FORM 10-Q
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                   Quarterly Report Under Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

(Mark One)

[ X ]   Quarterly  Report  Pursuant  to  Section  13 or  15(d) of the Securities
        Exchange Act of 1934

For the quarterly period ended June 30, 1998

[   ]   Transition  Report  Pursuant to  Section  13 or 15(d)  of the Securities
        Exchange Act of 1934

For the transition period from                 to

For Quarter Ended June 30, 1998

Commission File Number  0-16572

                            AVONDALE INDUSTRIES, INC.


        Louisiana                                       39-1097012
(State or other jurisdiction of                    (I.R.S. Employer
incorporation or organization)                      Identification No.)


P. O. Box 50280, New Orleans, Louisiana                    70150
(Address of principal executive offices)                 (Zip Code)

Registrant's telephone number, including area code 504/436-2121

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file such  reports),  and (2) has been  subject to file such filing
requirements for the past 90 days. YES X NO .

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock as of the latest practicable date.

                      Class                        Outstanding at June 30, 1998
--------------------------------------------------------------------------------
Common stock, par value $1.00 per share                  13,249,228 shares


<PAGE>


                   AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES

                                      INDEX


                                                                        Page No.

Part I. Financial Information

        Item 1.Financial Statements

               Independent Accountants' Report                                 1

               Consolidated Balance Sheets -
               June 30, 1998 and December 31, 1997                             2

               Consolidated Statements of Operations -
               Quarters and Six Months Ended June 30, 1998 and 1997            4

               Consolidated Statements of Cash Flows -
               Six Months Ended June 30, 1998 and 1997                         5

               Notes to Consolidated Financial Statements                      6

        Item 2.Management's Discussion and Analysis of
                      Financial Condition and Results of Operations           10

Part II.       Other Information                                              15

        Item 4.Submission of Matters to a Vote of Security Holders

        Item 6.Exhibits and Reports on Form 8-K



<PAGE>

INDEPENDENT ACCOUNTANTS' REPORT

To the Board of Directors and Shareholders of
  Avondale Industries, Inc.

We have reviewed the  condensed  consolidated  financial  statements of Avondale
Industries,  Inc. and subsidiaries,  as listed in the accompanying  index, as of
June 30, 1998 and for the three-month and six-month  periods ended June 30, 1998
and 1997.  These financial  statements are the  responsibility  of the Company's
management.

We conducted our review in accordance with standards established by the American
Institute  of  Certified  Public  Accountants.  A review  of  interim  financial
information consists principally of applying analytical  procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with  generally  accepted  auditing  standards,  the  objective  of which is the
expression of an opinion  regarding the financial  statements  taken as a whole.
Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material  modifications that should
be made to such condensed  consolidated  financial  statements for them to be in
conformity with generally accepted accounting principles.

We have  previously  audited,  in accordance  with generally  accepted  auditing
standards,  the  consolidated  balance  sheet of Avondale  Industries,  Inc. and
subsidiaries as of December 31, 1997, and the related consolidated statements of
operations,  shareholders'  equity,  and cash flows for the year then ended (not
presented  herein);  and in our report dated  February 20, 1998, we expressed an
unqualified opinion on those consolidated financial statements.  In our opinion,
the information set forth in the accompanying  consolidated  balance sheet as of
December 31, 1997 is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.




/s/ DELOITTE & TOUCHE LLP
New Orleans, Louisiana

August 3, 1998


<PAGE>
                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements
<TABLE>
<CAPTION>
                   AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)
                                   (UNAUDITED)
 -------------------------------------------------------------------------------------------------------------------


                                                                                 June 30,               December 31,
                                                                                   1998                      1997
                                                                               ------------             ------------
<S>                                                                            <C>                      <C>
ASSETS
Current Assets:
  Cash and cash equivalents..........................................          $     67,439             $     81,752
  Receivables (Note 2):
    Accounts receivable..................................................            16,068                   13,162
    Contracts in progress................................................            87,925                   88,584
  Inventories:
    Goods held for sale..................................................            13,022                   14,915
    Materials and supplies...............................................             8,964                    8,311
  Deferred tax assets ...................................................            17,903                   23,253
  Prepaid expenses and other current assets..............................             3,054                    2,891
                                                                               ------------             ------------

    Total current assets.................................................           214,375                  232,868
                                                                               ------------             ------------

Property, Plant and Equipment:
  Land...................................................................             7,986                    7,843
  Buildings and improvements.............................................            60,578                   55,917
  Machinery and equipment................................................           205,747                  200,777
                                                                               ------------             ------------

    Total................................................................           274,311                  264,537

  Less accumulated depreciation..........................................          (137,001)                (134,481)
                                                                               ------------             ------------

    Property, plant and equipment - net..................................           137,310                  130,056
                                                                               ------------             ------------

Goodwill - net...........................................................             5,159                    5,357
Other assets.............................................................             7,205                    7,334
                                                                               ------------             ------------

    Total assets.........................................................      $    364,049             $    375,615
                                                                               ============             ============

See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                   AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)
                                   (UNAUDITED)
--------------------------------------------------------------------------------------------------------------------

                                                                                  June 30,              December 31,
                                                                                    1998                     1997
                                                                               ------------             ------------
<S>                                                                            <C>                      <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Current portion of long-term debt......................................      $      3,137             $      3,047
  Accounts payable.......................................................            67,853                   59,548
  Accrued employee compensation..........................................            16,330                   13,198
  Other..................................................................            11,726                   11,851
                                                                               ------------             ------------

    Total current liabilities............................................            99,046                   87,644

Long-term debt...........................................................            49,663                   51,819

Deferred income taxes....................................................            12,900                   13,400

Other liabilities and deferred credits...................................            14,604                   13,775
                                                                               ------------             ------------

  Total liabilities......................................................           176,213                  166,638
                                                                               ------------             ------------

Commitments and contingencies (Note 6)

