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 September 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 September 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 September 30, 1998
--------------------------------------------------------------------------------
Common stock, par value $1.00 per share                    13,250,222 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 -
               September 30, 1998 and December 31, 1997                        2

               Consolidated Statements of Operations -
               Quarters and Nine Months Ended September 30, 1998 and 1997      4

               Consolidated Statements of Cash Flows -
               Nine Months Ended September 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                                              17

        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 September 30,
1998 and for the three-month and nine-month periods ended September 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 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

October 28, 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)
--------------------------------------------------------------------------------------------------------------------


                                                                               September 30,            December 31,
                                                                                    1998                    1997    
                                                                               ------------             ------------
<S>                                                                            <C>                      <C>
ASSETS
Current Assets:
  Cash and cash equivalents..............................................      $     58,211             $     81,752
  Receivables (Note 2):
    Accounts receivable..................................................             7,844                   13,162
    Contracts in progress................................................           100,392                   88,584
  Inventories:
    Goods held for sale..................................................            20,101                   14,915
    Materials and supplies...............................................             8,870                    8,311
  Deferred tax assets ...................................................            14,203                   23,253
  Prepaid expenses and other current assets..............................             2,985                    2,891
                                                                               ------------             ------------

    Total current assets.................................................           212,606                  232,868
                                                                               ------------             ------------

Property, Plant and Equipment:
  Land...................................................................             8,232                    7,843
  Buildings and improvements.............................................            65,883                   55,917
  Machinery and equipment................................................           208,718                  200,777
                                                                               ------------             ------------

    Total................................................................           282,833                  264,537

  Less accumulated depreciation..........................................          (139,155)                (134,481)
                                                                               ------------             ------------

    Property, plant and equipment - net..................................           143,678                  130,056
                                                                               ------------             ------------

Goodwill - net...........................................................             5,060                    5,357
Other assets.............................................................             8,383                    7,334
                                                                               ------------             ------------

    Total assets.........................................................      $    369,727             $    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)
--------------------------------------------------------------------------------------------------------------------

                                                                               September 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.......................................................            65,091                   59,548
  Accrued employee compensation..........................................            17,213                   13,198
  Other..................................................................            12,813                   11,851
                                                                               ------------             ------------

  Total current liabilities..............................................            98,254                   87,644

Long-term debt...........................................................            48,682                   51,819

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

Other liabilities and deferred credits...................................            14,679                   13,775
                                                                               ------------             ------------

  Total liabilities......................................................           174,015                  166,638
                                                                               ------------             ------------

Commitments and contingencies (Note 6)

Shareholders' Equity:
  Common  stock,  $1.00 par value,  authorized  -
    30,000,000  shares;  issued - 15,963,238
    shares in 1998 and 15,956,227 shares in 1997.........................            15,963                   15,956
  Additional paid-in capital.............................................           374,320                  374,173
  Accumulated deficit....................................................          (146,409)                (169,296)
                                                                               ------------             ------------

  Total..................................................................           243,874                  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.............................................           195,712                  208,977
                                                                               ------------             ------------

  Total liabilities and shareholders= equity.............................      $    369,727             $    375,615
                                                                               ============             ============

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)
------------------------------------------------------------------------------------------------------------------------------------
                                                           Quarters Ended September 30,             Nine Months Ended September 30,
                                                             1998                1997                     1998             1997
                                                        --------------      -------------           -------------     -------------
<S>                                                     <C>                 <C>                     <C>               <C>
Sales..............................................     $      197,961      $     159,217           $     561,049     $     444,522

Cost of sales......................................            174,552            139,547                 496,167           386,718
                                                        --------------      -------------           -------------     -------------

Gross profit.......................................             23,409             19,670                  64,882            57,804

Selling, general and
  administrative expenses..........................             10,990              8,720                  28,712            25,689
                                                        --------------      -------------           -------------     -------------

Income from operations.............................             12,419             10,950                  36,170            32,115

Interest expense...................................               (807)            (1,235)                 (2,927)           (3,647)

Other-net, principally interest
  income ..........................................                844                905                   3,444             2,223
                                                        --------------      -------------           -------------     -------------

