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to support them, the marine industry, to narrow the gap of materials. There should not be a gap in materials in that regard.

Mr. HLNTER. Will the gentleman yield for a second on that point. Could you give some examples on components of the maritime supply base?

Mr. MCALEAR. Well, one main component would be a slow speed diesel engine. They are not built in the United States at all. But, they are sold throughout the world through licensees. There are two major slow speed engine manufacturers who supply 100 percent of the diesel engines throughout the world. Different companies in different countries

Mr. HUNTER. Well, we are probably talking about reinventing the wheel on that one, right.

Mr. MCALEAR. No, we are not going to reinvent the wheel. However, there are licensee provisions that some of these manufactures have that do not allow foreign countries to compete and sell into the United States. You have to buy it through the corporate head office who sets the price and you have no control over that. That is the problem.

Mr. SAXTON. How do you get around that?

Mr. MCALEAR. Well, I got around it at Avondale once, and I am getting around it at Kvaerner Philadelphia Shipyard by not buying a diesel engine. I buy a drive train.

Mr. HUNTER. A what?

Mr. MCALEAR. I buy a drive train. I buy a propeller and a shaft and a bearing and everything attached to it and something on the end to make it all go around in a circle. And then the I am buying a drive train off of a middleman, not an engine off of a licensee. There are ways you can get around that.

Mr. HUNTER. Have you ever thought about running for Congress?
Mr. MCALEAR. Not yet, Congressman.
Mr. HUNTER. I do not have any other questions at this point.
Mr. Taylor.

Mr. TAYLOR. Just to be clear. I am puzzled. I thought I had visited a very large diesel engine factory on the outskirts of Chicago in Wisconsin by the name of Kohler.

Mr. MCALEAR. Medium speed diesels. They are not slow speed.

Mr. TAYLOR. Well, they are good enough for our Amphibious Assault Ships (LHDs). I have a little trouble with someone saying they are not good enough to propel a commercial ship. It sounds like someone is trying to skirt the “Build in America” laws.

Mr. MCALEAR. No, I am not saying they are not good enough for American ships. I am saying the majority of the commercial vessels; the commercial operators that you are talking about today all drive their vessels with slow speed diesels, not medium speed diesels for operating costs.

Mr. TAYLOR. You understand it sounds like someone is trying to skirt "Made in America" laws.

Mr. HUNTER. I think it is a different technology.
Mr. MCALEAR. It is.

Mr. TAYLOR. A diesel is a diesel. Some of them spin a little faster than others, but the big difference is in the type of fuel.

Mr. HUNTER. What he is saying is the ones that spin faster cost a lot more to run.

Mr. VORTMANN. Different fuel.
Mr. MCALEAR. Different fuel and it is a tradeoff.
Mr. TAYLOR. So, is this a heavy fuel engine?
Mr. MCALEAR. Slow speed diesels? Yes.

Mr. TAYLOR. But at today's fuel prices, it really is not necessary, is it? It is only when fuel prices go up that people want to burn the heavier fuels.

Mr. VORTMANN. I think it is a fact. If you look at the international fleet, the ships that are being built today and for the last 20 years, a vast, vast majority of them are slow speed diesels. There are some medium speed diesels. You have some gas turbines, no steam anymore, but the vast majority of them, by a wide margin, are slow speed. That is the chosen technology for operating efficiencies of the international fleet.

Mr. TAYLOR. Mr. Chairman, more of an observation and I will allow the panel to comment on it than a question. Having served with you, Mr. Saxton, former Congressman Day and former Congressman Sisisky, I really think we are now paying the price of the seduction by degrees that this Congress has allowed, at least for 13 years and probably for the past 30 years—that being an exemption here, a little crack in the wall there, foreign ownership, but U.S. built, foreign ownership, foreign built.

We are breaking the law here, we are breaking the law now to where we are getting ready to pay $100 million a year for a fleet that Mr. Vortmann pointed out is to a large extent, foreign owned and foreign built.

Well, heck if they are going to be in the force anyway, why are we paying them. If they are going to buy their ships overseas, why are we paying them? I mean, this is absolutely crazy. I do think it is time and I hope—I have watched your voting record over 13 years and I am very much impressed with it. That makes your constituents and me that are impressed with it.