Shareholders' Equity:
  Common stock, $1.00 par value, authorized -
    30,000,000 shares; issued - 15,962,244 shares in 1998
    and 15,956,227 shares in 1997........................................            15,962                   15,956
  Additional paid-in capital.............................................           374,301                  374,173
  Accumulated deficit....................................................          (154,265)                (169,296)
                                                                               ------------             ------------

    Total................................................................           235,998                  220,833

  Treasury stock (common: 2,713,016 shares in 1998
    and 1,463,016 shares in 1997) at cost (Note 4).......................           (48,162)                 (11,856)
                                                                               ------------             ------------

  Total shareholders' equity.............................................           187,836                  208,977
                                                                               ------------             ------------

  Total liabilities and shareholders' equity.............................      $    364,049             $    375,615
                                                                               ============             ============

See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                    AVONDALE INDUSTRIES, INC. AND SUBSIDARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)
                                   (UNAUDITED)
-------------------------------------------------------------------------------------------------------------------
                                                           Quarters Ended June 30,             Six Months Ended June 30,
                                                            1998            1997                  1998            1997
                                                        ----------      ----------            ----------      ----------
<S>                                                     <C>             <C>                   <C>             <C>  
Sales............................................       $  178,463      $  145,792            $  363,088      $  285,305

Cost of sales....................................          157,118         126,291               321,615         247,171
                                                        ----------      ----------            ----------      ----------
Gross profit.....................................           21,345          19,501                41,473          38,134

Selling, general and
  administrative expenses........................            9,409           8,635                17,722          16,969
                                                        ----------      ----------            ----------      ----------
Income from operations...........................           11,936          10,866                23,751          21,165

Interest expense.................................             (983)         (1,195)               (2,120)         (2,412)

Other-net, principally interest
  income ........................................            1,376             709                 2,600           1,318
                                                        ----------      ----------            ----------      ----------
Income before income taxes.......................           12,329          10,380                24,231          20,071

Income taxes ....................................            4,675           4,000                 9,200           7,400
                                                        ----------      ----------            ----------      ----------
Net income.......................................       $    7,654      $    6,380            $   15,031      $   12,671
                                                        ==========      ==========            ==========      ==========

Income per share of common stock (Notes 4 and 5):
Net income per share of
  common stock - basic...........................       $     0.54      $     0.44            $     1.05      $     0.87
                                                        ==========      ==========            ==========      ==========

Weighted average number
   of shares outstanding -
   basic.........................................           14,125          14,493                14,308          14,488
                                                        ==========      ==========            ==========      ==========

Net income per share of
  common stock - diluted.........................       $     0.54      $     0.44            $     1.04      $     0.87
                                                        ==========      ==========            ==========      ==========

Weighted average number
  of shares outstanding -
  diluted........................................           14,198          14,497                14,385          14,498
                                                        ==========      ==========            ==========      ==========
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                   AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     SIX MONTHS ENDED JUNE 30, 1998 AND 1997
                                 (In thousands)
                                   (UNAUDITED)
--------------------------------------------------------------------------------------------------------------------

                                                                                   1998                     1997
                                                                               ------------             ------------
<S>                                                                            <C>                      <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income.............................................................      $     15,031             $     12,671
  Adjustments to reconcile net income to net cash
    provided by operating activities:
    Depreciation and amortization........................................             4,392                    5,716
    Deferred income taxes................................................             4,850                    7,400
    Loss on sale of assets  .............................................                41                     -
    Changes in operating assets and liabilities:
      Receivables........................................................            (2,247)                  10,643
      Inventories........................................................             1,240                   (2,270)
      Prepaid expenses and other assets..................................               (34)                     302
      Accounts payable...................................................             8,305                  (26,600)
      Accrued employee compensation and other liabilities................             3,836                    5,565
      Other - net........................................................               134                      303
                                                                               ------------             ------------
 Net Cash Provided by Operating Activities...............................            35,548                   13,730
                                                                               ------------             ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures...................................................           (11,507)                  (3,306)
  Proceeds from sale of assets ..........................................                18                     -
                                                                               ------------             ------------
  Net Cash Used for Investing Activities.................................           (11,489)                  (3,306)
                                                                               -------------            ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Payment of long-term borrowings........................................            (2,066)                  (3,976)
  Purchase of treasury stock  (Note 4)...................................           (36,306)                    -
                                                                               ------------             ------------
  Net Cash Used for Financing Activities.................................           (38,372)                  (3,976)
                                                                               ------------             ------------

Net (decrease) increase in cash and cash equivalents.....................           (14,313)                   6,448
Cash and cash equivalents at beginning of period.........................            81,752                   48,944
                                                                               ------------             ------------
Cash and cash equivalents at end of period...............................      $     67,439             $     55,392
                                                                               ============             ============

Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest.................................................................      $      2,353             $      2,666
                                                                               ============             ============

Income taxes ............................................................      $      5,650             $        700
                                                                               ============             ============

See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.     BASIS OF PRESENTATION

The  accompanying   unaudited  consolidated  financial  statements  include  the
accounts  of  Avondale  Industries,   Inc.  and  its  wholly-owned  subsidiaries
("Avondale" or the "Company").  In the opinion of the management of the Company,
all adjustments (such adjustments  consisting only of a normal recurring nature)
necessary  for a fair  presentation  of the  operating  results  for the interim
periods presented have been included in the interim financial statements.  These
interim financial statements should be read in conjunction with the December 31,
1997 audited  financial  statements and related notes filed on Form 10-K for the
year ended December 31, 1997 (the "1997 Form 10-K").

The  financial  statements  required by Rule 10-01 of  Regulation  S-X have been
reviewed by independent  public  accountants as stated in their report  included
herein.