Income before income taxes.........................             12,456             10,620                  36,687            30,691

Income taxes ......................................              4,600              3,700                  13,800            11,100
                                                        --------------      -------------           -------------     -------------

Net income.........................................     $        7,856      $       6,920           $      22,887     $      19,591
                                                        ==============      =============           =============     =============

Income per share of common stock (Notes 4 and 5):
Net income per share of
  common stock - basic.............................     $         0.59      $        0.48           $        1.64     $        1.35
                                                        ==============      =============           =============     =============

Weighted average number
  of shares outstanding -
  basic............................................             13,250             14,493                  13,952            14,491
                                                        ==============      =============           =============     =============

Net income per share of
  common stock - diluted...........................     $         0.59      $        0.48           $        1.63     $        1.35
                                                        ==============      =============           =============     =============

Weighted average number
  of shares outstanding -
  diluted..........................................             13,309             14,534                  14,023            14,511
                                                        ==============      =============           =============     =============
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                   AVONDALE INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
                                 (In thousands)
                                   (UNAUDITED)
--------------------------------------------------------------------------------------------------------------------

                                                                                    1998                     1997   
                                                                               ------------             ------------
<S>                                                                            <C>                      <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income.............................................................      $     22,887             $     19,591
  Adjustments to reconcile net income to net cash
    provided by operating activities:
    Depreciation and amortization........................................             6,652                    8,558
    Deferred income taxes................................................             8,050                   11,100
    Loss on sale of assets  .............................................               136                     -
    Changes in operating assets and liabilities:
      Receivables........................................................            (6,490)                   9,475
      Inventories........................................................            (5,745)                    (522)
      Prepaid expenses and other assets..................................            (1,143)                    (785)
      Accounts payable...................................................             5,543                  (28,998)
      Accrued employee compensation and other liabilities................             5,881                    9,015
      Other - net........................................................               154                      403
                                                                               ------------             ------------
  Net Cash Provided by Operating Activities..............................            35,925                   27,837
                                                                               ------------             ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures...................................................           (20,131)                  (5,686)
  Proceeds from sale of assets ..........................................                18                        4 
                                                                               ------------             -------------

  Net Cash Used for Investing Activities.................................           (20,113)                  (5,682)
                                                                               ------------             ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Payment of long-term borrowings........................................            (3,047)                  (4,957)
  Purchase of treasury stock  (Note 4)...................................           (36,306)                    -   
                                                                               ------------             ------------

  Net Cash Used for Financing Activities.................................           (39,353)                  (4,957)
                                                                               ------------             ------------

Net (decrease) increase  in cash and cash equivalents....................           (23,541)                  17,198
Cash and cash equivalents at beginning of period.........................            81,752                   48,944
                                                                               ------------             ------------

Cash and cash equivalents at end of period...............................      $     58,211             $     66,142
                                                                               ============             ============

Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest.................................................................      $      3,052             $      3,509
                                                                               ============             ============

Income taxes ............................................................      $      7,150             $      1,200
                                                                               ============             ============

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 September 30,
1998 and December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
                                                                                     1998                     1997     
                                                                               --------------           -------------
        <S>                                                                    <C>                      <C>
        Long-term contracts:
               U.S. Government:
                  Amounts billed..........................................     $          375           $         967
                  Unbilled costs, including retentions, and
                      estimated profits on contracts in
                      progress............................................             91,313                  80,041
                                                                               --------------           -------------
                 Total ...................................................             91,688                  81,008

               Commercial:
                  Amounts billed..........................................              2,126                   4,180
                  Unbilled costs, including retentions, and
                      estimated profits on contracts in
                      progress............................................              9,079                   8,543
                                                                               --------------           -------------

