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 March 31, 1999

[   ]   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 March 31, 1999

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 March 31, 1999
Common stock, par value $1.00 per share                    13,260,867 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 -
               March 31, 1999 and December 31, 1998                            2

               Consolidated Statements of Operations -
               Three Months Ended March 31, 1999 and 1998                      4

               Consolidated Statements of Cash Flows -
               Three Months Ended March 31, 1999 and 1998                      5

               Notes to Consolidated Financial Statements                      6

        Item 2.       Management's Discussion and Analysis of
                      Financial Condition and Results of Operations           12

        Item 3.       Quantitative and Qualitative Disclosures About
                      Market Risk                                             19

Part II.       Other Information                                              20

        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 consolidated  financial  statements of Avondale Industries,
Inc. and subsidiaries, as listed in the accompanying index, as of March 31, 1999
and for the three-month  periods ended March 31, 1999 and 1998.  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 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, 1998, and the related consolidated statements of
operations,  comprehensive income,  shareholders' equity, and cash flows for the
year then ended (not  presented  herein);  and in our report dated  February 22,
1999,  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, 1998 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

May 6, 1999
<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)
                                                                                 March 31,              December 31,
                                                                                    1999                    1998    
                                                                               ------------             ------------
<S>                                                                            <C>                      <C>
ASSETS
Current Assets:
  Cash and cash equivalents..............................................      $     47,000             $     52,262
  Receivables (Note 2):
    Accounts receivable..................................................             8,622                   10,559
    Contracts in progress................................................           116,276                  115,358
  Inventories:
    Goods held for sale..................................................            22,743                   25,108
    Materials and supplies...............................................             8,166                    8,495
  Deferred tax assets ...................................................            14,249                   17,029
  Prepaid expenses and other current assets .............................             4,400                    3,310
                                                                               ------------             ------------
    Total current assets.................................................           221,456                  232,121
                                                                               ------------             ------------
Property, Plant and Equipment:
  Land...................................................................             8,227                    8,227
  Buildings and improvements.............................................            69,291                   68,880
  Machinery and equipment................................................           221,453                  213,068
                                                                               ------------             ------------
    Total................................................................           298,971                  290,175
  Less accumulated depreciation..........................................          (143,480)                (141,249)
                                                                               ------------             ------------
    Property, plant and equipment - net..................................           155,491                  148,926
                                                                               ------------             ------------
Goodwill - net...........................................................             4,862                    4,961
Other assets.............................................................            11,136                   11,194
                                                                               ------------             ------------
Total assets.............................................................      $    392,945             $    397,202
                                                                               ============             ============

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

                                                                                  March 31,             December 31,
                                                                                    1999                   1998   
                                                                               ------------             ------------
<S>                                                                            <C>                      <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Current portion of long-term debt......................................      $      3,137             $      3,137
  Accounts payable.......................................................            62,781                   79,876
  Accrued employee compensation..........................................            19,228                   14,950
  Other..................................................................            13,484                   11,889
                                                                               ------------             ------------
    Total current liabilities............................................            98,630                  109,852
Long-term debt...........................................................            47,701                   48,682
Deferred income taxes....................................................             1,287                    1,487
Other accrued employee compensation......................................            27,294                   26,766
                                                                               ------------             ------------
  Total liabilities......................................................           174,912                  186,787
                                                                               ------------             ------------

Commitments and contingencies (Note 7)

Shareholders' Equity:
 Common  stock,  $1.00  par  value,   authorized  30,000,000  shares;  issued -
   15,973,883 shares in 1999
   and 15,967,082 shares in 1998 ........................................            15,974                   15,967
 Additional paid-in capital..............................................           376,656                  376,512
 Accumulated deficit........ ............................................          (124,884)                (132,351)
 Accumulated other comprehensive income/(loss)...........................            (1,551)                  (1,551)
                                                                               ------------             ------------
Total....................................................................           266,195                  258,577
Treasury stock (common: 2,713,016 shares at cost) (Note 4)...............           (48,162)                 (48,162)
                                                                               ------------             ------------
Total shareholders' equity...............................................           218,033                  210,415
                                                                               ------------             ------------
Total liabilities and shareholders' equity...............................      $    392,945             $    397,202
                                                                               ============             ============

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

                                                                                     THREE MONTHS ENDED MARCH 31,
                                                                                   1999                     1998  
                                                                               ------------             ------------
  <S>                                                                          <C>                      <C>
  Sales...................................................................     $    195,274             $    184,625
  Cost of sales...........................................................          174,871                  164,497
                                                                               ------------             ------------
  Gross profit............................................................           20,403                   20,128
  Selling, general and administrative expenses............................            8,326                    8,313
                                                                               ------------             ------------
  Income from operations..................................................           12,077                   11,815
  Interest expense........................................................             (626)                  (1,137)
  Other - net.............................................................              596                    1,224
                                                                               ------------             ------------
  Income before income taxes .............................................           12,047                   11,902
  Income taxes............................................................            4,580                    4,525
                                                                               ------------             ------------
  Income before accounting change ........................................            7,467                    7,377
  Cumulative effect of accounting change (Note 5) ........................             --                     (2,046)
                                                                               ------------             ------------
  Net income..............................................................     $      7,467             $      5,331
                                                                               ============             ============