 2.     RECEIVABLES

The following  information presents the elements of receivables at June 30, 1998
and December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
                                                                                   1998                     1997
                                                                               ------------             ------------
        <S>                                                                    <C>                      <C>
        Long-term contracts:
               U.S. Government:
                  Amounts billed..........................................     $        767             $        967
                  Unbilled costs, including retentions, and
                      estimated profits on contracts in
                      progress............................................           76,299                   80,041
                                                                               ------------             ------------
                 Total ...................................................           77,066                   81,008

               Commercial:
                  Amounts billed..........................................            5,774                    4,180
                  Unbilled costs, including retentions, and
                      estimated profits on contracts in
                      progress............................................           11,626                    8,543
                                                                               ------------             ------------

               Total from long-term contracts.............................           94,466                   93,731
        Trade and other current receivables...............................            9,527                    8,015
                                                                               ------------             ------------
        Total  ...........................................................     $    103,993             $    101,746
                                                                               ============             ============
</TABLE>
Unbilled costs and estimated  profits on contracts in progress were not billable
to customers at the balance sheet dates under terms of the respective contracts.
<PAGE>
3.      FINANCING ARRANGEMENTS

The Company's $65 million revolving credit agreement ("the agreement")  provides
liquidity for working  capital  purposes,  capital  expenditures  and letters of
credit. At June 30, 1998, there were  approximately  $11.3 million of letters of
credit  issued  against the  agreement  leaving  approximately  $53.7 million of
liquidity  available to Avondale for operations and other  purposes.  There have
been no borrowings  under the agreement since its inception in 1994.  Continuing
access to the agreement is conditioned upon the Company  remaining in compliance
with the  covenants  contained  therein.  At June 30,  1998,  the Company was in
compliance with such covenants.

 4.      TENDER OFFER

In June 1998,  the Company  completed a tender  offer  purchasing  1.25  million
shares of its common  stock at $28 7/8 per share.  Under the terms of the offer,
the  Company  had  invited its  shareholders  to tender  their  shares at prices
ranging  from $26 1/2 to $29 per share as  specified  by each  shareholder.  The
total cost to the  Company of  completing  the  tender was  approximately  $36.3
million,  including  legal,  consulting and other  professional  fees. The total
shares repurchased  represented  approximately 8.6% of the outstanding shares at
that date, and following the tender,  the Company had approximately 13.2 million
shares of its  common  stock  outstanding.  The  transaction  was  funded  using
existing cash balances.

5.      EARNINGS PER SHARE

The number of weighted average shares outstanding for "basic" EPS was 14,124,885
and 14,493,211  for the three months ended June 30, 1998 and 1997,  respectively
and  14,308,031  and 14,488,034 for the six months ended June 30, 1998 and 1997,
respectively.  The number of weighted  average shares  outstanding for "diluted"
EPS was  14,197,661  and 14,496,853 for the three months ended June 30, 1998 and
1997, respectively,  and 14,385,443 and 14,498,211 for the six months ended June
30, 1998 and 1997,  respectively.  The  difference  in weighted  average  shares
outstanding  of 72,776 and 3,642 for the three  months  ended June 30,  1998 and
1997, respectively, and 77,412 and 10,177 for the six months ended June 30, 1998
and 1997, respectively, relate to stock appreciation rights and options.

As discussed in Note 4 of the Notes to Consolidated Financial Statements herein,
the Company  completed a tender  offer  purchasing  1.25  million  shares of its
common stock in June 1998. Had the repurchase taken place as of January 1, 1997,
the Company's diluted earnings per share for the three and six months ended June
30, 1997, would have been $0.45 and $0.90,  respectively.  For the three and six
months ended June 30, 1998, the Company's  diluted earnings per share would have
been $0.55 and $1.08, respectively.
<PAGE>
6.      COMMITMENTS AND CONTINGENCIES

Litigation

As  discussed  in  Note 9 of the  Notes  to  Consolidated  Financial  Statements
included  in the 1997 Form 10-K,  the  Company was advised in 1986 that it was a
potentially  responsible  party ("PRP") with respect to an oil reclamation  site
operated by an unaffiliated company in Walker,  Louisiana.  To date, the Company
and certain of the other PRPs (the "Funding Group") for the site have funded the
site's remediation expenses,  PRP identification  expenses and related costs for
the participating  parties. As of June 30, 1998 such costs totaled approximately
$19.0 million, of which the Company has funded approximately $4.0 million. Since
1988,  the  Funding  Group  filed  petitions  to add a number  of  companies  as
third-party defendants with regard to the remedial action. The Funding Group has
agreed to settle with the majority of these  companies.  All funds collected are
placed in escrow to fund future  expenses.  At June 30, 1998, the balance of the
escrow was $8.5  million,  which is to be used to fund any  ongoing  remediation
expenses.  The Company will not be required to fund any future assessments until
the  balance  in escrow is  depleted.  There are  additional  settlements  being
negotiated which could add to the balance in escrow.

Additional  remedial work scheduled for the site includes  completion of studies
and if  required  by the  results  of  these  studies,  subsequent  remediation.
Following  completion of any such required  additional  remediation,  it will be
necessary to obtain Environmental  Protection Agency approval to close the site,
which consent may require subsequent post-closure activities such as groundwater
monitoring  and site  maintenance  for many  years.  The  Company is not able to
estimate the final costs for any such  additional  remedial work or post-closure
costs that may be required; however, the Company believes that its proportionate
share of expenditures for any additional work will not have a material impact on
the Company's financial statements.  In addition,  the Company and other members
of the Funding  Group have  entered into a final cost  sharing  agreement  under
which all parties have agreed that there would be no  re-allocation  of previous
remediation  costs, but that future  remediation costs would be established by a
formula.  Under this  agreement,  the  Company's  share of future costs will not
exceed 17.5%.

Furthermore,  the Company  has  initiated  litigation  against its insurer for a
declaration of coverage of the  liability,  if any, that may arise in connection
with the remediation of the site referred to above. The court has ruled that the
insurer has the duty to defend the Company, but has not yet ruled on whether the
carrier has a duty to  indemnify  the  Company if any  liability  is  ultimately
assessed against it. After  consultation with counsel,  the Company is unable to
predict  the  eventual  outcome of this  litigation  or the degree to which such
potential liability would be indemnified by its insurance carrier.

