American Classic Voyages to close Hawai'i operations

By Michele Kayal
Advertiser Staff Writer

American Classic Voyages, the latest corporate victim of the terrorist attacks of Sept. 11, will shut down its Hawai'i operations today, ending an era in the state's tourism history and leaving more than 1,000 people statewide without jobs.

American Classic Voyages' ocean liner Independence is expected to sail this evening from its home port of Kahului to Honolulu, where it will remain until an agreement is reached on its future. American Classic Voyages, Hawai'i's only interisland cruise company, goes out of business in Hawai'i today. Advertiser library photo

The demise of Hawai'i's only interisland cruise company, which accounts for half of all port calls in the state, will leave 1,100 people unemployed and send ripples through the already hard-hit local economy.

And although American Classic hopes to go through with the building of two new ships for the Hawai'i market and to resume service here, the future of the state's interisland cruise industry has never been more uncertain.

Yesterday's bankruptcy filing was the end to a long saga that had been up and down for months and was finally ended when the terrorist attacks on New York and Washington sent worldwide tourism into a tailspin.

Struggling even before Sept. 11, American Classic suddenly found itself facing vendors demanding payment up front and credit card companies wary enough of its prospects to refuse to pass through deposits for bookings.

"People who historically had worked with us began to squeeze our cash," said American Classic chief executive officer Philip Calian. "Vendors who used to say 'Pay us in 60 days' said, 'Pay us now.' Companies that used to extend credit to us demanded deposits. Our bank facility (of $10 million) was no longer available to us. So we were faced with a situation where we could either continue to burn cash and effectively liquidate — go down to zero cash and go to liquidation — or stop with the cash we have, which is about $18 million, shrink, and reorganize through the Chapter 11 plan. That was the choice we chose."

Though occupancy on the Independence and the Patriot, the company's Hawai'i cruise ships, quickly shot back up to more than 90 percent after the attacks, the company said, future bookings plunged 50 percent and cancellations rose by 30 percent.

American Classic listed assets of $37.4 million and debts of $452.8 million in its Chapter 11 filing in U.S. Bankruptcy Court in Delaware.

More than 2,000 people nationwide — and 1,100 in Hawai'i — will lose their jobs.

"This is just crushing," Calian said. "These are people who worked extremely hard with their sweat and their heart."

Passengers and crew will get off the Independence as it sits in its home port of Kahului today, Calian said. The plan is to sail the ship back to Honolulu with a skeleton crew this evening. The ship will remain secured in Honolulu until an agreement is reached about what to do with it, Calian said. The Federal Maritime Commission has guaranteed $24 million of outstanding debt on the ship, he noted, and therefore will have a critical say in what happens to it next.

The Patriot will end its cruise in Honolulu today, where Calian said it will be secured until discussions are completed with Carnival Corp. Carnival's Holland America Line sold the 1,212-passenger vessel to American Classic last year for $115 million and holds an $80 million mortgage on the ship. Carnival, the world's largest cruise line company, said it hasn't decided what to do with the ship.

Roughly 1,900 people were scheduled for cruises this weekend, Calian said, but most of them were reached by the company and informed of the situation before they left the Mainland.

"There are a small number of people who left earlier in the week and we were unable to get to them," he said. "We've made accommodation, and we have people — to the extent that anyone shows up at the wharf on Saturday — to give them direction."

Some passengers who found out yesterday were stunned. A seven-day cruise around the islands aboard the Patriot was to have been the highlight of a Hawai'i vacation for eight visitors from North Carolina, all of them senior citizens.

"What a disappointment," said Joan Williams, who bought a discounted $1,000 cruise package for herself and her husband, Alex.

"Now we've got seven days to fill and additional expenses, such as $89 a day for a hotel room. It's a bad scenario, and we'll try to make the best of it. The way we're looking at it is if you're going to be stranded anywhere, it might as well be paradise," Williams said.

Exclusive sailing rights

Interisland cruises have been a part of Hawai'i's tourism landscape since the early '80s, when the Independence and the Constitution began sailing under the American Hawaii Cruises label. American Classic, known for its Mainland lines, bought the company in 1993. It soon replaced the aging Constitution with the Patriot.