  Income per share of common stock - BASIC (Notes 4 and 6):
  Income before accounting change ........................................     $       0.56             $       0.51
  Cumulative effect of accounting change (Note 5) ........................             --                      (0.14)
                                                                               ------------             ------------
  Net income .............................................................     $       0.56             $       0.37
                                                                               ============             ============
  Weighted average number of shares outstanding...........................           13,256                   14,493
                                                                               ============             ============

  Income per share of common stock - DILUTED (Notes 4 and 6):
  Income before accounting change ........................................     $       0.56             $       0.51
  Cumulative effect of accounting change (Note 5).........................             --                      (0.14)
                                                                               ------------             ------------
  Net income .............................................................     $       0.56             $       0.37
                                                                               ============             ============
  Weighted average number of shares outstanding...........................           13,361                   14,575
                                                                               ============             ============

  See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                       AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
                                          CONSOLIDATED STATEMENTS OF CASH FLOWS
                                       THREE MONTHS ENDED MARCH 31, 1999 AND 1998
                                                     (In thousands)
                                                       (UNAUDITED)

                                                                                    1999                     1998   
                                                                               ------------             ------------
<S>                                                                            <C>                      <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income.............................................................      $      7,467             $      5,331
  Adjustments to reconcile net income to net cash
    provided by operating activities:
    Depreciation and amortization........................................             2,331                    2,183
    Deferred income taxes................................................             2,580                    4,525
    Cumulative effect of accounting change (Note 5)......................              --                      2,046
    Changes in operating assets and liabilities:
      Receivables........................................................             1,019                    7,426
      Inventories........................................................             2,694                    3,862
      Prepaid expenses and other assets..................................            (1,032)                  (1,496)
      Accounts payable...................................................           (17,095)                  (5,087)
      Accrued compensation and other liabilities.........................             6,401                    5,811
                                                                               ------------             ------------
     Net Cash Provided by Operating Activities...........................             4,365                   24,601
                                                                               ------------             ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures...................................................            (8,797)                  (4,312)
                                                                               ------------             ------------
  Net Cash Used for Investing Activities.................................            (8,797)                  (4,312)
                                                                               ------------             ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Payment of long-term borrowings........................................              (981)                    (981)
  Other net..............................................................               151                     --  
                                                                               ------------             ------------
Net Cash Used for Financing Activities...................................              (830)                    (981)
                                                                               ------------             ------------
Net (decrease)/increase in cash and cash equivalents.....................            (5,262)                  19,308
Cash and cash equivalents at beginning of period.........................            52,262                   81,752
                                                                               ------------             ------------
Cash and cash equivalents at end of period...............................      $     47,000             $    101,060
                                                                               ============             ============

Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest.................................................................      $        677             $        776
                                                                               ============             ============
Income taxes ............................................................      $       --               $      1,300
                                                                               ============             ============
</TABLE>
See Notes to Consolidated Financial Statements.
<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,
1998 audited financial  statements and related notes filed on Form 10- K for the
year ended December 31, 1998 (the "1998 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 March 31, 1999
and December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
                                                                                   1999                   1998  
                                                                               ------------           ------------
        <S>                                                                    <C>                    <C>
        Long-term contracts:
               U.S. Government:
                  Amounts billed..........................................     $      1,519           $      2,857
                  Unbilled costs, including retentions, and
                      estimated profits on contracts in
                      progress............................................          109,592                101,931
                                                                               ------------           ------------
                  Total...................................................          111,111                104,788

               Commercial:
                  Amounts billed..........................................            2,772                  1,934
                  Unbilled costs, including retentions, and
                      estimated profits on contracts in
                      progress............................................            6,684                 13,427
                                                                               ------------           ------------

                  Total from long-term contracts..........................          120,567                120,149
                Trade and other current receivables.......................            4,331                  5,768
                                                                               ------------           ------------
                Total ....................................................     $    124,898           $    125,917
                                                                               ============           ============
</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>
The  Company  currently  has an issue  with the U.S.  Navy  related  to  certain
materials  purchased  from a  subcontractor  for  use in the  Strategic  Sealift
program.   The   materials   were   purchased   based   on   government-provided
specifications  which  have  proven  to  be  defective. In addition to delay and
disruption costs, the Company has incurred approximately $13.4 million in direct
costs through March 31, 1999 related to this issue. The Company believes that it
is entitled to  recovery  from the U. S. Navy of these costs and has  recorded a
receivable  for the amount of direct costs  incurred to date.  While the Company
hopes to resolve this issue through negotiations,  the Company has engaged legal
counsel  to assist in the  development  of a claim.  Avondale  is  currently  in
discussions with the U.S. Navy concerning these issues.

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 March 31, 1999, 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 March 31,  1999,  the Company is 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  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 offer was  approximately  $36.3 million,
including  legal,  consulting  and other  professional  fees.  The total  shares
represented  approximately  8.6% of the  outstanding  shares at that  date,  and
following the tender offer, the Company had approximately 13.2 million shares of
its common stock  outstanding.  The  transaction  was funded using existing cash
balances.