In addition to the above,  the Company is also named as a defendant  in numerous
other lawsuits and proceedings arising in the ordinary course of business,  some
of which involve substantial claims.

The Company has  established  accruals as appropriate for certain of the matters
discussed above. While the ultimate outcome of lawsuits and proceedings  against
the Company cannot be predicted with certainty,  management  believes,  based on
current facts and circumstances and after review with counsel, that the eventual
resolution  of these  matters  will not have a  material  adverse  effect on the
Company's consolidated financial statements.
<PAGE>
Guarantee

Pursuant to agreements related to the University of New Orleans ("UNO")/Avondale
Maritime Technology Center of Excellence (the "Center"),  the Company has agreed
to guarantee  indebtedness with a principal amount not to exceed $40 million for
expenditures incurred by the UNO Research and Technology  Foundation,  Inc. (the
"Foundation")  for the  construction  of the  facility  and the  acquisition  of
technology.  Under the terms of a Cooperative  Endeavor Agreement,  the State of
Louisiana  made a  non-binding  commitment  to  appropriate  $40  million,  plus
interest,  in installments  over a period from 1997 through 2007 for donation to
the  Foundation  for purposes of servicing the debt incurred in connection  with
construction  of  the  Center.  Avondale  and  the  Foundation  anticipate  that
appropriations by the State will be sufficient for the Foundation to service its
debt.  However,  if the State's  appropriations are insufficient,  Avondale will
ultimately be required to repay the debt. The Company's  guarantee is unsecured.
As of June 30,  1998,  the  Foundation  had  incurred  $29.2  million of cost to
construct and equip the Center.  In connection with its non-binding  commitment,
the State appropriated and paid $3.8 million during 1997, representing the first
installment  to the  Foundation.  The second  installment  in the amount of $6.5
million was  included  in the  Governor's  executive  budget for the fiscal year
beginning July 1, 1998. The budget has been approved and the Foundation  expects
to receive the second installment during the third quarter of 1998.

Letters of Credit and Bonds

In the normal  course of its  business  activities,  the  Company is required to
provide  letters  of  credit  and  bonds  to  secure  the  payment  of  workers'
compensation  obligations,  other  insurance  obligations  and to provide a debt
service reserve fund related to $34.4 million of Series 1994 industrial  revenue
bonds.  Additionally,  under  certain  contracts  the Company may be required to
provide  letters  of credit to secure  certain  performance  obligations  of the
Company  thereunder.  Outstanding  letters of credit and bonds relating to these
business activities amounted to approximately $32.3 million at June 30, 1998 and
December 31, 1997.

7.      RECENT ACCOUNTING PRONOUNCEMENTS

During 1997,  the  Financial  Accounting  Standards  Board  issued  Statement of
Financial  Accounting  Standards Number 131,  "Disclosures  about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards
for disclosure of operating segments, products,  services,  geographic areas and
major customers. The Company is required to adopt this standard for fiscal 1998.
Management believes that the implementation of SFAS 131 will not have a material
impact on the presentation of the Company's financial statements but may require
additional disclosure.

In February 1998, the Financial  Accounting  Standards Board issued Statement of
Financial  Accounting  Standards  Number  132,  "Employers'   Disclosures  about
Pensions and Other  Postretirement  Benefits" ("SFAS 132"). SFAS 132 revises the
standards for  disclosure of pension and other  postretirement  benefit plans by
standardizing the disclosure  requirements,  requiring additional information on
changes  in  the  benefit  obligations  and  fair  values  of  plan  assets  and
eliminating  certain disclosure  requirements no longer considered to be useful.
These new disclosure  requirements are designed to improve the understandability
of benefit disclosures for financial analysis.  The Company is required to adopt
this standard for fiscal 1998.  Management  believes that the  implementation of
SFAS 132 will not have a material  impact on the  presentation  of the Company's
financial statements but will require additional disclosure.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
          of Operations

The  following  discussion  should  be read in  conjunction  with the  Company's
unaudited  consolidated financial statements for the periods ended June 30, 1998
and 1997 and  Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations  included  under Item 7 of the Company's  Annual Report on
Form 10-K for the year ended December 31, 1997 (the "1997 Form 10-K").

Overview

The Company continued its trend of improvement in its operating results compared
to the same periods in the prior year. Income from operations  increased 10% for
the second  quarter of 1998 and 12% for the first six months of 1998 compared to
the same periods in the prior year.  Further,  net income  increased 20% for the
second quarter and 19% for the first six months of 1998 over the same periods in
1997.

The  Company's  firm  backlog at June 30, 1998 was  approximately  $1.5  billion
(including  estimated  contract  escalation)  exclusive of  unexercised  options
aggregating  approximately  $1.1  billion  held by the U.S.  Navy  (the  "Navy")
(including estimated contract escalation) and approximately $500 million held by
a  commercial  customer  for  additional  ship  orders.  During  1998,  the Navy
exercised  a portion  of its  option  for a  seventh  Strategic  Sealift  vessel
relating to approximately $50 million for long lead time materials.  The balance
of approximately  $200 million for this option is exercisable by the Navy during
the first  quarter of 1999.  Also, in July 1998,  the Navy  exercised a contract
modification, relating to approximately $78 million, authorizing the procurement
of long lead time  materials for  construction  of a second vessel in the LPD-17
program.  The  Navy's  option  on the  remainder  of the  second  LPD  vessel is
exercisable  before  the end of 1998.  During  the first  quarter  of 1998,  the
Company  delivered the LSD-CV 52 to the Navy  representing  the fourth and final
ship of this class constructed by the Company under two contracts.  In addition,
the  Company  expects to  complete  the first of a  contract  to  construct  six
Strategic Sealift ships during 1998.

