and there needs to be the maintenance done on it to keep it in a workable shape for this investment of the people of Alaska …, and (AIDEA just needs) to have a good partner to do that. There’s always been a rub about whether this is working right or not,” Sivertsen said.
He added that: “We want to be very supportive of the shipyard, but we want it to … maximize the footprint and produce the jobs and the revenues that they potentially can,” he said.
Vigor Industrial, the parent company of Vigor Alaska, has itself undergone ownership changes in recent years.
In 2019, Vigor Industrial was acquired by The Carlyle Group and Stellex Capital Management investment firms. In 2023, Vigor Industrial was sold to an affiliate of the private equity firm Lone State Funds.
Sivertsen said he didn’t know how all of the pieces fit together. But ultimately, “it’s “no reflection on the crews here — they don’t have the final say (as to) what cones into this yard and what doesn’t. I don’t think we can hold that against anybody who’s working in Ketchikan.”
The local workforce is a concern for House District 1 Rep. Jeremy Bynum.
“We recognize that obviously that through a transitional period, it’s going to create some uncertainty for existing employees —Ketchikan employees,” Bynum said in a brief telephone interview with the Daily News on Monday afternoon. “And that’s obviously… a concern to them, and it’s a concern that I have.”
He said that he had spoken with AIDEA leadership about, if possible, trying to put some language in the new request for proposals “that there would be a mechanism in there to help transition existing Vigor Alaska employees into whatever new operator comes into the yard, if that’s an option.
“I don’t know what the details of something like that looks like, but I just want to make sure that Ketchikan residents that are working in the shipyard have an opportunity to continue to do so even under the potential operator,” Bynum said.
He said that he would hope there will be minimal impact to the Ketchikan employees.
“And also that whatever new operator were to come in, would be a good fit for Ketchikan and that we would see that yard very active and busy,” Bynum said. “That’s the goal, you know, from what AIDEA indicated, at least in their letter.”