Vallejo’s Mare Island Dry Dock gets a lifeline in U.S. bankruptcy court

SACRAMENTO – Mare Island Dry Dock received a favorable ruling in U.S. Bankruptcy Court last week that will allow the business to continue operating and potentially negotiate its sale to a larger company interested in building ships on Mare Island.

A dozen members of the International Association of Machinists and Aerospace Workers union  who are employed by Mare Island Dry Dock as well as several non-union employees attended the bankruptcy hearing to show their concern over the future of their employment. 

Mare Island Dry Docks CEO Steve DiLeo said that when he walked into court he was not sure if he and all of the company’s employees were going to be out of a job. But “the judge gave us a clear path forward,” he said in an interview. 

The ruling averted an attempt by the Dry Dock’s landlord to terminate the company’s lease because of a lien over unpaid invoices and allows the company to continue operating and seek to sell the business and the remaining years on its lease.

DiLeo said that 2025 was the company’s slowest year in the 13 years it has been operating on Mare Island. Due to the decline in business, the Dry Dock had been seeking to sell or merge the business with a larger company that could bring investment capital to expand operations beyond ship repair. 

According to DiLeo, the most promising potential buyer wants to expand the Dry Dock’s existing footprint and conduct shipbuilding activities that could employ as many as 1,500 people.

“The ruling provides much-needed certainty to our potential buyers, the Coast Guard, and everyone involved in this case,” DiLeo said in a statement.  “Shutting down the shipyard would have been a tremendous loss for the community.  We are all relieved by the court’s ruling.”

According to DiLeo, the company currently employs about 75 people and that could go up to 100 if the Coast Guard awards the company the maintenance contract for the ice breaker vessel Polar Star. Mare Island Dry Docks has performed the annual maintenance on the Polar Star 10 times out of the last 12 years and DiLeo believes the company is a leading contender for the contract. 

In December, the company lost a contract for the Coast Guard’s largest vessel Healy, which led to significant layoffs. According to DiLeo, the Coast Guard chose a Portland company to perform the maintenance because the location was closer to Seattle where the crew is based. 

The decline in business in 2025 and the loss of the Healy contract took a toll on the company’s finances and it was struggling to pay creditors.

About three to four times a year, Mare Island Dry Docks dredges a channel in the Napa River that allows ships to access the Dry Dock and other facilities. Lind Marine, one of the companies that regularly performs the dredging work, filed a lien against the dry docks property to recover on unpaid invoices for dredging performed in August as well a second session in November totaling more than $752,000, according to court documents.

The Mare Island Dry Docks lease includes a provision that requires any liens to be resolved within 20 days. At the end of that period, the Nimitz Group, developers of Mare Island and the landlord for the dry docks, notified the company that they were terminating the lease.  

Five days later, Mare Island Dry Dock filed for bankruptcy. The process protects a business’s assets from creditors and allows it to continue operating while restructuring its debt based on a plan approved by the court.

At last week’s hearing, U.S. Bankruptcy Court Judge Christopher Jaime ruled that a section of the lease contract identified in the notice of termination provided to Mare Island Dry Dock allows an additional five-day cure period for the tenant to resolve the issue. 

Jaime said that this means that the lease was valid at the time of the bankruptcy filing and it could no longer be terminated because it is protected as an asset of the debtor.

An attorney for Mare Island Dry Docks said during the hearing that the company is working with Lind Marine to resolve the lien and the unpaid invoices.  

Following his ruling, Jaime said that he believes the lease “is absolutely necessary for the rehabilitation and reorganization of the debtor.”   

According to the Mare Island Dry Dock’s summary of assets and liabilities submitted in the bankruptcy proceeding, the lease, which has 22 years remaining, is worth $10 million. The total of the company’s assets including the value of the lease is approximately $13 million.

The summary lists the company’s liabilities at $6.6 million, indicating that without the value of the lease, the company would be unable to settle its debts.

DiLeo’s declaration submitted to the court stated the company had introduced the most promising potential buyer to the Nimitz Group prior to filing for bankruptcy. 

“I am informed and believe that the Landlord has been in contact with the buyer and has represented to the buyer that the Lease has been terminated and is no longer valid,” the declaration states. “Such information and belief are based upon subsequent conversations with the buyer. After talking with the Landlord, the buyer has become hesitant to conclude negotiations and proceed with a sale unless and until the Court determines whether or not the Lease has been terminated.”

DiLeo said that they plan to pay the company’s vendors and debts as soon as possible as they emerge from bankruptcy. 

“It sounds like it is going to go in a good direction for us to merge into a much bigger corporation or sell part of our business to that bigger corporation,” DiLeo told the Sun. “But one way or the other it is going to mean more jobs. Whatever was lost with Budweiser and the [Valero] refinery will be gained here.”