As previously  disclosed,  in December 1996 the Navy awarded,  and in April 1997
the General Accounting Office affirmed, a $641 million contract to a Company-led
alliance,   which  includes  Bath  Iron  Works  ("Bath")  and  Raytheon  Company
("Raytheon"), to design and construct the first of an anticipated 12 ships under
the Navy's LPD-17 program.  The contract award provides for options  exercisable
by the Navy for two  additional  LPD-17 class ships to be built by the alliance.
Under the terms of an agreement between the alliance  members,  the Company will
build the ship  covered  under the  December  1996  contract,  and,  if the Navy
exercises  the two options,  the Company  would  construct the second while Bath
would  construct the third of the three LPD-17 class ships to be built under the
initial  contract.  Raytheon  is  responsible  for total ship  integration.  The
alliance is using an advanced three-dimensional ship design and product modeling
technology for the design and manufacture of the ships. As the prime  contractor
under the LPD-17  contract,  the Company is required to report in its  financial
statements as sales and cost of sales the entire contract amount for each vessel
in the LPD-17  program  constructed  by the alliance.  Under the  subcontracting
agreements  entered into between the Company and each of Bath and Raytheon,  the
award fees that can be earned  under the  LPD-17  contract  are to be  allocated
among the  alliance  members in  proportion  to each  member's  performance  and
participation in the construction of the vessel for which the award was granted.
To the extent that the Company's  revenues include costs incurred and award fees
paid to the other alliance members, such revenues will be recorded with no gross
profit margin.
<PAGE>
Results of Operations

The Company  recorded net income of $7.7  million,  or $0.54 per share,  for the
second  quarter of 1998  compared to $6.4 million,  or $0.44 per share,  for the
second quarter of 1997.  For the first six months of 1998, the Company  recorded
net income of $15.0 million,  or $1.04 per share,  compared to $12.7 million, or
$0.87 per share, for the same period in 1997. Per share amounts are on a diluted
basis.

Income  from  operations  for the quarter  and six months  ended June 30,  1998,
increased $1.1 million, or 10%, and $2.6 million, or 12%, respectively, compared
to the prior year periods.  The improvement in the Company's  operating  results
for the second quarter and first six months of 1998 compared to the same periods
of  the  prior  year  primarily  reflect  operating  profits  recognized  on the
contracts to construct the six Strategic  Sealift ships,  the Icebreaker and the
LSD-CV 52. Also contributing to the 1998 operating results were profits recorded
by the  Company's  wholesale  steel,  modular  construction  and  marine  repair
operations.

Sales for the second quarter of 1998 increased $32.7 million,  or 22%, to $178.5
million  compared to $145.8  million for the second  quarter of 1997 while sales
for the first six months of 1998 reflected an increase of $77.8 million, or 27%,
compared  to the same  period in the prior  year.  The  increase in sales in the
current  periods  is  primarily  a result of  increased  costs  associated  with
contracts in the initial stages of  construction.  In the second quarter and six
months  ended  June  30,  1998,  the  Company  recorded  increased  sales on the
contracts to construct  the six  Strategic  Sealift  ships (the last of which is
expected to be delivered in 2001), the two 125,000 DWT  double-hulled  crude oil
carriers  (both of which are  scheduled  for  delivery  in 2000) and the  LPD-17
(expected to be delivered in 2002). The oil carrier and LPD contracts are in the
initial stages of construction  resulting in significant  engineering design and
material  acquisition  costs. The increases noted above were partially offset by
decreased  sales  recorded  on  contracts  that are at or near  completion.  The
Company recorded  decreased sales on the contract to retrofit four single-hulled
commercial  tankers  with new double  hulls (the last of which was  delivered in
September  1997) and the contracts to construct the  Icebreaker  (expected to be
delivered in the first  quarter of 1999),  the LSD-CV 52  (delivered in February
1998),  the 100 river hopper barges (the last of which was delivered in November
1997) and the four  coastal  MHCs (the last of which was  delivered  in  January
1997).

Gross profit for the second  quarter and first six months of 1998 increased $1.8
million,  or 9%, and $3.3  million,  or 9%,  respectively,  compared to the same
periods  in  1997.  However,   the  gross  profit  margin  percentage  decreased
approximately  1.4% and 2.0%,  respectively,  for the three and six months ended
June 30, 1998 compared with the same periods in the prior year. The decreases in
gross profit margin percentages are primarily  attributable to the fact that the
LPD-17 and the two double-hulled crude oil carriers are in the initial stages of
contract performance which result in significant engineering design and material
acquisition  costs recorded as net sales with little or no  corresponding  gross
profit. The Company does not begin profit recognition until final results can be
estimated with reasonable accuracy. Refer to the 1997 Form 10-K for a discussion
of the Company's policies and procedures for revenue  recognition.  In addition,
the Company  includes costs incurred and award fees paid to other members of the
alliance in the LPD-17  program as sales and cost of sales with no gross  profit
margin.
<PAGE>
Selling, general and administrative ("SG&A") expenses increased $774,000, or 9%,
in the second  quarter of 1998 and $753,000,  or 4%, for the first six months of
1998 compared to the same periods in 1997. The increase in SG&A expenses was due
primarily to an increase in proposal  preparation  and related  costs in 1998 in
connection  with   upcoming  U.S.   Government   and   commercial   shipbuilding
opportunities.

Other  income  increased  $667,000,  or 94%, and $1.3  million,  or 97%, for the
second quarter and first six months of 1998, respectively,  compared to the same
periods  in the prior  year.  This  increase  is  primarily  attributable  to an
increase in interest income  resulting from  significantly  higher cash and cash
equivalents  available  for  investment  during the period  preceding  the stock
repurchase.

During 1997,  the  Financial  Accounting  Standards  Board  issued  Statement of
Financial  Accounting  Standards Number 131,  "Disclosures  about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards
for disclosure of operating segments, products,  services,  geographic areas and
major customers. The Company is required to adopt this standard for fiscal 1998.
Management believes that the implementation of SFAS 131 will not have a material
impact on the presentation of the Company's financial statements but may require
additional disclosure.