But I do think it is time we get pure again. I do not think we ought to be subsidizing foreign ownership and I do not think we ought to be subsidizing foreign ships, period. And I think the great nations of the world have been great manufacturers. They have been great maritime powers and I think we have absolutely lost our minds sending our money overseas for foreign owned, foreign built ships.

I will be doggoned if we can find $50 billion a year so that the Bush girls and the Cheney girls do not have to pay any inheritance tax, then maybe we could find a little money to take care of our own people, the blasters and the shippers and the painters and the diesel engine mechanics. I am dead serious about that.

I will just leave it at that. Gentlemen, if you want to comment on it, you are welcome to, but we are going to wake up one morning, much like the Turks found themselves 100 years ago right now when they thought it was a swell idea to buy their warships from the British.

But 10 years later, they were at war with the British and the same ships that they ordered from the British turned around and bombed Constantinople. It is a historical fact and we are going to end up in the exact same boat if we do not draw the line somewhere and I sure hope under your leadership we draw the line here.

Mr. MCALEAR. Thank you for your comments, Congressman. I agree with them wholeheartedly.

Mr. HUNTER. I thank you, Mr. Taylor, for your comments and I am reminded that there are lots of businesses that are owned by Americans that under the present taxation laws, the inheritance taxation laws have to break up and liquidate to be able to pay off Uncle Sam because the guy that founded the business died so, I endorse your entire recommendation with the exception of the comments on the inheritance tax.

Mr. TAYLOR. My point, Mr. Chairman, was that was a $50 billion annual operating loss to our nation. And we cannot run away from that.

Mr. HUNTER. Mr. Taylor, I think if you look throughout the maritime industrial base, you are going to find lots of businesses that were started by families and today the facts are that if you have a family in a certain position, a family business of a certain size, you come in with a 45 percent tax on that family because the patriarch of that family, whether it is your Byrd propellers down in your area or any other component maker, the fact that the patriarch in that family dies in that family owned business and the business has to liquidate to pay off Uncle Sam, that does not help workers or businesses.

That disagreement notwithstanding, I appreciate your main theme, which is we all have to stick together on this and we have to bring all these components together and put together a good package that is going to be satisfactory in terms of keeping American crews, American operators and American constructors in business.

That is the purpose of this hearing. I think we can move forward and put something together. I think Mr. Saxton has laid this thing out pretty effectively with respect to laying out the challenge, which is financing.

And you gentlemen have brought up these major tools that we have right now. We have Title XI, we have MSP, we have CCF. And, of course, we have the DOD component in itself, which ostensibly has fairly large amounts of dollars, but it has a fairly anemic shipbuilding budget.

Let me just run something by you. I tell you what. Let's go on to the rest of our members and let them get their questions in and at the end, let's have another discussion about these proposals.

I presume—are we on for a vote right now? Okay. In a few minutes? Okay. Ms. Davis, go right ahead.

Mrs. DAVIS OF VIRGINIA. Thank you, Mr. Chairman. My colleague, Mr. Allen, asked some of the main questions that I had, but I do have one more for Mr. Vortmann. The program that you are proposing, was that not proposed in front of the 1987 bipartisan presidential commission on the merchant marines?

Mr. VORTMANN. It is essentially the same concept that was raised and endorsed by that bipartisan committee that was put in place by then President Reagan. It is essentially the same concept.

Mrs. DAVIS OF VIRGINIA. Since I was not here then, what happened to it?

Mr. VORTMANN. Cindy, do you know exactly how that-
Mr. HUNTER. Apparently not much.
Mrs. DAVIS OF VIRGINIA. I know.

Mr. HUNTER. The problem is, Cindy Brown did not work hard enough on that.

Mrs. DAVIS OF VIRGINIA. I cannot believe that, Mr. Chairman.

Mr. VORTMANN. One of the reasons was a very pragmatic reason, because it was an extremely complex proposal that it had embedded in it many different elements that required its approval by many different committees in Congress.

It was kind of moving the hot potato from one committee to another. It required all sorts of different tax benefits as well as acts out of the merchant marine, that point in time. And it was just not able, as my memory recalls to work its way through the various different committees and get assent from all of them at the same time.

Mrs. DAVIS OF VIRGINIA. We will just have to do the same thing this time?

