Posted on: Friday, October 26, 2001
American Classic Voyage's new ships on hold
Advertiser Staff and News Services
Hopes for two new cruise ships slated exclusively for Hawai'i interisland voyages took a new hit yesterday when Northrop Grumman Corp. halted building on the 1,900-passenger vessels in a dispute over money and laid off more than 1,200 workers.
The stoppage came a week after American Classic Voyages Co., the operator of Hawai'i's only locally based cruise ships, filed for Chapter 11 bankruptcy protection and failed to get a U.S. government loan to complete the ships, which were scheduled to begin service in the Islands in 2004 and 2005.
Philip Calian, American Classic chief executive officer, said last week he was hopeful the company could work through bankruptcy in time to accept the ships and resume Hawai'i cruise service. And despite yesterday's suspension of construction, some Hawai'i interests said they believe potential options exist for interisland service in the state.
Yesterday, Phil Dur, president of Northrop Grumman's Ship Systems, said construction of the ships was halted when the U.S. Maritime Administration decided not to continue guaranteeing financing of the $1.1 billion project. The company said it would continue working with the agency in an attempt to obtain guaranteed financing.
Sen. Daniel Inouye, who was instrumental in crafting the deal that began the shipbuilding effort called "Project America," said yesterday that he was disappointed Northrop Grumman had stopped building, but that it did not necessarily spell the end of the effort.
"As far as I am concerned, this is not the final chapter on this topic," the Senator said in a statement. "We will continue to press on."
Jennifer Goto Sabas, Inouye's chief of staff, stressed that the senator does not have "any immediate plan" for action, and is waiting to see how American Classic fares in bankruptcy.
But she acknowledged that there were certain scenarios under which the Senator might consider a waiver to U.S. law that would allow a foreign company to sail a ship in Hawaiian waters. For instance, if a foreign company formed a U.S. subsidiary and employed U.S. staff, the Senator might seek an exemption to allow it to sail a non-U.S. vessel, she said.
"If it's a company that's a domestic company or plans to become a domestic company and employ our people, but they have a foreign bottom (ship), that's something he would very, very seriously consider," she said. "We just need to be clear what it is to be waived."
Sabas emphasized that the Senator has not been contacted by any company with such a plan.
Under U.S. law, only ships built in the United States, staffed by U.S. crew and owned by U.S. citizens can operate exclusively between American ports. The ships being built at Ingalls were specifically for the Hawaiian market.
The foreign-owned Norwegian Cruise Line plans to permanently base its 2,200-passenger Star in Honolulu and sail the Islands year-round starting in December. The ship's seven-day itinerary includes a run to Kiribati to address the law that prohibits them from sailing the islands exclusively.
A Norwegian executive reached in Miami yesterday said the company has not considered creating a U.S. subsidiary or applying for a waiver to sail Hawai'i exclusively.
"We're able to function under existing law," said Robert Kritzman, Norwegian's general counsel. "We're not really seeking any change."
Northrop's Litton unit agreed to build the ships, the first cruise ships built in the United States in more than 40 years, for $880 million in 1999.
"Everyone from day one has been skeptical about the cruise-ship market," said Robert Norfleet, an analyst at Davenport & Co. "It doesn't have the staying ability or the (profit) margins of shipbuilding for the federal government."
About 1,250 of the 1,600 full-time jobs assigned to the project will be lost if construction stops permanently. Another 500 subcontractors also could be affected. The Ingalls Shipyard employs about 10,500.
"If we are not able to resolve this issue in the next week, then we will have to permanently lay off people," said Den Knecht, a Northrop spokesman. Northrop plans to reassign employees if the contract ends, but still expects "hundreds" of jobs will be cut, he said.
Northrop, based in Los Angeles, said about 40 percent of the first cruise ship is completed and about 91 percent of the production material has been secured. The company isn't sure what it will do with the partially completed ship, Knecht said.
The Ingalls shipyard also is building a new destroyer for the U.S. Navy and is repairing the USS Cole, a Navy ship attacked last year by terrorists in Yemen.
Associated Press and Bloomberg News Service reports were included in this story.
