A judgment of $11.8 billion against ExxonMobil on behalf of the State of Alabama recently won the state’s attorney firm in that case a place on the Hall of Fame of the National Law Journal.
The verdict won by Mobile-based Cunningham Bounds LLC earned the firm a #4 place among the 100 inductees on the publication’s honor roll.
The lawsuit was based on audits by the Alabama Department of Conservation that showed ExxonMobil shorted the state of royalties owed on natural gas wells in state waters of the Gulf of Mexico.
In 2001, a jury ruled in favor of Alabama and awarded the state $3.5 billion in punitive damages. The Alabama Supreme Court overturned that case and directed a retrial, which resulted in another jury raising damages to $11.8 billion — one of the highest judgments in history.
“‘We’re dealing with Alabama. We’ve got us a bunch of Bubbas, and they’ll never figure out that we’re cheating them out of royalties.”‘ That’s what plaintiff attorney John Crowder told jurors was the thinking of ExxonMobil officials.
And such a view was just what ExxonMobil’s attorney’s told the jury — arguing that the lease agreement developed by the Alabama Department of Commerce was the cobbled-together work of amateurs.
“Most industry leases were just put on Farmer Brown’s table,” Robert Macrory — the man who drew up the lease on behalf of the state — told Business Alabama in our March, 2001 cover story, “Minding the Till, or Tort Hell?”
Macrory, a state conservation department attorney, was no amateur. He was the former executive director of the Alabama Petroleum Council, a chapter of the American Petroleum Institute.
Alabama, said Macrory, set out with determination to draft a lease that was suitably different from standard industry-drawn documents — leases that based royalty on the lowest possible value of gas at the wellhead.
“After Exxon’s gas wells came on line (1992),” Crowder told Business Alabama, “they made a conscious decision to ignore the terms of Alabama’s lease and threw it in the pile with their industry-friendly leases.”
It was a big mistake. The state dutifully kept track of the shortages in payments, did the accounting and hired Cunningham Bounds to present their case.
“They (ExxonMobil) have 115 lawyers. They reviewed this lease, knowing it was different,” Crowder said. “They signed it 22 times.”
The Carnival Fantasy, the Carnival cruise ship home-ported in Mobile, was given the lowest cleanliness report of all cruise ships by the most recent inspections of the Centers for Disease Control. The ship scored 77 out of 100, with a score of 86 being considered “satisfactory.”
“The inspector noted brown water discharged from two shower hoses in the medical center,” noted the most recent inspection report. “Medical crew reported these shower hoses were not used often. A crew member confirmed that they see brown water in their shower that is used at least twice daily. Potable water crew were unaware of the current issue. Crew noted the water had been tested in past but that it was not recent.”
The report included 44 violations of CDC cruise ship standards, from low chlorine levels in the waterpark pool to lack of stainless-steel surfaces for food preparation in the sushi bar.
Scores and reports for the Fantasy and other ships regularly inspected by the CDC can be seen at this CDC web page.
Work began today in Mobile on the first U.S.-built Airbus 220 model.
Designed specifically for the 100- to 150-seat market, the plane was developed by Bombardier in Mirabel, Quebec, Canada, before joining the Airbus product lineup. Airbus also assembles A320 family aircraft in Mobile.
Workers from Alabama trained in Mirabel before returning to Mobile to start A220 assembly here.
“It’s exciting to see the start of production on the A220 in Mobile,” said Paul Gaskell, president of Airbus U.S. A220 Inc. “The production team has been training alongside their colleagues in Mirabel, and have returned ready to put their knowledge to work. We look forward to all of the milestones along the way to a successful delivery to the customer next year.”
The first plane from the Mobile line is slated for delivery to Delta Air Lines in the third quarter of 2020.
The A220 was designed for fuel efficiency achieved through specialized materials, aerodynamic design and Pratt & Whitney’s newest PW1500G geared turbofan engines, which combine to reduce fuel use by 20 percent.
As of June, 551 of the new aircraft are on order and the company says, “the A220 has all the credentials to win the lion’s share of the 100- to 150-seat aircraft market, estimated to represent 7,000 aircraft over the next 20 years.