5.      CUMULATIVE EFFECT OF ACCOUNTING CHANGE

In December  1997,  the  American  Institute  of  Certified  Public  Accountants
promulgated  Statement of Position  97-3,  "Accounting  by  Insurance  and Other
Enterprises for Insurance-related Assessments" ("SOP 97-3"). SOP 97-3 prescribes
certain  accounting  treatment  for  entities  that are  subject to a variety of
assessments related to insurance  activities,  including assessments by worker's
compensation  second-injury funds. SOP 97-3 requires that companies estimate and
record the entity's future liabilities  related to these  assessments.  Although
SOP 97-3 was not effective until fiscal years beginning after December 15, 1998,
it encouraged  entities to early adopt its  requirements.  As Avondale has ceded
certain worker's compensation claims to a second injury fund administered by the
U. S.  Department of Labor and is subject to an annual  assessment,  the Company
elected  to adopt  SOP 97-3  early.  As a  result,  the  Company  recorded  as a
liability  the  estimated  present  value of its future  assessments.  Thus,  in
accordance with SOP 97-3, the Company recorded the after-tax impact of the early
adoption of SOP 97-3 as a  cumulative  effect of  accounting  change  within the
Company's  Consolidated Statement of Operations for the three months ended March
31, 1998. The effect of this change in accounting  principle was to decrease net
income by $2.0 million  (net of related tax  benefits of $1.3  million) or $0.14
per share basic and diluted.
<PAGE>
6.      EARNINGS PER SHARE

The number of weighted average shares outstanding for "basic" EPS was 13,256,461
and 14,493,211 for the three months ended March 31, 1999 and 1998, respectively.
The  number  of  weighted  average  shares  outstanding  for  "diluted"  EPS was
13,361,373  and  14,575,258  for the three months ended March 31, 1999 and 1998,
respectively.  The difference in weighted average shares  outstanding of 104,912
and 82,047 for 1999 and 1998 , 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, 1998,
the Company's earnings per share basic and diluted would have been $0.38.

7.      COMMITMENTS AND CONTINGENCIES

Litigation

As  discussed  in Note 10 of the  Notes  to  Consolidated  Financial  Statements
included  in the 1998 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 March 31, 1999 such costs totaled approximately
$19.5 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 March 31, 1999, the balance of the
escrow was $9.9  million,  which is to be used to fund any  ongoing  remediation
expenses.  The Company will not owe any future  assessments until the balance in
escrow is depleted.  There are additional  settlements  being  negotiated  which
should 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  consolidated  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% for any additional costs.
<PAGE>
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.

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
incurred by the UNO Research and Technology Foundation,  Inc. (the "Foundation")
for the  construction  of the facility  and the  acquisition  of  computer-aided
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 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 any remaining debt.
The Company's guarantee is unsecured.  In addition to the amounts expected to be
funded by the State,  the  Foundation,  at the Company's  request,  is incurring
approximately  $15.5 million in additional  costs to enhance the integration and
functionality of the ship design and IPDE technology. The Company is reimbursing
the  Foundation  for these  additional  amounts as incurred and will  capitalize
these costs and amortize  them over their  estimated  useful lives in accordance
with the Company's  stated  policies.  (See Note 1 of the Notes to  Consolidated
Financial  Statements included in the 1998 Form 10-K). As of March 31, 1999, the
Foundation had incurred $42.9 million of cost to construct and equip the Center.
In connection with its non-binding  commitment,  the State appropriated and paid
$3.7 million  during 1997 and $6.3 million in 1998,  representing  the first two
installments to the Foundation.

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 March 31, 1999
and December 31, 1998.
<PAGE>
OSHA
During  the  fourth  quarter  of 1998,  Avondale  consented  to a  comprehensive
inspection  of its main facility by the federal  Occupational  Safety and Health
Administration  ("OSHA").   Avondale  believes  this  inspection  was  based  on
complaints  filed by the union that is seeking to organize certain of Avondale's
employees.  On April 5, 1999, OSHA proposed  penalties totaling $537,000 against
Avondale  based  on its  six  month  inspection.  OSHA  issued  three  citations
identifying more than 60 alleged violations of OSHA's safety standards.  OSHA is
also   investigating   Avondale's   compliance   with  OSHA's   record   keeping
requirements.   Avondale   believes  the   citations  are  invalid  and  legally
unjustified.  While Avondale  plans to confer with OSHA  informally to state its
position and, if necessary, contest the citations before the Occupational Safety
and Health  Review  Commission,  it does not  believe  that the outcome of these
matters  will  have a  material  adverse  effect on its  consolidated  financial
statements or operations.