               Total from long-term contracts.............................            102,893                  93,731
        Trade and other current receivables...............................              5,343                   8,015
                                                                               --------------           -------------
        Total  ...........................................................     $      108,236           $     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 September 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 September 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  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 13,250,146
and  14,493,211  for the  three  months  ended  September  30,  1998  and  1997,
respectively  and 13,951,528 and 14,490,644 for the nine months ended  September
30,  1998  and  1997,  respectively.  The  number  of  weighted  average  shares
outstanding for "diluted" EPS was 13,309,319 and 14,534,417 for the three months
ended September 30, 1998 and 1997,  respectively,  and 14,022,860 and 14,511,164
for the nine  months  ended  September  30,  1998 and  1997,  respectively.  The
difference in weighted  average shares  outstanding of 59,173 and 41,206 for the
three months ended  September  30, 1998 and 1997,  respectively,  and 71,332 and
20,520 for the nine months  ended  September  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 nine months ended
September 30, 1997, would have been $0.49 and $1.40, respectively.  For the nine
months ended September 30, 1998, the Company's  diluted earnings per share would
have been $1.68.
<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  September  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 September 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  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%.
<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 for
expenditures incurred by the UNO Research and Technology  Foundation,  Inc. (the
"Foundation")  for the  construction  of the  facility  and the  acquisition  of
computer-aided  design  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 any remaining debt.
The Company's  guarantee is unsecured.  As of September 30, 1998, the Foundation
had  incurred  $35.6  million of costs to  construct  and equip the  Center.  In
connection with its non-binding commitment, the State appropriated and paid $3.8
million  during  1997 and $6.5  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 September 30,
1998 and December 31, 1997.
<PAGE>
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 September 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 13% for
both the third quarter of 1998 and the first nine months of 1998 compared to the
same periods in the prior year. Further,  net income increased 14% for the third
quarter and 17% for the first nine months of 1998 over the same periods in 1997.

The Company's firm backlog at September 30, 1998 was approximately  $1.6 billion
(including  estimated  contract  escalation)  exclusive of  unexercised  options
aggregating  approximately  $971  million  held by the U.S.  Navy  (the  "Navy")
(including estimated contract escalation) and approximately $328 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 $64 million for long lead time materials.  The balance
of approximately  $176 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.  In  addition,  during  September  1998 the
Company's firm backlog was  complemented  with further  commercial  work as ARCO
Marine, Inc. ("ARCO") of Long Beach, California, exercised an option for a third
double-hulled  crude oil carrier,  valued at  approximately  $164 million.  ARCO
holds  options for two  additional  ships under terms of its  contract  with the
Company.

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 and
deliver the first of a contract to construct six Strategic  Sealift ships during
the fourth quarter of 1998.
<PAGE>
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.

Results of Operations

The Company  recorded net income of $7.9  million,  or $0.59 per share,  for the
third  quarter of 1998  compared to $6.9  million,  or $0.48 per share,  for the
third quarter of 1997. For the first nine months of 1998,  the Company  recorded
net income of $22.9 million,  or $1.63 per share,  compared to $19.6 million, or
$1.35 per share, for the same period in 1997. Per share amounts are on a diluted
basis.

Income from operations for the quarter and nine months ended September 30, 1998,
increased $1.5 million, or 13%, and $4.1 million, or 13%, respectively, compared
to the prior year periods.  The improvement in the Company's  operating  results
for the third quarter and first nine 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.
<PAGE>
Sales for the third quarter of 1998 increased  $38.8 million,  or 24%, to $198.0
million compared to $159.2 million for the third quarter of 1997 while sales for
the first nine months of 1998 reflected an increase of $116.5  million,  or 26%,
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 third quarter and nine
months ended  September 30, 1998, the Company  recorded  increased  sales on the
contracts  to  construct  the two 125,000 DWT  double-hulled  crude oil carriers
(both of which are  scheduled for delivery in 2000),  the six Strategic  Sealift
ships (the last of which is expected to be  delivered  in 2001),  and the LPD-17
(expected to be delivered in 2002). The double-hulled  crude oil carrier and LPD
17 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 second 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 third quarter and first nine months of 1998  increased $3.7
million,  or 19%, and $7.1 million, or 12%,  respectively,  compared to the same
periods  in  1997.  However,   the  gross  profit  margin  percentage  decreased
approximately 0.6% and 1.4%,  respectively,  for the three and nine months ended
September  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 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,  as  stated  above,  the  Company  includes  in  its
consolidated  financial  statements  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.