“The expansion of our commercial aircraft production in Mobile to a second product line — with 400 additional jobs to support it — further solidifies Airbus’ standing as a truly global aircraft manufacturer, and confirms without a doubt that Airbus is an important part of America’s manufacturing landscape,” said Airbus Americas Chairman & CEO C. Jeffrey Knittel.
Beyond its two final assembly lines in Mobile, the European-based Airbus has engineering centers in Mobile and Kansas, training facilities in Florida and Colorado, materials support and headquarters in Virginia, a think tank in California, a drone data analysis business in Georgia, helicopter facilities in Texas and Mississippi and a satellite manufacturing facility in Florida.
USA Health University Hospital in Mobile says it is now the only healthcare system on the Gulf Coast with the technology to identify diseases-causing pathogens in as little as 40 seconds.
That’s thanks to a new microbiology system at the hospital that combines three key elements that are much more sensitive and provide rapid and highly accurate test results.
After culturing and isolating bacteria and fungi from patient specimens, the organisms are identified and tested to determine which drugs will inhibit or stop their growth. In the past, patients and physicians had to wait up to a week to identity organisms that caused infections in patients.
“This is personalized microbiology,” said James Elliot Carter Jr., M.D., director of clinical laboratories and a pathologist with USA Health. “Imagine what that means for patient care. Instead of wasting high-powered antibiotics that may not do any good and increase antibiotic resistance, the patient can now be started on the right antimicrobials or antifungals immediately.”
The critical diagnostic combo is comprised of: the BD BACTEC blood culture system, BD Phoenix automated identification and susceptibility test system and BD Bruker MALDI biotyper.
The MALDI biotyper acts as a “fingerprinting” system to identify bacteria, yeast and fungi. “Before the MALDI, we were identifying organisms by biochemicals,” explained Teresa Barnett, medical technologist supervisor with USA Health. “We had several kits that took anywhere from three to five days to identify some of these organisms.”
In contrast, the MALDI identifies organisms by the unique spectrum of the major proteins and peptides that constitute their makeup. “The MALDI takes a fingerprint, so it analyzes the peaks and valleys of the ion protein makeup and then compares it to a library in the software,” Barnett said.
The lab uses the BACTEC blood culture system to detect early positive blood cultures. It uses an automatic, vial-activated workflow that helps reduce hands-on time.
Carter, who also serves as a professor of pathology at the USA Health College of Medicine, said rapid pathogen identification saves money for patients and providers. “Patients can be more quickly discharged if they don’t need to be here,” he said. “They aren’t sitting in the hospital for three days being treated for meningitis that they don’t have. It makes a huge difference in patient turnaround.”
Carter said the new lab equipment will be able to help patients and physicians outside USA’s health system. Laboratories previously had to send hard-to-identify organisms to the Alabama Department of Health in Montgomery for identification. Now labs can send those cases to USA Health, he said.
Gambling in this country is wide open as a Vegas billboard, except for a few holdouts such as Alabama, where the only sure bet is the occasional failed plunge at a state lottery.
So it’s no small wonder that one of the most successful ad agencies working the national gaming circuit is headquartered in south Alabama, in Mobile.
“The gaming category has been a very good one for us, and we were early past the post on it,” says Rich Sullivan, CEO of Red Square advertising agency. “It allowed us to grow into a national agency and enabled us to do work outside of the category. And for us to be in the state of Alabama is especially unusual.”
Lodged in the Port City’s historic downtown, the colorful co-working spaces of this 75-employee ad agency contrast sharply with the staid, brick storefronts of St. Emanuel Street.
Red Square represents a constellation of Native American tribal casinos across the country, including the country’s largest tribe — The Cherokee Nation, in Oklahoma — and largest tribal casino — Foxwood, in Connecticut.
“We have been working in gaming close to 20 years, but we really began building steam 15 years ago,” says Sullivan. “We worked with the Poarch Creek Tribe before it became Wind Creek Hospitality. They were very instrumental in our growth.”