8.      PROPOSED MERGER

On January 19, 1999,  Avondale  announced a proposed merger with a subsidiary of
Newport News Shipbuilding  Inc.  ("Newport News") which would result in Avondale
becoming a subsidiary  of Newport News.  The proposed  merger is structured as a
stock-for-stock  transaction  and  is  subject  to  regulatory  and  shareholder
approval. Upon consummation of the proposed merger, each Avondale share would be
exchanged  for a  maximum  of  1.25  and a  minimum  of  1.15  of  Newport  News
Shipbuilding  Inc.  shares  based on the average  closing  price of Newport News
shares during the fifteen day trading  period  ending on the fourth  trading day
prior to the shareholder  vote. If such average closing price is $28.40 or less,
Avondale  shareholders  would receive 1.25 Newport News shares for each Avondale
share. If such price is $30.87 or more, Avondale shareholders would receive 1.15
Newport News shares for each Avondale share. If such price is between $28.40 and
$30.87,  Avondale  shareholders would receive that number of Newport News shares
determined  by dividing  $35.50 by such price,  or between 1.25 and 1.15 Newport
News shares.

On February 22, 1999,  Avondale and Newport News  announced  that their proposed
merger had been cleared by the Department of Justice under the Hart-Scott-Rodino
Antitrust  Improvements  Act of 1976. In addition,  on May 5, 1999,  the Company
received the consent of the Administrator of the Maritime  Administration of the
U.S.  Department  of  Transportation.   The  antitrust  clearance  and  Maritime
Administration  consent  satisfy  certain  of  the  conditions  to  closing  the
transaction,  which remains subject to the approval of the  shareholders of both
companies.

In  addition,  on February  18,  1999,  the Company  announced  that it had been
advised by Newport News that Newport News had received an unsolicited offer from
General Dynamics  Corporation  ("General Dynamics") proposing to acquire Newport
News for  $38.50  per share in cash,  subject to due  diligence  and  regulatory
clearance.  Although the General Dynamics offer did not specifically ask Newport
News to terminate its agreement with Avondale,  the offer did state that Newport
News'  proposed  merger  with  Avondale  would  create  antitrust  problems in a
combination of General Dynamics and Newport News.
<PAGE>
Newport News advised  General  Dynamics that it was not prepared to evaluate the
General Dynamics proposal until it was able to obtain reliable  assurance that a
combination  of General  Dynamics  and Newport  News would not be opposed by the
Department of Defense and Department of Justice.  To that end, Newport News made
a request  to the  Department  of  Defense  seeking a prompt  indication  of the
Department's  position on the  General  Dynamics  proposal.  In response to this
request, on April 14, 1999, Secretary of Defense William S. Cohen announced that
the  Department of  Defense  was  not in support of General  Dynamics'  proposed
acquisition of Newport News. As a result,  General Dynamics immediately withdrew
its unsolicited offer.

In addition, on May 6, 1999, the Company announced that Litton Industries,  Inc.
("Litton")  submitted an unsolicited  written proposal to acquire Avondale in an
all cash transaction of $38.00 per common share. Avondale further announced that
it has  simultaneously  been  provided by Litton  with a copy of an  independent
proposal   made  by  Litton  to  merge  with   Newport   News  in  a   tax-free,
stock-for-stock  transaction in which each Newport News share would be converted
into 0.55 Litton  shares.  Neither  Litton's  offer to Avondale nor its offer to
Newport News is conditioned upon acceptance or rejection of the other.

According to the terms of the merger agreement with Newport News,  neither party
to the  transaction is permitted to engage in discussions  with other  companies
unless either  Avondale or Newport News  determines  that a subsequent  proposal
could lead to a superior offer.  The boards of directors of each of Avondale and
Newport  News  have  made  this  determination  and  authorized  the  respective
management teams to commence in preliminary discussions with Litton.

9.      RECENT ACCOUNTING PRONOUNCEMENT

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and Hedging Activities" ("SFAS 133") which establishes  accounting and reporting
standards for derivative  instruments and hedging activities.  This statement is
effective  for the Company on January 1, 2000.  The Company has  considered  the
implications of SFAS 133 and has concluded that its implementation will not have
a material effect on the Company's consolidated financial statements.
<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 March 31, 1999
and 1998 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, 1998 (the "1998 Form 10-K").

Overview

The Company  continued its progress  toward  completion of its major  contracts.
This progress is highlighted by steady but improving sales, gross profit, income
from operations, income before income taxes and net income.

The  Company's  firm  backlog at March 31, 1998 was  approximately  $1.8 billion
(including  estimated  contract  escalation)  exclusive of  unexercised  options
aggregating  approximately  $470  million  held by the U.S.  Navy  (the  "Navy")
(including estimated contract escalation) and approximately $330 million held by
a commercial customer for additional ship orders.