But the loss of the interisland line is not just a nostalgic event. American Classic brings 100,000 passengers a year to the state — or about 80 percent of the total — and supports dozens of port-side vendors and activities concessionaires.

"It's just one more hit to the tourism industry at a time when they were already down," said Jennifer Goto Sabas, chief of staff for Hawai'i's senior Sen. Daniel Inouye, who has been instrumental in American Classic's journey through congressional legislation that gave it the exclusive right to operate interisland cruises.

Even competitors greeted the news with sadness. Colin Veitch, chief executive officer of Norwegian Cruise Line, which will base its 2,200-passenger Star here in December, lamented the loss.

"It means there is only our ship offering seven-day cruising, and in that respect, anyone that wants a seven-day cruise is likely to come to us," Veitch said. "But on the other hand, it means there's less money being spent to advertise cruising in Hawai'i. ... People may think it's undiluted good news for us, but I don't regard it that way. And it's never nice to see a competitor going out of business."

Two new ships

Northrop Grumman Corp.'s Litton Ingalls Shipbuilding unit, owed $300 million, is listed in court papers as American Classic's largest creditor. American Classic said it intends to work with Northrop Grumman Corp. and the U.S. Maritime Administration to maintain construction on two 1,900-passenger ships valued at $800 million for the company and currently being built in Mississippi.

The Maritime Administration has guaranteed $1.1 billion in loan guarantees for building the ships.

American Classic agreed in 1999 to buy the ships — the first to be built in a U.S. shipyard in 50 years — for $440 million each. But after recent negotiations, the company agreed to pay an extra $19 million per ship and delay the delivery dates by a year, to February 2004 and 2005.

Calian said the company's current business plan would have them take delivery of those ships, and resume Hawai'i service. But he is non-committal on the odds that such a plan stands, and suggests that the ships, if they are built, may ultimately belong to someone else.

"Whether it's AMCV as AMCV was or some sort of new company or new business, I continue to believe Hawai'i has great potential, and that these new ships will be great value for their owners," he said. "If a sale makes sense, and these assets can generate greater value for others who can build a Hawai'i business, that may be the best use."

The ships, he points out, come with a built-in monopoly. According to legislation that created the ship-building deal, the ships must be sailed in Hawai'i waters, where they were guaranteed a monopoly for the life of the vessels.

Calian did not rule out restarting a Hawai'i operation earlier if demand permits, but the company may not have any ships for it. It is unlikely that another company could launch a purely interisland cruising business. By law, foreign cruise ships cannot carry passengers from one American port to another, and American Classic was the only company sailing U.S.-hulled ships. Even if Carnival were to receive the Patriot back, the company would not be allowed to sail it in Hawai'i. The Patriot is foreign-built, and American Classic received a special waiver to sail it here while the U.S. ships were being constructed.

"We very much believed in what we were doing, and the people affected all cared very much for the passengers and what we were trying to build," Calian said. "It's very sad."

Effects of bankruptcy

Florida-based American Classic Voyages operates four cruise lines: American Hawai'i Cruises and United States Lines in Hawai'i, and the Delta Queen Steamboat Company and Delta Queen Coastal Voyages on the Mainland. Its bankruptcy filing yesterday in Delaware has broad reach.

In Hawai'i:

• Independence: Passengers and crew disembark today in Kahului, Maui. The ship is set to sail back to Honolulu this evening and remain secured until an agreement is reached with the U.S. Maritime Administration about what to do.

• Patriot: Ends its cruise in Honolulu today and will be secured until discussions are complete with Carnival Corp., which holds an $80 million mortgage on the ship.

• New ships: American Classic said it intends to work with Northrop Grumman Corp. and the U.S. Maritime Administration to maintain construction on two 1,900-passenger ships valued at $800 million.

• Lost jobs: 1,100

On the Mainland:

• Delta Queen: All but one vessel shut down. All but 30 people in the company's New Orleans office, and 80 aboard the remaining ship lose their jobs.

• Lost jobs: 1,050

Customer information: (800) 856-9904. Those with reservations are urged to contact their travel agent, travel insurance company or credit card company.