AMENDMENT NO. 1
                                                                         TO
                                                      TITLE XI RESERVE FUND
                                                    AND FINANCIAL AGREEMENT

                                                               CONTRACT NO.
                                                                   MA-12953















      























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                                                      Contract No. MA-12953





                                   AMENDMENT NO. 1

                                          TO

                                       TITLE XI

                         RESERVE FUND AND FINANCIAL AGREEMENT

               This  Amendment No. 1 to Title XI Reserve Fund and Financial
          Agreement ("Amendment  No.  1")  dated  as  of  August 22,  1996,
          between  Avondale  Industries, Inc., a Louisiana corporation (the
          "Company"), and the  United States of America, represented by the
          Secretary of Transportation,  acting  by and through the Maritime
          Administrator (successor by operation of  law to the Secretary of
          Commerce,  acting  by  and  through  the Assistant  Secretary  of
          Commerce for Maritime Affairs) (the "Secretary"), pursuant to the
          provisions  of  Title XI of the Merchant  Marine  Act,  1936,  as
          amended.

                                       RECITALS

               A.   The Company and the Secretary entered into that certain
          Title XI Reserve  Fund  and  Financial  Agreement,  dated  as  of
          February 9,  1995  (the "Original Agreement"), in connection with
          the financing of the  Company's  shipyard  modernization project;
          and

               B.   The  Company  and  the Secretary desire  to  amend  the
          Original Agreement to reflect  modifications to certain covenants
          contained in the Original Agreement.

               NOW, THEREFORE, in consideration  of  the premises and other
          valuable consideration, the receipt and sufficiency  of which are
          hereby acknowledged, the parties hereto agree as follows:


                                    ARTICLE FIRST

                         ADDITIONS, DELETIONS AND AMENDMENTS

               1.   Concerning  Article Third of the Special Provisions  of
          the Agreement.  Article  Third  of  the Special Provisions to the
          Agreement is hereby amended as follows:


                    (a)  Concerning Section 13 of Exhibit 1:

                         (1)  Concerning Subsection 13 (b)(12).  Subsection
                    13(b)(12) of Exhibit 1 hereto  is  amended  by deleting
                    the   word   "and"   before   the  number  "(iii)"  and
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                    substituting a comma therefor,  and,  after  the number
                    "(iii)"   deleting  the  rest  of  the  subsection  and
                    inserting the following in lieu thereof:

                         "(A) mortgages,      liens,     security
                         interests,   charges   or   encumbrances
                         (hereinafter a *Lien*) on  any  property
                         or  other  assets of the Company of  the
                         type that are  subject  to a Lien on the
                         date  hereof (whether or not  such  Lien
                         may subsequently  be  released  and then
                         regranted   and   whether  or  not  such
                         property or assets  now  exists  or  may
                         hereafter    arise)   other   than   the
                         Security, the  Increased  Security,  the
                         Premises   and   the   Shipyard  Project
                         (hereinafter referred to collectively as
                         the  *Secretary's Collateral*)  and  (B)
                         Liens  on  the  proceeds and products of
                         any such property  or assets (other than
                         the    Secretary's   Collateral),    any
                         property  or  assets  acquired  with the
                         proceeds of or in exchange for any  such
                         property   or  assets  (other  than  the
                         Secretary's Collateral), or the accounts
                         receivable  generated   from   any  such
                         property   or  assets  (other  than  the
                         Secretary's  Collateral), and (iv) Liens
                         to  secure indebtedness  or  obligations
                         incurred  to  extend,  refinance, renew,
                         replace   or   refund   (or   successive
                         extensions,    refinancings,   renewals,
                         replacements  or   refundings   of)  any
                         indebtedness  or obligations secured  by
                         any  Lien  permitted  by  the  foregoing
                         clause (iii)  so  long as such Lien does
                         not   extend   to  any  other   property
                         (including,  without   limitation,   the
                         Secretary's Collateral.

                         Notwithstanding  any  other provision of
                         this subsection 13(b)(12),  the  Company
                         shall not consummate the Disposition  or
                         Lien   permitted   hereby  if  it  would
                         adversely  affect the  priority  of  the
                         Secretary's  security  interests  in the
                         Secretary's   Collateral   or   in  that
                         certain   drydock   designated  Avondale
                         Drydock, having Official Number 568190."