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 program.  The original contract provided for options  exercisable
by the Navy for two  additional  LPD class ships.  During  1998,  the U. S. Navy
exercised the first such option for the second vessel of the program, LPD-18, at
a contract price of approximately $391 million.  Under the terms of an agreement
between the alliance members, the Company will build the ships covered under the
December  1996 and  December  1998  contracts,  and, if the Navy  exercises  the
remaining  option,  Bath would  construct the third of the three LPD ships to be
built  under the  initial  contract.  Raytheon  is  responsible  for total  ship
integration and the alliance is using an advanced  three-dimensional ship design
and product  modeling  technology for the design and manufacture of the ship. As
the prime contractor  under the LPD 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 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  contract  are
distributable  among  the  alliance  members  in  proportion  to  each  member's
performance  and  participation  in the  construction  of the vessel  during the
period  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 corresponding operating margin.
<PAGE>
Also  included  in the firm  backlog is the  largest  commercial  contract  ever
awarded to  Avondale.  In June 1997,  the  Company  was  awarded a $332  million
contract  for the  construction  of two 125,000 DWT crude oil  carriers  for the
Jones  Act  Trade to be built  with  double  hulls  in  compliance  with the Oil
Pollution  Act  of  1990.  The  original  contract  also  provided  for  options
exercisable by the customer for three additional  ships, and, in September 1998,
the customer  exercised  the first such  option,  valued at  approximately  $164
million.  The first ship is  scheduled  for  delivery in 2000.  With the current
level of crude oil  prices,  ARCO  announced  plans to reduce  costs and capital
spending.  To this end, ARCO and the Company  agreed to delay the  deliveries of
the three vessels  currently  under contract by up to 16 months and the customer
has  agreed to modify  the terms of its original contract thereby increasing its
sales price by approximately $11.1 million and pay  the  Company  its  estimated
out-of-pocket   expenses   (consisting   principally   of  storage,   preventive
maintenance and other delay related costs) for completing the vessels in a later
time frame. As the contract is still in initial stages of contract  performance,
no  profit  has been  recognized  to date.  (Refer  to the 1998  Form 10-K for a
discussion of the Company's policies and procedures for revenue recognition.) In
addition,  on April 1, 1999, ARCO announced a planned business  combination with
BP  Amoco,  Inc.  in a stock  for  stock  transaction  which is  expected  to be
completed  prior to the end of 1999.  In light  of the  above,  there  can be no
assurance that ARCO will exercise its remaining options.

During 1999,  the Company  expects to deliver the  Icebreaker to the U. S. Coast
Guard.  In  addition,  the Company is  scheduled to deliver the second and third
vessels of a contract to construct seven Strategic Sealift vessels.

On January 19, 1999,  Avondale  announced a proposed merger with a subsidiary of
Newport News Shipbuilding  Inc.  ("Newport News") which would result in Avondale
becoming a subsidiary  of Newport News.  The proposed  merger is structured as a
stock-for-stock  transaction  and  is  subject  to  regulatory  and  shareholder
approval. Upon consummation of the proposed merger, each Avondale share would be
exchanged  for a  maximum  of  1.25  and a  minimum  of  1.15  of  Newport  News
Shipbuilding  Inc.  shares  based on the average  closing  price of Newport News
shares during the fifteen day trading  period  ending on the fourth  trading day
prior to the shareholder  vote. If such average closing price is $28.40 or less,
Avondale  shareholders  would receive 1.25 Newport News shares for each Avondale
share. If such price is $30.87 or more, Avondale shareholders would receive 1.15
Newport News shares for each Avondale share. If such price is between $28.40 and
$30.87,  Avondale  shareholders would receive that number of Newport News shares
determined  by dividing  $35.50 by such price,  or between 1.25 and 1.15 Newport
News shares.

On February 22, 1999,  Avondale and Newport News  announced  that their proposed
merger had been cleared by the Department of Justice under the Hart-Scott-Rodino
Antitrust  Improvements  Act of 1976. In addition,  on May 5, 1999,  the Company
received the consent of the Administrator of the Maritime  Administration of the
U.S.  Department  of  Transportation.   The  antitrust  clearance  and  Maritime
Administration  consent  satisfy  certain  of  the  conditions  to  closing  the
transaction,  which remains subject to the approval of the  shareholders of both
companies.
<PAGE>
In  addition,  on February  18,  1999,  the Company  announced  that it had been
advised by Newport News that Newport News had received an unsolicited offer from
General Dynamics  Corporation  ("General Dynamics") proposing to acquire Newport
News for  $38.50  per share in cash,  subject to due  diligence  and  regulatory
clearance.  Although the General Dynamics offer did not specifically ask Newport
News to terminate its agreement with Avondale,  the offer did state that Newport
News'  proposed  merger  with  Avondale  would  create  antitrust  problems in a
combination of General Dynamics and Newport News.

Newport News advised  General  Dynamics that it was not prepared to evaluate the
General Dynamics proposal until it was able to obtain reliable  assurance that a
combination  of General  Dynamics  and Newport  News would not be opposed by the
Department of Defense and Department of Justice.  To that end, Newport News made
a request  to the  Department  of  Defense  seeking a prompt  indication  of the
Department's  position on the  General  Dynamics  proposal.  In response to this
request, on April 14, 1999, Secretary of Defense William S. Cohen announced that
the  Department  of Defense  was not in support  of General  Dynamics'  proposed
acquisition of Newport News. As a result, General Dynamics immediately  withdrew
its unsolicited offer.

In addition, on May 6, 1999, the Company announced that Litton Industries,  Inc.
("Litton")  submitted an unsolicited  written proposal to acquire Avondale in an
all cash transaction of $38.00 per common share. Avondale further announced that
it has  simultaneously  been  provided by Litton  with a copy of an  independent
proposal   made  by  Litton  to  merge  with   Newport   News  in  a   tax-free,
stock-for-stock  transaction in which each Newport News share would be converted
into 0.55 Litton  shares.  Neither  Litton's  offer to Avondale nor its offer to
Newport News is conditioned upon acceptance or rejection of the other.