In February 1998, the Financial  Accounting  Standards Board issued Statement of
Financial  Accounting  Standards  Number  132,  "Employers'   Disclosures  about
Pensions and Other  Postretirement  Benefits" ("SFAS 132"). SFAS 132 revises the
standards for  disclosure of pension and other  postretirement  benefit plans by
standardizing the disclosure  requirements,  requiring additional information on
changes  in  the  benefit  obligations  and  fair  values  of  plan  assets  and
eliminating  certain disclosure  requirements no longer considered to be useful.
These new disclosure  requirements are designed to improve the understandability
of benefit disclosures for financial analysis.  The Company is required to adopt
this standard for fiscal 1998.  Management  believes that the  implementation of
SFAS 132 will not have a material  impact on the  presentation  of the Company's
financial statements but will require additional disclosure.

In accordance  with the U. S. Securities and Exchange  Commission's  Staff Legal
Bulletin No. 5, the Company has  assessed  both the cost of  addressing  and the
cost or the  consequences of incomplete or untimely  resolution of the Year 2000
issue. This assessment  included a comprehensive  review to identify the systems
that  could be  affected  by the  Year  2000  issue  and the  development  of an
implementation  plan.  The  implementation  plan includes both  replacement  and
upgrades of certain systems or equipment. The Company is incurring both internal
staff costs as well as consulting  and other  expenses  related to these issues.
Maintenance  and  modification  costs  related  to the Year 2000  issue  will be
expensed as incurred and new software will be capitalized and amortized over its
useful life.

The Company has established a three-phased approach for its solution of the Year
2000 issue which  includes:  identification  of all systems,  assessment of each
system's   compliance   with  the  Year  2000   issue,   and  the   testing  and
modification/replacement  of non-compliant  systems. The Company is presently in
the final  phase of this  program  and  expects to incur a total of $5.0 to $7.0
million in remediating the Year 2000 issue.  The Company expects to complete its
solution to the Year 2000 issue during the first six months of 1999.
<PAGE>
In addition, the Company is in the process of initiating communications with its
significant  suppliers  and  large  customers  (including  the U.  S.  Navy)  to
determine the extent to which the Company is vulnerable to those third  parties'
failure  to  remediate  their  own Year 2000  issues.  The  Company  can give no
assurance that the systems of suppliers or customers on which the Company relies
will be converted on time or that  failure to convert by another  company  would
not have a material adverse effect on the Company.

Liquidity and Capital Resources

The Company's cash and cash  equivalents  totaled $67.4 million at June 30, 1998
as compared to $81.8 million at December 31, 1997. The Company's  primary use of
cash  during the first six  months of 1998 was the  repurchase  of 1.25  million
shares of the Company's  common stock for $36.3  million.  Other uses of cash in
the current six month period consisted of capital  expenditures of $11.5 million
and payments on long-term borrowings of $2.1 million.

As discussed above,  during the second quarter of 1998, the Company  completed a
tender offer  purchasing  1.25 million shares of its common stock at $28 7/8 per
share. Under the terms of the offer, the Company had invited its shareholders to
tender their shares at prices ranging from $26 1/2 to $29 per share as specified
by each shareholder.  The total cost to the Company of completing the tender was
approximately $36.3 million,  including legal, consulting and other professional
fees.  The  total  shares  repurchased  represent   approximately  8.6%  of  the
outstanding  shares at that date,  and  following  the  tender,  the Company had
approximately  13.2  million  shares  of  its  common  stock  outstanding.   The
transaction was funded using existing cash balances.

Capital  expenditures for the first six months of 1998 increased $8.2 million to
$11.5  million  compared  to $3.3  million  for the same  period  in 1997.  This
increase is primarily attributable to plant improvements and equipment additions
which are designed to improve the Company's  operating  efficiency.  The Company
continues to evaluate investment  opportunities,  particularly  productivity and
technology-focused  capital  expenditures,  in order to  enhance  the  Company's
overall  efficiency  and provide  for future  growth.  As a result,  the Company
expects to increase  capital  spending  during the next several  years above the
levels of 1996 and 1997.  Included in this increased  spending is  approximately
$5.0  million in  connection  with the  acquisition  and  implementation  of new
integrated business systems software.

The Company's $65 million revolving credit agreement (the "agreement")  provides
liquidity for working  capital  purposes,  capital  expenditures  and letters of
credit. At June 30, 1998, there were  approximately  $11.3 million of letters of
credit  issued  against the  agreement  leaving  approximately  $53.7 million of
liquidity  available to Avondale for operations and other  purposes.  There have
been no borrowings  under the agreement since its inception in 1994.  Continuing
access to the agreement is conditioned upon the Company  remaining in compliance
with the  covenants  contained  therein.  At June 30,  1998,  the Company was in
compliance with such covenants.  The Company believes that its capital resources
will be sufficient to finance  current and projected  operations,  existing debt
service requirements and planned capital expenditures.
<PAGE>
In order to comply  with the  terms of the  LPD-17  contract,  the  Company  was
required to make  significant  capital  improvements,  including  enhancing  its
computer-aided  design  and  product  modeling  capabilities.  As a result,  the
Company teamed with the University of New Orleans (the  "University"  or "UNO"),
the  University of New Orleans  Research and  Technology  Foundation,  Inc. (the
"Foundation")  and the State of Louisiana in a cooperative  effort.  Pursuant to
terms of various agreements,  the Foundation is purchasing hardware and software
required to implement the extensive three-dimensional ship design and Integrated
Product Data  Environment  teaming  technology and  constructed a 200,000 square
foot building on property  donated to the  University by the Company and located
adjacent to the Company's main shipyard.  This facility was completed during the
second  quarter  of  1998.  The  initial  $40  million  investment  in this  new
technology and facility, which is known as the "UNO/Avondale Maritime Technology
Center of Excellence" (the "Center"),  is being financed by the Foundation using
third-party  debt and  lease  financing,  both of which  are  guaranteed  by the
Company. The Company has entered into a long-term lease for the Center requiring
a nominal annual lease payment.  The Company  provides  access to the technology
and a portion of the Center to the  University  for its use in research  and the
development of educational  curricula  related to naval  architecture and marine
engineering. During the remainder of 1998, additional amounts are expected to be
incurred in order to complete the customization of the design software to comply
with the LPD-17 requirements.

