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Navy offers a sweetheart deal

First dibs on dry dock makes nice valentine for Frank Foti's shipyard

Buried in the fiscal 2003 National Defense Authorization Act signed into law by President Bush three weeks before Christmas was a little-noticed holiday bauble for Frank Foti's Portland Shipyard LLC.

An obscure provision of the act, Section 1027, authorized the secretary of the U.S. Navy to sell Navy Drydock No. YFD-69 to the shipyard for fair market value, as determined by the Navy at the time of the sale.

The specific mention of Portland Shipyard surprised ÑÊand disturbed Ñ rival shipyard operators who expected the dry dock eventually to be declared surplus and put on the open market.

The 598-foot-long dry dock, which has been moored at the Swan Island shipyard since World War II, is the older and smaller of the two remaining floating dry docks there. Foti sold off the shipyard's biggest dry dock, Dry Dock 4, in 2001 to forestall a threatened foreclosure.

The sale does have one catch: The buyer ÑÊand Foti reportedly is in negotiations now with the Navy ÑÊmust agree to keep the dry dock at Swan Island until at least Sept. 30, 2007.

Known as Dry Dock 1, it was built in Portland by Kaiser during World War II and has been at Swan Island since 1945. The Port of Portland leases the dock from the Navy and subleases it to Cascade General Inc., which is owned by Portland Shipyard LLC, Foti's holding company.

The bill that included Section 1027, signed by the president on Dec. 2, authorized $392.9 billion in defense appropriations for the fiscal year ending Sept. 30.

Janice Grieff, general manager of rival shipyard Mar Com Inc., reacted with shock to the Navy's decision to sell the dock to Foti rather than put it on the open market. After the Navy extended the lease on the dock last year, she said, 'they promised before anything happened that everybody and their brother would be aware.'

Now, she said bitterly, referring to Foti, 'they've given it to him like they've given everything else.'

Foti wouldn't comment, except for a message conveyed by an aide, who said, 'He prefers not to comment on ongoing negotiations.'

Port goes to bat for shipyard

The shipyard owner has done battle for the dock before. In the summer of 2001, Foti said he'd lobbied 'the entire congressional delegation' about keeping the leased dock. 'This is a critical-mass issue,' he said at the time. 'With only one dock, that's a very difficult situation for us. We need two docks to have a substantial shipyard.'

When officials of the Port of Port Angeles, Wash., expressed interest in the dock in 2001, anticipating that it eventually would be released as federal surplus, Terri Deskins, Cascade General's then-business development director, warned port commissioners there that the financial return would be 'grim' if Port Angeles obtained the dock.

The Port of Portland intervened on Foti's behalf a year ago when the Navy wanted to raise the annual lease on the dock from $127,500 to $740,000. Port staff members got the lease amount lowered to $375,000 for 2002.

Initially, the lease was to expire Jan. 31, when the dock would become surplus, but port spokeswoman Elisa Dozono said the Navy requested a six-month extension.

Dozono said the port did not have a role in writing Section 1027 and giving Foti sole shot at the dry dock. 'I checked with several people and they said no,' Dozono said.

Mar Com owner Tom Maples complained in a letter to the port commission that it was favoring Cascade over other competing private businesses when it intervened with the Navy on behalf of Cascade General on the lease amount.

'The port has already provided much more to Cascade General than any other city or state should give to a private contractor,' Maples wrote.

Biggest asset floats away

Foti bought the shipyard from the Port of Portland in August 2000 for $18 million in cash and two unsecured notes, totaling just over $8 million, that aren't due until 2009. He made an early payment of $375,000 toward the debt early this year.

In July 2001, Foti sold the shipyard's single biggest asset, Dry Dock 4, for $25 million. The 982-foot-long dry dock, the largest in North America, now is owned by the Grand Bahama Shipyard in Freeport, the Bahamas, where it is chiefly being used to service cruise ships. It was built for the Port of Portland in 1979 with proceeds from an $84 million public bond issue.

Foti got permission from the port's board of commissioners to sell Dry Dock 4 after a key creditor threatened to foreclose on the yard. Foti said the dock no longer was essential to the Portland shipyard because ship repair demand had shifted to Asia.

Since then, business at the shipyard has dwindled, although it has perked up slightly in recent months. Foti said about 400 people are working at the yard, although one observer said that number seemed high for the amount of work that's under way.

Multnomah County appraised the shipyard, including Dry Dock 4, for $67.1 million in 2001. The property hadn't previously been appraised for tax purposes because the port had sponsored legislation in the state Legislature in 1995 that exempted the shipyard Ñ specifically Foti ÑÊfrom paying taxes.

Foti leased the shipyard for five years before he bought it from the port.

State analysts estimated that the exemption cost taxpayers $7 million in revenue.