According to the terms of the merger agreement with Newport News,  neither party
to the  transaction is permitted to engage in discussions  with other  companies
unless either  Avondale or Newport News  determines  that a subsequent  proposal
could lead to a superior offer.  The boards of directors of each of Avondale and
Newport News have made this  determination  and have  authorized  the respective
management teams to commence in preliminary discussions with Litton.

Results of Operations

The Company  recorded net income for the first  quarter of 1999 of $7.5 million,
or $0.56 per share basic and  diluted,  compared to $5.3  million,  or $0.37 per
share basic and diluted,  for the first three months of 1998.  This  increase is
primarily a result of the Company's early adoption of the American  Institute of
Certified  Public  Accountants'  Statement of Position 97-3 and its  retroactive
application  to the first  quarter  of 1998.  The  adoption  of this SOP,  which
prescribes  accounting  treatment for entities  which are subject to assessments
related to certain  insurance  activities,  resulted in an  after-tax  charge of
approximately  $2.0  million,  or  $0.14  per  share  basic  and  diluted.  (See
additional  discussion  in  Note  5  of  the  Notes  to  Consolidated  Financial
Statements, contained elsewhere in this Form 10-Q).

Income from  operations for the first three months of 1999 was  consistent  with
the year earlier period increasing  approximately $262,000 to $12.1 million. The
steady operating results reflect continued  successful progress on the Company's
contracts in progress.  Also  contributing  to the 1999  operating  results were
operating  profits  recorded by the Company's  modular  construction  and marine
repair operations.
<PAGE>
Sales for the first three  months of 1999  increased  $10.7  million,  or 6%, to
$195.3  million  compared to $184.6  million for the first quarter of 1998.  The
increase in sales in the  current  quarter is  primarily  a result of  increased
costs  associated  with  contracts in the initial  stages of  construction.  The
Company recorded increased sales on the contracts to construct the two LPDs (the
second of which is  scheduled  for  delivery in 2004) and the three  125,000 DWT
double-hulled  crude oil carriers (the last of which is expected to be delivered
in 2002). These 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 at or
near  completion.  The Company  recorded  decreased  sales on the  contracts  to
construct the seven Strategic  Sealift ships (the Company has already  delivered
the first  vessel and  expects to deliver  the second and third  vessels  during
1999), the Icebreaker (scheduled for delivery in the fourth quarter of 1999) and
the LSD-CV 52 (delivered in February 1998).

Gross profit for the first  quarter of 1999  remained in excess of 10% of sales;
however,  the gross profit margin  percentage  decreased  approximately  0.4% as
compared to the same period in the prior year.  The decrease in the gross profit
margin percentage is primarily  attributable to two factors.  First, the LPD and
ARCO contracts are in the initial stages of contract performance which result in
significant  engineering design and material acquisition costs recorded as 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 1998 Form 10-K for a  discussion  of the  Company's  policies  and
procedures  for  revenue  recognition.)  Second,  as stated  above,  the Company
includes in its consolidated  financial statements both costs incurred and award
fees paid to other  members of the alliance in the LPD program as sales and cost
of sales with no corresponding gross profit margin. The total costs incurred and
award fees paid to other alliance members in the LPD program for the three month
periods ended March 31, 1999 and 1998 totaled  $21.2 million and $14.7  million,
respectively.

The  Company  currently  has an issue  with the U.S.  Navy  related  to  certain
materials  purchased  from a  subcontractor  for  use in the  Strategic  Sealift
program.   The   materials   were   purchased   based   on   government-provided
specifications  which have  proven to be  defective.  In  addition  to delay and
disruption costs, the Company has incurred approximately $13.4 million in direct
costs through March 31, 1999 related to this issue. The Company believes that it
is entitled to  recovery  from the U. S. Navy of these costs and has  recorded a
receivable  for the amount of direct costs  incurred to date.  While the Company
hopes to resolve this issue through negotiations,  the Company has engaged legal
counsel  to assist in the  development  of a claim.  Avondale  is  currently  in
discussions with the U.S. Navy concerning these issues.

Other income decreased $0.6 million,  or 51%,  reflecting a decrease in interest
income resulting from  significantly  lower cash and cash equivalents  available
for  investment  during  1999 as  compared  to the  period  in 1998  immediately
preceding the June 1998 stock repurchase.

Recent Accounting Pronouncements

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and Hedging Activities" ("SFAS 133") which establishes  accounting and reporting
standards for derivative  instruments and hedging activities.  This statement is
effective  for the Company on January 1, 2000.  The Company has  considered  the
implications of SFAS 133 and has concluded that its implementation will not have
a material effect on the Company's consolidated financial statements.
<PAGE>
Year 2000

In accordance with the U. S. Securities and Exchange  Commission's ("SEC") Staff
Legal Bulletin No. 5 and the SEC's subsequent  interpretive release, the Company
has assessed  both the cost of  addressing  and the cost or the  consequence  of
incomplete or untimely resolution of the Year 2000 issue. This process includes:
(a) the development of Year 2000 ("Y2K") awareness,  (b) a comprehensive  review
to identify  systems that could be affected by the Y2K issue,  (c) an assessment
of potential risk factors (including  noncompliance by the Company's  suppliers,
subcontractors  and customers,  including the U. S. Navy), (d) the allocation of
required  resources,  (e) a  determination  of the  extent of  remediation  work
required,  (f) the development of an implementation plan and timetable,  and (g)
the development of contingency plans.