The  Foundation  is the borrower on all  indebtedness  incurred to construct and
equip the Center. Under the terms of a Cooperative Endeavor Agreement, the State
of Louisiana  made a non-binding  commitment to  appropriate  $40 million,  plus
interest,  in installments  over a period from 1997 through 2007 for donation to
the Foundation  for purposes of funding the Center.  Avondale and the Foundation
anticipate  that  appropriations  by  the  State  will  be  sufficient  for  the
Foundation  to service  its debt.  However,  if the State's  appropriations  are
insufficient,  Avondale  will  ultimately  be  required  to repay the debt.  The
Company's  guarantee is  unsecured.  As of June 30,  1998,  the  Foundation  had
incurred $29.2 million of cost to construct and equip the Center.  In connection
with its non-binding  commitment,  the State  appropriated and paid $3.8 million
during 1997,  representing the first  installment to the Foundation.  The second
installment  in the  amount  of $6.5  million  was  included  in the  Governor's
executive budget for the fiscal year beginning July 1, 1998. The budget has been
approved and the Foundation expects to receive the second installment during the
third quarter of 1998.
<PAGE>
Cautionary  Statement  for Purposes  of "Safe Harbor"  Provisions of the Private
  Securities Litigation Reform Act of 1995

Certain statements,  other than statements of historical fact, contained in this
Quarterly   Report  on  Form   10-Q  are   forward-looking   statements.   These
forward-looking  statements are generally  accompanied by such terms and phrases
as "anticipates,"  "estimates,"  "expects,"  "believes,"  "should,"  "projects,"
"scheduled,"  or similar  statements.  Although  the Company  believes  that the
expectations reflected in such forward-looking statements are reasonable, it can
give no  assurance  that such  expectations  will  prove to have  been  correct.
Important  factors that could cause the Company's  results to differ  materially
from the  results  discussed  in such  forward-looking  statements  include  the
Company's  reliance on U.S. Navy  contracts,  including its ability to replenish
its  backlog  by  securing  additional  contracts  from  the U.S.  Navy,  profit
recognition  on government  contracts,  the outcome of the Company's  litigation
involving  efforts  to  unionize  the  Company's   production  workers  and  the
competitive  impact of a resolution  in favor of the union,  the  importance  of
obtaining commercial contracts,  the Company's ability to complete its contracts
within its cost  estimates,  intense  competition  for government and commercial
contracts,  labor,  regulatory  and other risks in the  shipbuilding  and marine
construction  industries and other unanticipated  events affecting the Company's
efforts  and  the  efforts  of  its  suppliers,  subcontractors,  and  customers
(including  the U. S. Navy) to timely  correct  Year 2000  problems  inherent in
essential computer systems,  which could impair the Company's  operations or the
ability of its customers to timely pay for products and services provided.   All
forward-looking  statements in this Form 10-Q are  expressly  qualified in their
entirety by the cautionary statements in this paragraph.
<PAGE>
                           PART II - OTHER INFORMATION



Item 4.        Submission of Matters to a Vote of Security Holders

                At  the  Annual   Meeting  of  the   shareholders   of  Avondale
                Industries, Inc. held on June 12, 1998, 11,821,207 shares of the
                14,493,211 shares outstanding were present in person or by proxy
                at the meeting. The voting tabulation follows:

                (a)     The election of the following to the Board of Directors:

                         Francis R. Donovan, 11,088,704 votes for, 732,503 votes
                         withheld and Thomas M. Kitchen,  11,036,798  votes for,
                         784,409 votes  withheld.  The directors were elected by
                         plurality vote.

                        The  following  is a list of each other  director  whose
                        term  of  office  as  a  director  continued  after  the
                        meeting:

                        Albert L. Bossier, Jr., Anthony J. Correro, III, Kenneth
                        B. Dupont, and Hugh A. Thompson.

               (b)      A proposal to urge the Board of  Directors to redeem the
                        rights issued under the  Shareholder  Protection  Rights
                        Plan: 6,964,264 for, 3,707,745 against, 68,272 abstained
                        and  1,080,926  broker  nonvotes.  Proposal  (b),  which
                        required  the  approval  of a majority  of the shares of
                        Common  Stock  present  or  represented  at  the  Annual
                        Meeting, is a precatory, non-binding resolution.

               (c)      A proposal to urge the Board of  Directors  to implement
                        confidential  voting  by  Shareholders:  6,434,097  for,
                        4,238,999 against, 67,185 abstained and 1,080,926 broker
                        nonvotes.

               (d)      A proposal related to  declassification  of the Board of
                        Directors:  7,019,512  for,  3,645,396  against,  75,373
                        abstained and 1,080,926 broker nonvotes.

                Proposals  (c) and (d) required the  affirmative  vote of 80% of
                the total outstanding  Common Stock. Each of these proposals has
                failed to pass at five consecutive  annual meetings and, at each
                of these meetings,  received the affirmative vote of less than a
                majority of the outstanding shares.
<PAGE>
Item 6.        Exhibits and Reports on Form 8-K

                (a)     Exhibits

                           3.1   Articles of Incorporation of the Company(1).

                           3.2   Bylaws of the Company.

                          10.3   Employee Benefit Plans

                                 (c)      The  Company's  Amended  and  Restated
                                          Employee  Stock  Ownership  Plan(2) as
                                          further  amended by:  Amendment  No. 1
                                          adopted  April 5,  1995(3) , Amendment
                                          No.  2  adopted  June  16,  1995(4)  ,
                                          Amendment  No. 3 adopted  February  5,
                                          1996(5)  ,  Amendment  No.  4  adopted
                                          December 31, 1996(6) , Amendment No. 5
                                          adopted  December  30,  1997(7)  , and
                                          Amendment  No. 6  adopted  May 5, 1998
                                          and the related  Amended and  Restated
                                          Trust  Agreement(5) as further amended
                                          by  Amendment  No.  1  adopted  May 5,
                                          1998.