Headquartered in Atmore, in Escambia County, the Poarch Creek Tribe started gaming in 1985 in a 1,500-seat high-stakes bingo hall — the Creek Bingo Palace — on tribal land, one year after becoming the first federally recognized tribe in Alabama. Now doing business as Wind Creek Hospitality, the venture supports the welfare of the tribe with a spread of casinos that includes Atmore, Montgomery and Wetumpka in Alabama, Gardendale in Nevada, and the Caribbean islands of Aruba and Curaçao.
“When I was in college, tribal casino gambling was at the very beginning of that industry,” says Sullivan, who took charge of the agency in 2005, after the retirement of his father, Richard Sullivan, who helped found the agency in 1977.
“When I got to the agency, I thought that if we got some expertise we could differentiate ourselves and build the expertise in the category to grow,” says Sullivan. “Now gaming is an incredibly large industry that has grown across the country.”
Tribal gaming, the segment of the industry Red Square is most active in, grew in the same timeline as the agency to become a close contender to the older, commercial Las Vegas-type enterprise. According to the most recent (2018) State of the States report by the American Gaming Association, tribal gaming revenues hit a record $32.4 billion in 2017, compared to commercial gaming, which was $40 billion. And tribal casinos now operate in 28 states, compared with commercial casino gaming in 24 states.
Along with the gaming side of this industry comes a raft of other enterprises and the separate flood of marketing that goes with it.
“You can think of the gaming industry as a retail business, as well,” says Sullivan. “They have a lot of hotels and restaurants and music, the retail side, multi-amenity properties. You’re selling a lot of entertainment, an amenity-driven property within a property.
“Foxwoods, our client in Connecticut, they have 55 restaurants and bars. Think about all the marketing that goes on. You’ve got a lot of calendars to manage, shows to sell tickets to. They are really 24-hour-a-day retail advertising clients. That creates tremendous challenges in managing the logistics. In 2018 we completed more than 17,000 pieces of creative.”
Keeping track of that work is the responsibility of Joa Pope, Red Square vice president of creative operations, who recently came to the agency from the parks division of Disney in Orlando.
“A lot of the accounts are these large promotions for casino clients, across 30 different types of media channels, on the properties or their website,” says Pope.
“Casino work, by the nature of the market, is very quick turnaround and a fast-paced type partnership with clients. If the competition is going to run a cash promotion within a range of dollars and attract the same type clientele, you have to come to their defense.”
“In 2007 we had about 24 employees, and now 75, so it has more than doubled,” says Sarah Jones, Red Square president and head of account services. “On one specific occasion, with The Cherokee Nation, we took on a much larger piece of business, and we suddenly had to hire 22 people.
“That piece of business is still a client, and for us to become trusted partners helps us keep those longer relationships. Any client can hire a vendor. We want to be hired to partner, to share information about their business. Our best client relationships come out of our viewing ourselves as a partner and not just a vendor.”
“Because of our work in the gaming category, we are able to be incredibly selective about the work we do outside of the gaming category,” says COO Elena Freed, who, besides overseeing administration and human resources is also involved in business development. “The majority of the work we are going after outside of casino and hospitality tends to be highly strategic and often digital in nature. This work is getting noticed by bigger brands, which is making it easier to get meetings with large corporations across a variety of spaces.”
One of the most recent new clients is Cedars-Sinai, in Los Angeles, where Red Square has a project helping with social media.
Red Square also is currently doing projects for Hilton Worldwide, Nescafe Canada, New York Pride, Cartelligent in San Francisco, and Swell Creative Group in Los Angeles. Current project work also includes some leading Alabama names —Austal USA, CPSI, Hibbett Sports and the University of Alabama.
Sullivan says gaming clients currently represent about 60 percent of agency business but have been a foundation for nongaming growth and new geographic territory.
“When I got here, my goal was to build a national agency, and we’re well on our way. Gaming allowed us to grow.”
Gaming clients now include Rivers Casinos, headquartered in the Chicago area, with casinos near Chicago and in Pittsburgh and Philadelphia. Red Square recently opened an office in Chicago.
