Posted at 5:30 p.m., Thursday, October 25, 2001

Work stopped on two Hawai'i-bound cruise ships

Associated Press

JACKSON, Miss. — Northrop Grumman Corp. has suspended work on two 1,900-passenger Hawaii-destined cruise ships that it was building for American Classic Voyages Inc., which filed for bankruptcy protection last week.

Northrop said today about 1,250 of the 1,600 workers assigned to the project at its Ingalls shipyard in Pascagoula would be affected, along with 500 people employed by subcontractors.

"This very sad development is another victim of the Sept. 11 attack," said Sen. Daniel K. Inouye, D-Hawai'i. "My heart goes out to those who have worked hard, trained hard and looked forward to a bright future in the Hawaii cruise ship business."

Jimmy Wilson, a welder at the yard, didn't waste any time heading to the local employment office when he learned of the job cuts this morning.

"You gotta see what's out there," Wilson said. "The longer you wait, the more people will get in front of you."

Phil Dur, president of Northrop Grumman's Ship Systems division, said the U.S. Maritime Administration had decided not to continue guaranteeing funding of the $1.1 billion project.

A dispute between the two companies over unspecified issues became public this summer, but they announced last month that they had agreed to finish the two ships.

The deal required Northrop Grumman and American Classic to put up an additional $86 million and extended the delivery dates for the ships by a year.

Last week, however, the Miami-based cruise company said it had filed for bankruptcy protection, citing losses following the Sept. 11 attacks.

An American Classic spokesman was not immediately available for comment today.

"The events of Sept. 11 have sent shock waves of tragedy throughout our country's entire economic infrastructure," Dur said. "The travel and cruise industries have been particularly hard hit. This reduction in tourism has driven our customer into bankruptcy and made the project insolvent."

Northrop Grumman's Ingalls shipyard, a division of the Los Angeles-based defense contractor, began work in June 2000 on the largest cruise ship ever built in the United States — the first such project in the country in more than 40 years.

The shipyard initially expected to finish the first ship in 2003, and the second a year later. The first vessel is about 40 percent complete.

As part of the agreement announced last month, the price per ship was increased by $19 million from the original contract price of $440 million.

The dispute between Northrop Grumman and American Classic surfaced when U.S. Sen. John McCain, R-Ariz., expressed concerns about Project America in a letter to President Bush.

In the July 11 letter, McCain urged the president to end assistance for the federal Title XI Maritime Guaranteed Loan Program, which he called an unnecessary corporate subsidy to the shipbuilding industry.

Project America has a $1.1 billion loan guarantee through the program.

Inouye said in a statement that Congress took a risk passing the Project America legislation in 1997.

"We wanted to grow an American cruise line industry and an American capability in cruise ship building," he said. "I don't regret at all the actions we took, and as far as I am concerned this is not the final chapter on this topic."

Northrop Grumman said today it will continue working with the agency in an attempt to obtain guaranteed funding. If the contract is terminated, Northrop said it would take a $60 million charge.

Den Knecht, a Northrop spokesman in Pascagoula, said if the project ends, the company would shift as many of the 1,250 workers as possible to other jobs in the yard.

"But it would mean several hundred layoffs," Knecht said.

Ingalls is Mississippi's largest private employer with 10,500 workers. The shipbuilder's contract with American Classic started a new line of business for a company that has made its mark for more than 60 years building destroyers and other ships for the U.S. Navy.

One of its projects is repairing the bomb-damaged USS Cole.

American Classic said last week it would pare its fleet of seven ships down to one, the Delta Queen, a paddlewheel steamboat that operates out of New Orleans.

The company said it was discontinuing cruises along the East Coast and off Hawaii, where it planned to use the two new cruise ships.

"The tragic events of Sept. 11 dealt a devastating blow to our business that has made it impossible to continue our full operations," CEO Phil Calian said last week.