Mr. VORTMANN. I would be concerned that ideally, we would not try to put as many different aspects into this, to keep it as simple and straightforward as possible. I would prefer it not to try to have to go to issues relating taxes to avoid those same complexities.

Mrs. DAVIS OF VIRGINIA. I would prefer it just go through here and appropriations if you want to get it anywhere. Right, Mr. Chairman?

Mr. HUNTER. If just buying stuff it is always the cheapest way to go. We will concede that one.

Mrs. DAVIS OF VIRGINIA. I have one question for Mr. McAlear. You may have stated it; I am not real sure. But in your statement, you said your company supports maintaining a preference for U.S. built ships in the Maritime Security Program.

Can you tell me how many ships have been built in the U.S. for the Maritime Security Program since its enactment?

Mr. MCALEAR. I cannot say since its enactment.
Mrs. DAVIS OF VIRGINIA. Thank you, Mr. Chairman.
Mr. HUNTER. Mr. Crenshaw.

Let me just throw something out and ask my colleagues—I think we have a great panel to have a good discussion on how we are going to get from A to B and how we are going to use these tools without making this thing too complex, to try to come up with a package that works.

Mr. McAlear, let me ask you and I will ask Mr. Vortmann and Mr. Vinyard to comment on this, too. You have the MSP program, which is worth to the operators a couple of million dollars per ship per year and with the prospects of going up to some degree.

So, let's say over a 20 year period you can count on that going up to maybe $4 million per ship. You also have the Title XI program. The Title XI program inherently would appear more attractive to us as members who have a lot of—who know we are operating under a constrained budget, because you get that great multiplier.

It is always better in terms of dollars out of the Treasury to have a loan guarantee than have to make the loan, to give that 120th

of the $1 million, that is, the $50,000, in appropriated dollars, to secure a loan, guarantee a loan of $1 million. That makes it doable.

On the other hand, we have now in the public eye these two cruise ships that are half built, which if the general thrust of the testimony we have received is accurate, have little residual value that are going to be reflecting non-beneficially on the Title XI program—two cruise ships that we could not find a military use for, even though we tried. Mr. Taylor made a valiant effort to try to derive some military use and I know lots of other folks worked on that too, but not successful.

So, let me ask you this. What would your thoughts be about a program where going in, the operator, if the operator built the ships in the United States and received a Title XI guarantee, with the U.S. Government getting two things—one, a militarily useful ship going in, something that he knows that if he had to take over the payment and get the pink slip back as a guarantor, he would have something he could use.

That and the idea of guaranteeing to the U.S. Government, committing up front to a 20 year contract of MSP. Basically, an MSP ship is like a reservist in the Army. You are there working your domestic job, but you are, by golly, a reserve and if they call you up for Desert Storm, you go.

So, in exchange for being a reservist in our sealift program, you agree when you go in to get your $200 million ship built, you sign up for 20 years at say, whether it is $3 million or $4 million per ship, well, that is an $80 million value, not a present value, but a venture value to the U.S. Government. That is what the operator is guaranteeing to the U.S. Government.

You combine that with—and that is a criteria for receiving Title XI funds. So, we are getting a couple of things that are making it a little shinier than the present Title XI.

One thing, it is not going to be a cruise ship, it is not going to be a casino ship, so we know it is going to be a military ship which perhaps even has some military features as directed by DOD, maybe some things that help the Roll On/Roll Off aspect, maybe some things that would involve strengthening the deck so you could run helicopter operations off the ship. Most of them, I think, these big carriers would accommodate chopper operations.

So, you get that and you also get this $20 million sign up as a reservist for the next 20 years in the U.S. fleet. What do

you

think about that? Any comments?

Mr. MCALEAR. Well, I think that incentive would narrow the gap. I am not knowledgeable enough whether-without doing a lot of numbers and calculations-whether the gap would narrow enough for somebody to have that extra incentive to build in the United States.

Mr. HUNTER. Okay. Mr. Vinyard.

Mr. VINYARD. I think we are on the track, but I also agree with Mr. McAlear that we are not going to be able to leap over that differential. Perhaps one other item you can throw in there is the fact that if you have a U.S. built ship, perhaps you move to the front of the line on the cargo preference. You can lock in those contracts because you have a U.S. built ship.

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