In  response  to  the  Y2K  issue,  Avondale  established  its  own  team  as  a
collaborative effort involving key Company personnel.  In addition,  the Company
commissioned  an outside  consultant to make inquiries and provide  observations
relating to the Company's plan for  identifying  and resolving Y2K issues within
its  information   technology  ("IT")  systems.  The  consultant  discussed  its
observations  with  members of senior  management.  A major  observation  of the
consultant  identified some segments of the Company's overall  accounting system
as non-compliant.  As a result,  management  considered several alternatives for
remediating  non-compliant  systems  including:  repairing/modifying  only those
systems,  replacing  only  those  systems  or  developing  a more  comprehensive
solution. After a thorough review of all options, the Company decided to replace
its entire accounting  systems software.  The acquisition and  implementation of
this  replacement  software  is  projected  to cost  approximately  $6.0 to $7.0
million.  This project began in October 1998 and is scheduled for  completion in
October 1999.

The Company has  established  a two-phased  approach for its solution of the Y2K
issue which includes: assessment of each system's compliance with the Y2K issue,
and the testing  and  modification/replacement  of  non-compliant  systems.  The
Company's  remediation plan focuses on both IT systems as well as non-IT systems
which are integral to the Company's  operating and support functions.  This plan
includes both replacement and upgrades of these systems or equipment.

The Company is incurring  both internal  staff costs as well as  consulting  and
other expenses  relating to these issues.  All costs related to remediating  the
Y2K issue will be funded with cash on hand.  Expenditures,  including consulting
fees and other  expenses,  have totaled  approximately  $2.3  million  since the
inception of the Company's Y2K effort.  Approximately $650,000 has been expended
in  1999  and  total  aggregate  expenditures  for  both IT and  non-IT  systems
remediation and testing are projected to be approximately  $7.0 to $9.0 million,
including the business  systems  software  discussed  above much of which is not
required for  remediation  of the  Company's Y2K issue.  The Company  expects to
complete its remediation of non-compliance  systems during the second quarter of
1999.

In  addition,  the Company has  initiated  communications  with its  significant
suppliers, large customers (including the U. S. Navy), subcontractors and others
to  determine  the extent to which the  Company  is  vulnerable  to these  third
parties'  failure to  remediate  their own Y2K  issues.  The Company can give no
assurance  that the systems of these third  parties on which the Company  relies
will be remediated on time or that failure to remediate by them would not have a
material adverse effect on the Company.
<PAGE>
If the  Company is unable to timely  resolve  Y2K issues  inherent in its IT and
non-IT  systems  or any  of  the  Company's  significant  suppliers,  customers,
subcontractors  and others are  unsuccessful in resolving Y2K issues inherent in
their own  systems and  existent  in  machinery,  equipment,  and other  systems
supplied to the Company,  the Company may experience some operating  disruption.
However,  although the Company cannot give assurance on the Y2K issue,  based on
current  information,  the Company does not expect such disruptions to be severe
and  therefore  does not expect  unsatisfactory  resolution of Y2K issues by the
Company or its significant  suppliers,  customers,  subcontractors and others to
have  a  material  adverse  impact  on  the  Company's   consolidated  financial
statements.

The Company  believes that it will  successfully  implement its Y2K  remediation
plan on  schedule  and will be Y2K  compliant  before the end of 1999.  However,
managment believes that there is a risk that significant  suppliers,  customers,
subcontractors, and others on whom the Company's finances and operations largely
depend may  experience  their own Y2K problems  that could affect the  Company's
operations or financial position. Such risks include but are not limited to: the
inability of the Company to retain qualified  personnel and outside  consultants
to  successfully  remediate Y2K issues and implement the new business  system as
demand for their services rises due to other  companies'  unanticipated  or more
severe Y2K problems; the inability of the Company's customers,  including the U.
S. Navy, to accurately and timely pay invoices;  the inability of the Company to
access  necessary  capital from lenders or other sources when required;  and the
inability of the Company's significant suppliers, customers,  subcontractors and
others to provide the necessary materials,  services, or systems required to run
the Company's business.

If  the  Company  does  not  experience   severe  Y2K  financial  and  operating
difficulties, notwithstanding its efforts to avoid or mitigate Y2K issues in its
own systems or adverse effect of Y2K issues experienced by third parties on whom
the Company  relies,  the Company is in the process of  developing  a continency
plan for  dealing  with the most  reasonably  likely  worst case  scenario.  The
development of this plan is the current focus of senior management.