                                 (e)      The  Company's  Amended  and  Restated
                                          Supplemental   Pension   Plan(8),   as
                                          amended  by  Amendment  Nos.  1  and 2
                                          thereto adopted  December 29, 1989(9),
                                          and Amendment No.
                                          3 adopted May 5, 1998.

                                 (f)      The   Company's    Executive    Excess
                                          Retirement   Plan(9)   as  amended  by
                                          Amendment  No.1  adopted  February  2,
                                          1998 and  Amendment  No. 2 adopted May
                                          5, 1998.

                            15   Letter   re:    unaudited   interim   financial
                                 information.

                            27   Financial Data Schedule

               (b)      Reports on Form 8-K:

                                 Not applicable.

---------------

(1)            Incorporated by reference from the Company's Quarterly  Report on
               Form 10-Q for the fiscal quarter ended June 30, 1993.

(2)            Incorporated  by  reference  from the Company's Annual  Report on
               Form 10-K for the fiscal year ended December 31, 1994.

(3)            Incorporated by reference from the Company's Quarterly  Report on
               Form 10-Q for the fiscal quarter ended March 31, 1995.
<PAGE>
(4)            Incorporated by reference from the Company's Quarterly  Report on
               Form 10-Q for the fiscal quarter ended June 30, 1995.

(5)            Incorporated by reference from the Company's Quarterly  Report on
               Form 10-Q for the fiscal quarter ended March 31, 1996.

(6)            Incorporated by reference  from the  Company's  Annual  Report on
               Form 10-K for the  fiscal  year  ended December 31, 1996.

(7)            Incorporated  by reference from the  Company's  Annual  Report on
               Form 10-K for the  fiscal  year ended
               December 31, 1997.

(8)            Incorporated   by   reference  from  the  Company's  Registration
               Statement on Form S-1 (Registration  No. 33-20145) filed with the
               Commission on February 16, 1988.

(9)            Incorporated by reference  from the  Company's  Annual  Report on
               Form 10-K for the fiscal year ended December 31, 1991, as amended
               by Form 10-K/A.
<PAGE>

                                   SIGNATURES



Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.



                                                AVONDALE INDUSTRIES, INC.


Date: August 14, 1998                       By:/s/  ALBERT L. BOSSIER, JR.
      ---------------                          ---------------------------
                                                    Albert L. Bossier, Jr.
                                                    Chairman, President &
                                                     Chief Executive Officer





Date: August 14, 1998                       By:/s/ THOMAS M. KITCHEN
      ---------------                          ---------------------
                                                   Thomas M. Kitchen
                                                   Corporate Vice President &
                                                    Chief Financial Officer
<PAGE>
                                 EXHIBIT INDEX

Number    Description
------    ----------------------------------------------------------------------
 3.1      Articles of Incorporation of the Company(1).

 3.2      Bylaws of the Company.

10.3      Employee Benefit Plans

          (c) The  Company's  Amended  and  Restated  Employee  Stock  Ownership
              Plan(2) as further amended by:  Amendment  No. 1 adopted  April 5,
              1995(3) , Amendment No.  2  adopted  June  16,  1995(4), Amendment
              No.  3  adopted  February  5, 1996(5),  Amendment  No.  4  adopted
              December   31,   1996(6),   Amendment  No.  5 adopted December 30,
              1997(7), and Amendment No. 6  adopted  May 5, 1998 and the related
              Amended  and  Restated  Trust  Agreement (5) as further amended by
              Amendment No. 1 adopted May 5, 1998.

          (e) The Company's Amended and Restated Supplemental Pension   Plan(8),
              as amended by  Amendment  Nos.  1  and 2 thereto adopted  December
              29, 1989(9), and Amendment No. 3 adopted May 5, 1998.

          (f) The Company's Executive Excess Retirement Plan(9)  as  amended  by
              Amendment  No.1  adopted  February  2, 1998 and  Amendment  No.  2
              adopted May 5, 1998.

  15      Letter re:  unaudited interim financial information.

  27      Financial Data Schedule
       
---------------

(1)            Incorporated by reference from the Company's Quarterly  Report on
               Form 10-Q for the fiscal quarter ended June 30, 1993.

(2)            Incorporated  by  reference  from the Company's Annual  Report on
               Form 10-K for the fiscal year ended December 31, 1994.

(3)            Incorporated by reference from the Company's Quarterly  Report on
               Form 10-Q for the fiscal quarter ended March 31, 1995.
<PAGE>
(4)            Incorporated by reference from the Company's Quarterly  Report on
               Form 10-Q for the fiscal quarter ended June 30, 1995.

(5)            Incorporated by reference from the Company's Quarterly  Report on
               Form 10-Q for the fiscal quarter ended March 31, 1996.

(6)            Incorporated by reference  from the  Company's  Annual  Report on
               Form 10-K for the  fiscal  year  ended December 31, 1996.

(7)            Incorporated  by reference from the  Company's  Annual  Report on
               Form 10-K for the  fiscal  year ended
               December 31, 1997.

(8)            Incorporated   by   reference  from  the  Company's  Registration
               Statement on Form S-1 (Registration  No. 33-20145) filed with the
               Commission on February 16, 1988.

(9)            Incorporated by reference  from the  Company's  Annual  Report on
               Form 10-K for the fiscal year ended December 31, 1991, as amended
               by Form 10-K/A.