From L.A. to Chicago to Connecticut, by way of Mobile, Alabama: It may not be an obvious course for building a national advertising agency, but for Rich Sullivan and Red Square, it is proving to be a strategically sound one.
Chris McFadyen is editorial director of Business Alabama.
Springtime in Paris brought a bounty of aviation news to Alabama. Government officials at the Paris Air Show this week brought home news of new and expanding aviation and aerospace suppliers, while north Alabama’s Boeing and south Alabama’s Airbus notched up aircraft sales.
To cap off the week, the first major components for Airbus’ new A220 final assembly line arrived in the Port City on Thursday.
Airbus, which has an A320 final assembly line in Mobile and is building an A220 line next door, announced sales of its brand new A321XLR — 50 to American Airlines and 32 to Indigo Partners, followed by sales of varieties of its 320 neo option (one of the products of the Mobile plant) to JetBlue, China Airlines, Qantas, Virgin Atlantic and others. In total, the company signed agreements for 595 airplanes.
Boeing, which has a major space presence in north Alabama but builds its commercial jets in Washington and South Carolina, has been in an aircraft sales drought since March, when its 737 Max was grounded. But the U.S. company announced the sale of 30 787 Dreamliner aircraft to Korean Air — with a list price of $6.3 billion — and then a sale of 200 of its 737 Max planes to UK-based International Airlines Group (IAG), with several other smaller orders, for a total of some 234 planes.
Moreover, during the Air Show, Airbus and Lockheed Martin affirmed their interested in pursuing the U.S. Air Force refueling tanker contract. Airbus first talked about building planes in Alabama in pursuit of the tanker contract with partner Northrop Grumman in 2011; when that deal fell through, the European aviation giant built a commercial jet assembly line here instead.
At the state level, Gov. Kay Ivey and her team met with executives from the world’s biggest aerospace firms — Boeing, Lockheed Martin, United Technologies and more — discussing four potential projects and five existing ones that could bring 1,600 or more jobs to Alabama’s burgeoning aviation and aerospace sector.
For centuries, Mobile County has been Alabama’s connection with world commerce. Increasingly, its economy is based on moving things in and out.
Airplanes arrive in pieces and fly out as fully assembled jets. Lately, aerospace developments involving Airbus have been making the most business news, but shipbuilding remains strong as does manufacturing.
Items that will line the shelves of some 800 Walmart stores are shipped to a new regional distribution center to go on to other distribution centers. Cargo of all kinds comes and goes via water, railroad and truck. Jobs multiply to keep everything moving. From steel mills to beaches, the Mobile County economy is diverse, and it’s international.
The Mobile County Public School System remains the county’s largest employer, with 7,500 workers. The University of South Alabama, with its medical school and expanding health care system, is in second place with 6,000 workers. And Infirmary Health — with its flagship Mobile Infirmary in the city — remains the largest non-governmental health system in Alabama.
The single biggest economic development has to be Airbus, not only because of a second final assembly plant for the A220 jet that is under construction next door to the original A320 series plant, but because even more suppliers and other associated business are coming in, creating even more new jobs. It’s all happening even faster than Bill Sisson, president and CEO of the Mobile Area Chamber of Commerce, had hoped.
“The main thing is that in aviation aerospace in particular, that sector is probably going to grow faster, fill out more quickly than we had anticipated,” Sisson says. “What’s also good news is that both of those aircraft, the 320 line and the 220, are very hot-selling aircraft. For them to be here in Mobile, that just bodes well.”
The county also is seeing growth in shipping, shipbuilding, steel manufacturing, distribution facilities, construction, business incubation and health care, among other sectors.
“That’s the beauty of our economy here, it’s so diverse,” says Mobile County Commission President Connie Hudson. “We’re seeing some steady growth across the board in all sectors of our economy. Even when one should dip, the others aren’t.”
Local and state governments, along with the Chamber of Commerce, have established a record of working together in economic development over the last 20 years, regardless of politics or who occupied what public office.
“I think we are all like-minded when it comes to successfully recruiting business and industry to the state and particularly here in Mobile,” Hudson says.