                         (2)  Concerning    Subsection    13(c)(6).     The
                    provisions of Subsection  13(c)(6)  of Exhibit 1 hereto
                    are  hereby amended and restated in their  entirety  to
                    read as follows:

                         "Enter  into  any  merger or consolidation or
                         convey, sell, lease,  transfer  or dispose of
                         (hereinafter  a  *Disposition*) or  mortgage,
                         grant  a  security  interest   in,   lien  or
<PAGE>
                         otherwise  encumber  (hereinafter,  a *Lien*)
                         any substantial portion of its properties  or
                         assets.   The foregoing restriction, however,
                         shall not apply  to  (i)  (A)  Liens  on  any
                         property  or  other  assets of the Company of
                         the type that are subject  to  a  Lien on the
                         date  hereof   (whether or not such Lien  may
                         subsequently be  released  and then regranted
                         and  whether or not such property  or  assets
                         now exists or may hereafter arise) other than
                         the Security,  the  Increased  Security,  the
                         Premises    and    the    Shipyard    Project
                         (hereinafter referred to collectively as  the
                         *Secretary's  Collateral*)  and  (B) Liens on
                         the   proceeds   and  products  of  any  such
                         property   or   assets    (other   than   the
                         Secretary's  Collateral),  any   property  or
                         assets acquired with the proceeds  of  or  in
                         exchange  for  any  such  property  or assets
                         (other  than  the Secretary's Collateral)  or
                         the accounts receivable  generated  from  any
                         such  property  or  assets  (other  than  the
                         Secretary's  Collateral),  and  (ii) Liens to
                         secure  indebtedness or obligations  incurred
                         to  extend,   refinance,  renew,  replace  or
                         refund     (or     successive     extensions,
                         refinancings,   renewals,   replacements   or
                         refundings    of)   any    indebtedness    or
                         obligations secured  by any Lien permitted by
                         the foregoing clause (i) so long as such Lien
                         does  not  extend  to  any   other   property
                         (including,     without    limitation,    the
                         Secretary's  Collateral),   and   (iii)   any
                         Disposition  of or Lien on property or assets
                         of the Company  (and,  in  the case of Liens,
                         any    extension,    refinancing,    renewal,
                         replacement or refundings of the indebtedness
                         or other obligations secured  by such Liens),
                         provided that (A) after giving  effect to any
                         such Disposition or Lien the Net  Book  Value
                         (as defined below) of the aggregate of all of
                         the assets that have been the subject of  any
                         Disposition  or  Lien  (excluding  the assets
                         subject to the Liens permitted by clauses (i)
                         and (ii) above) during the immediately  prior
                         12  month  period  does  not exceed an amount
                         equal to 10 percent of the  sum  of the total
                         Net Book Value of all of the Company's assets
                         (excluding  the  assets subject to the  Liens
                         permitted by clauses  (i)  and (ii) above) as
                         indicated on the most recent  audited  annual
                         financial  statement required to be submitted
                         pursuant  to   Section  14  hereof,  (B)  the
                         Company retains  the  proceeds   of  (x)  the
                         Disposition  or (y) the indebtedness or other
                         obligations secured  by  the  Lien for use in
                         accordance   with   the   Company's   regular
                         business    activities,   including   without
                         limitation, the  repayment of indebtedness of
<PAGE>      
                         the Company and (C)  the  Disposition or Lien
                         is  not  otherwise prohibited  by  subsection
                         13(c)(2) above.  *Net Book Value*  is defined
                         as the original  book  value of an asset less
                         depreciation calculated  on  a  straight line
                         basis over its useful life.

                         Notwithstanding    clause   (iii)   of   this
                         subsection 13(c)(6),  the  Company  shall not
                         consummate  the Disposition or Lien permitted
                         by such provision  without  the prior written
                         consent of the Secretary if the  Company  has
                         not, prior to the time of such Disposition or
                         Lien,   submitted   to   the   Secretary  the
                         financial  statement required by  Section  14
                         hereof, and any attempt to so consummate such
                         Disposition  or  Lien  absent  such  approval
                         shall be null and void ab initio.

                         Notwithstanding  any other provision of  this
                         subsection 13(c)(6),  the  Company  shall not
                         consummate  the Disposition or Lien permitted
                         hereby  if  it  would  adversely  affect  the
                         priority   of   the    Secretary's   security
                         interests in the Secretary's Collateral or in
                         that  certain  floating  drydock   designated
                         Avondale   Drydock,  having  Official  Number
                         568190."

                                    ARTICLE SECOND

                                     COUNTERPARTS

               This  Amendment No. 1 may  be  executed  in  any  number  of
          counterparts.  Each of said counterparts shall be deemed to be an
          original, but  together  shall  constitute  but  one and the same
          instrument.

                                    ARTICLE THIRD

                                      AMENDMENT

               The Original Agreement, as amended and supplemented  by this
          Amendment No. 1, is in all respects confirmed and shall remain in
          full force and effect.


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               IN  WITNESS  WHEREOF, this Amendment No. 1 has been executed
          by the parties hereto on the day and year first above written.


                                     AVONDALE INDUSTRIES, INC., as Shipowner

                                     By: /s/ THOMAS M. KITCHEN
                                     _________________________________________
                                     Thomas M. Kitchen, Vice President


ATTEST:

/s/ BL HICKS
_____________________________
Assistant Secretary


                                     UNITED STATES OF AMERICA
                                     DEPARTMENT OF TRANSPORTATION

                                     BY: MARITIME ADMINISTRATOR

                                     By: /s/ JOEL C. RICHARD
                                     _________________________________________
                                     Secretary, Maritime Administration


ATTEST:

/s/ PATRICIA E. BYRNE
_____________________________
Assistant Secretary
Maritime Administration