Selling, general and administrative ("SG&A") expenses increased $2.3 million, or
26%, in the third quarter of 1998 and $3.0  million,  or 12%, for the first nine
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 U.S.  Government and  commercial  shipbuilding
opportunities  and  the  rental  and  maintenance  of  advanced   technology  in
connection with the Company's focus on enhancing overall efficiency.

Other income  increased $1.2 million,  or 55%, for the first nine months of 1998
compared to the same  period in the prior year while other  income for the third
quarter of 1998 remained relatively consistent with the same period in 1997. The
increase  for the first  nine  months of 1998 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.
<PAGE>
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.

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.
<PAGE>
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 $310,000 since the inception
of the  Company's Y2K effort.  Approximately  $280,000 has been expended in 1998
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 first six months of 1999.

In addition, the Company is in the process of initiating 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.

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,
management 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.
<PAGE>
If the Company does experience severe Y2K financial and operating  difficulties,
notwithstanding  its efforts to avoid or mitigate  Y2K issues in its own systems
or  adverse  effects  of Y2K  issues  experienced  by third  parties on whom the
Company relies,  the Company is in the process of developing a contingency plan.
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 and operations will not be revised
as a result of the facts that become known to the Company.

Liquidity and Capital Resources

The Company's cash and cash  equivalents  totaled $58.2 million at September 30,
1998 as compared to $81.8 million at December 31, 1997. The Company's operations
generated  approximately  $35.9  million  of cash  for  the  nine  months  ended
September  30,  1998.  The  Company's  primary use of cash during the first nine
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  nine month  period
consisted  of capital  expenditures  of $20.1  million and payments on long-term
borrowings of $3.0 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  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.

Capital  expenditures  for the first nine months of 1998 increased $14.4 million
to $20.1  million  compared to $5.7  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
$7.0  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 September 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 September 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 any remaining debt.
The Company's  guarantee is unsecured.  As of September 30, 1998, the Foundation
had  incurred  $35.6  million of costs to  construct  and equip the  Center.  In
connection with its non-binding commitment, the State appropriated and paid $3.8
million  during  1997 and $6.5  million  in 1998,  representing  the  first  two
installments to the Foundation.
<PAGE>
Cautionary Statement for Purposes of ASafe 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 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).

                     10.10   Amended  and  Restated  Revolving Credit  Agreement
                             dated January 29, 1997,  effective April 30,  1997,
                             among Avondale Industries, Inc.,  various financial
                             institutions  signatory  thereto ("the Banks")  and
                             Bank  of  America   National  Trust   and   Savings
                             Association  as  the  Agent for the Banks, (without
                             exhibits and schedules)(3).

                             (d)  Fourth   Amendment  to  Amended  and  Restated
                                  Revolving  Credit  Agreement, dated  September
                                  12, 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 Quarterly Report on
               Form 10-Q for the fiscal quarter ended June 30, 1998.

(3)            Incorporated by reference  from the Company's Quarterly Report on
               Form 10-Q for the fiscal quarter ended June 30, 1997.
<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:  November 13, 1998                      By: /s/ ALBERT L. BOSSIER, JR. 
       -----------------                          --------------------------
                                                      Albert L. Bossier, Jr.
                                                      Chairman, President &
                                                      Chief Executive Officer





Date:  November 13, 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(2).


    10.10      Amended and  Restated  Revolving  Credit  Agreement dated January
               29, 1997,   effective April 30, 1997, among Avondale  Industries,
               Inc.,  various   financial  institutions  signatory thereto ("the
               Banks")  and   Bank  of  America   National   Trust  and  Savings
               Association  as the  Agent for the Banks,  (without  exhibits and
               schedules)(3).

               (d)   Fourth  Amendment to Amended and  Restated Revolving Credit
                     Agreement, dated September 12, 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 Quarterly Report on
               Form 10-Q for the fiscal quarter ended June 30, 1998.

(3)            Incorporated by reference from the  Company's Quarterly Report on
               Form 10-Q for the fiscal quarter ended June 30, 1997.

<PAGE>