The  Company  will  continue  to review its plan for  solution of Y2K issues for
effectiveness.  As such,  the Company can give no assurance  that the  estimated
costs  herein  for  solving  its own Y2K issues or the  estimated  impact of Y2K
issues on the Company's financial condition, operations, and cash flows will not
be revised as a result of the facts that become known to the Company.
<PAGE>
Liquidity and Capital Resources

The Company's cash and cash equivalents  totaled $47.0 million at March 31, 1999
as compared to $52.3  million at December 31,  1998.  The  Company's  operations
generated  approximately $4.4 million of cash during the quarter ended March 31,
1999.  The  Company's  primary  uses of cash in the current  year  consisted  of
capital  expenditures  of $8.8 million and payments on long-term  borrowings  of
approximately $1.0 million.

Capital  expenditures  for the first three months of 1999 increased $4.5 million
to $8.8 million  compared to the $4.3  million for the same period in 1998.  The
increase is primarily  attributable to $4.5 million in additional costs relating
to  enhancing  the  integration  and  functionality  of the ship design and IPDE
technology.  In addition, the Company is finalizing certain plant and facilities
improvements  required to construct the ARCO vessels.  Capital spending for 1999
also  includes   approximately   $530,000   relating  to  the   acquisition  and
implementation  of new integrated  business systems  software.  The remainder of
1999 capital expenditures  represents plant improvements and equipment additions
which are designed to improve the Company's  overall 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 capital spending for 1999 to approximate the level of 1998.

The Company's $65 million revolving credit agreement ("the agreement")  provides
liquidity for working  capital  purposes,  capital  expenditures  and letters of
credit. At March 31, 1999, 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 March 31, 1999,  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 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.  In addition to the amounts expected to be funded by the State, the
Foundation,  at the Company's request, is incurring  approximately $15.5 million
in additional  costs to enhance the  integration and  functionality  of the ship
design and IPDE technology.  The Company is reimbursing the Foundation for these
additional amounts as incurred and will capitalize these costs and amortize them
over their  estimated  useful  lives in  accordance  with the  Company's  stated
policies. (See Note 1 of the Notes to Consolidated Financial Statements included
in the 1998 Form 10-K).

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 any remaining debt.
The Company's  guarantee is unsecured.  As of March 31, 1999, the Foundation had
incurred $42.9 million of cost to construct and equip the Center.  In connection
with its non-binding  commitment,  the State  appropriated and paid $3.7 million
during 1997 and $6.3 million in 1998, representing the first two installments to
the Foundation.

During  the  fourth  quarter  of 1998,  Avondale  consented  to a  comprehensive
inspection  of its main facility by the federal  Occupational  Safety and Health
Administration  ("OSHA").   Avondale  believes  this  inspection  was  based  on
complaints  filed by the union that is seeking to organize certain of Avondale's
employees.  On April 5, 1999, OSHA proposed  penalties totaling $537,000 against
Avondale  based  on its  six  month  inspection.  OSHA  issued  three  citations
identifying more than 60 alleged violations of OSHA's safety standards.  OSHA is
also   investigating   Avondale's   compliance   with  OSHA's   record   keeping
requirements.  Avondale  believes  that the  citations  are  invalid and legally
unjustified.  While Avondale  plans to confer with OSHA  informally to state its
position and, if necessary, contest the citations before the Occupational Safety
and Health  Review  Commission,  it does not  believe  that the outcome of these
matters  will  have a  material  adverse  effect on its  consolidated  financial
statements or operations.
<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 as defined in the
Private  Securities   Litigation  Reform  Act  of  1995.  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 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.

Item 3:        Quantitative and Qualitative Disclosures about Market Risk

               Not applicable.
<PAGE>
                           PART II - OTHER INFORMATION

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(2).

                         15  Letter re: unaudited interim financial information.

                         27  Financial Data Schedule

               (b)      Reports on Form 8-K:

                        On January 22, 1999,  the Company filed a Current Report
                        on Form 8-K to report under Item 5 that it had  issued a
                        press   release  on   January  19,  1999  regarding  the
                        Company's  entering into  of an Agreement  and  Plan  of
                        Merger with Newport News Shipbuilding Inc.

                        On February 22, 1999, the Company filed a Current Report
                        on Form 8-K to report  under Item 5 that it had issued a
                        press release on February 18, 1999 to report that it had
                        been  informed by Newport News  Shipbuilding  Inc.  that
                        Newport  News had  received  an  unsolicited  offer from
                        General Dynamics to acquire Newport News.

                        On February 23, 1999, the Company filed a Current Report
                        on Form 8-K to report  under Item 5 that it had issued a
                        press  release on  February  22, 1999 to report that its
                        proposed merger with Newport News  Shipbuilding Inc. had
                        been  cleared by the  Department  of  Justice  under the
                        Hart-Scott-Rodino Antitrust Improvements Act of 1976.

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

(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  Quarterly Report on
               Form 10-Q for the fiscal quarter ended June 30, 1998.
<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: May 14, 1999                             By:/s/ ALBERT L. BOSSIER, JR. 
      ------------                                 -----------------------------
                                                      Albert L. Bossier, Jr.
                                                      Chairman, President &
                                                       Chief Executive Officer





Date: May 14, 1999                             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(2).

 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 Quarterly Report on Form 10-Q
      for the fiscal quarter ended June 30, 1998.