Sisson says Mobile is the right size to present a united front in recruiting new businesses, and the considerably lower cost of living is a major factor. “When a business prospect is looking at this area, all the partners are at the table extending help,” he says.
What happens next? More aerospace, more transportation, more port-related development and more business incubation, Sisson says. “We’re seeing more and more distribution activity related to the container terminal. That’s certainly very promising and that’s happening simultaneously with what’s going on in the aviation-aerospace sector.”
The chamber will be moving into talent development and recruiting for the labor force, as well as for new business, he says. A recent chamber-commissioned study of the labor force revealed that 5,000 new, high-paying jobs had been created in the area in the last four years.
Mobile City Council Vice President Levon Manzie cites Airbus, Austal USA’s contracts for the U.S. Navy and Continental Aerospace’s new facility in saying, “The sky’s the limit.” But he’s especially excited about the new Mobile Downtown Airport at the Mobile Aeroplex at Brookley, where Frontier Airlines has begun passenger jet service to Chicago and Denver.
“The eventual movement of the airport to Brookley Field Complex is going to be big for the city of Mobile,” Manzie says. “Eventually you’ll see all the airlines follow suit, and they’ll build out the total complex.
“I believe the next 10 years will be game-changing years for the city of Mobile.”
Jane Nicholes is a Daphne-based freelance contributor to Business Alabama.
Inside the cavernous Module Manufacturing Facility at Austal USA, a thick sheet of uncut aluminum enters the production line. Fourteen months later, that same piece of metal will exit the 700,000-square-foot facility as part of a module, or a building block, of one of the world’s most sophisticated military vessels.
From there, the module will be shuttled to an assembly bay down the road by multi-axle transporters, capable of moving modules weighing more than 400 tons. It’s in the assembly bay that these building blocks, lifted into place by crane and welded to an existing framework, will slowly begin to resemble a Littoral Combat Ship (LCS).
The speedy, shallow-water LCS has been a familiar sight on the Mobile River for almost a decade. At the end of 2010, the U.S. Navy awarded Austal a block-buy contract for the construction of 10 LCS Independence-class ships. Over the intervening years, they have ordered an additional nine.
Standing beside LCS-22, the recently christened USS Kansas City, Austal USA President Craig Perciavalle reflects on the LCS program.
“We’re delivering ships on budget and on schedule,” Perciavalle says. “We’re putting them out fast and furious.”
Of the 19 LCS ships Austal is contracted to construct for the U.S. Navy, nine have been delivered and another six — LCS 20, 22, 24, 26, 28 and 30 — are in various stages of construction. Lockheed Martin is building an almost equal number of LCSs under a different design — Freedom-class — at a shipyard in Wisconsin.
Founded in 1999, Austal USA is a subsidiary of Australian-based Austal Limited. Its shipbuilding facility has become a staple of the Mobile waterfront, occupying 164 acres on the eastern shore of the Mobile River.
With 4,000 employees, Austal is the sixth largest industrial employer in the state, a standing owing, in large part, to the company’s ability to land high-profile contracts with the U.S. Navy. Following the procurement of a contract in 2008 to build 10 Joint High Speed Vessel ships (now known as Expeditionary Fast Transport vessels) and the LCS contract in 2010, Austal was able to make $160 million in capital investments to its facility along the Mobile River, while adding 3,100 employees.
But the LCS program hasn’t been without controversy. When cost increases, schedule delays and concerns about the vessel’s survivability in combat cast a shadow of doubt in the early years of the contract, Perciavalle remained determined to adhere to any changes the Navy deemed necessary.
“As the requirements were maturing with the Navy and, quite frankly, as we were going through the design maturity process, there were a lot of challenges,” Perciavalle says. “We’ve certainly overcome them now.”
U.S. Rep. Bradley Byrne, whose district includes the massive shipbuilder, says he’s proud of the way Austal has coordinated with the Navy on LCS.
“The LCS program has truly been a team effort between the Navy and Austal. As with any new program, there have been challenges, but the Navy and industry have worked together on tackling setbacks and evolving the ship’s capabilities to best serve the Navy’s requirements.”
In 2014, cuts in military expenditures and concerns about the vessel’s combat power put the LCS program in the spotlight. U.S. Defense Secretary Chuck Hagel directed the establishment of the Small Surface Combatant Task Force to review the viability of LCS and to explore possible design modifications.
In 2016, following a spate of LCS breakdowns, two of which were owing to sailor error, the Navy ordered a handful of changes to the vessel, aiming to improve its combat punch. The Navy also set out to reevaluate sailor training.
Designed for speed and flexibility, one of the signature traits of the LCS design was its modularity — the ability to swap out weapons and sensors to suit a particular mission. Critics, citing the sailor error breakdowns, accuse the Navy of wanting the ship to be more versatile than was practical.
The LCS program illustrates several of the challenges associated with fulfilling a contract for the Department of Defense.
“They’re the most demanding customer on the planet, and they should be, quite frankly,” Perciavalle says. “The vessels that we build do pretty important stuff in support of our nation’s defense, and the number one priority is having ships that are very capable to do that and also understanding that we have sailors that are sailing on these ships. So there’s a lot of demand put on us or any defense contractor.”
It’s important to recognize, Perciavalle says, that a client like the U.S. Navy has evolving needs.
“There’s no doubt that, as years go by, the Navy requirements change because the threat could change,” he says. “The beauty about our ships is that we have the adaptability to actually flex the capabilities of the ships and to adapt them to increases or changes in requirements. That’s the beauty of a multi-hull vessel.”
Of course, unexpected modifications required by the Navy can affect cost estimates for government contractors. In 2016, following Navy shock trials on the USS Jackson (LCS-6), Austal entered into a trading halt and issued an earnings announcement warning about an increase in its cost estimate for future hulls “due to design changes required to achieve shock certification and US Naval Vessel Rules.” The modifications required on the USS Jackson and 10 other ships under construction resulted in a full-year loss for fiscal 2016.
Furthermore, in January of this year, Austal confirmed in a release filed through the Australian Stock Exchange that it was “assisting an investigation by ASIC into market announcements by the Company with respect to earnings from its Littoral Combat Ship program.” The investigation is said to be focused on statements Austal issued in 2015 relating to cost increases during the construction of the USS Jackson. In regards to the investigation, Perciavalle says that Austal is “supporting the process.”
Looking ahead to 2020
In February 2018, Austal was one of five companies awarded a $15 million contract for conceptual design of the Navy’s new guided-missile frigate. The FFG(X) program, which the Navy is developing as it phases out LCS, seeks the construction of 20 frigates with more lethality. The multi-billion-dollar contract is slated to be awarded in 2020. Austal is proposing a variation of its aluminum Independence-class LCS, leveraging the ability of the multi-hull vessel to accommodate new frigate requirements without drastically changing the existing production process.
“We’ve got a whole team internally here in Mobile that is working on the concept design for frigate,” Perciavalle says. “That collaborative environment has been very, very good. So there’s been a lot of good dialogue making sure we understand the requirements the Navy has and making sure the Navy understands things that can be leveraged in our parent design, so that they can leverage that and help develop a cost-effective solution.”
The impact of winning the 2020 contract, which could guarantee years of production following the conclusion of the LCS program, can hardly be overstated. The Navy is considering awarding the contract to a single builder. The ramifications of not winning the contract would be felt in Mobile and across the state, which is home to almost 400 of Austal’s suppliers.
“To us, it’s a competition,” Perciavalle says, “and you know what, we’ve been in competitions since, certainly, the first day I got here.
“We have the best team in the country here working on these ships,” he continues. “The work ethic, the pride, the ownership in what’s happening has really enabled us to improve performance dramatically over the years and really enabled us to provide a cost-effective solution to the Navy.”
Perciavalle points out four areas of focus when looking at the future of Austal USA. “Expeditionary ships, small surface combatants, unmanned autonomous [vessels] and the service business,” he says. “All of which have plenty of opportunity and all of which we’re in a very good position to excel in.
“We have to continue to mature and continue to build. That’s our culture, and that’s what we’re going to continue to do going forward.”
Breck Pappas and Mike Kittrell are Mobile-based freelance contributors to Business Alabama.