Posted on: Tuesday, April 1, 2003
Failed cruise ship deal cost $330M
By Derrick DePledge
Advertiser Washington Bureau
WASHINGTON — American Classic Voyages cost taxpayers $330 million after it went bankrupt in October 2001, losses that probably would have been much less if the federal Maritime Administration had better oversight over its loan guarantees, according to a new federal audit.
American Classic's bankruptcy, which the company blamed on the poor economy after the Sept. 11 attacks, ended interisland cruises by the Patriot and the Independence in Hawai'i and derailed a project to bring two new, American-built cruise ships to the Islands.
"Project America," endorsed by Sen. Dan Inouye, D-Hawai'i, and Sen. Trent Lott, R-Miss., involved federal loan guarantees for two new cruise ships that were to be built at a shipyard in Mississippi for eventual use in Hawai'i. The project collapsed after American Classic's bankruptcy, costing taxpayers $187 million.
Sen. John McCain, R-Ariz., and Rep. Frank Wolf, R-Va., asked the inspector general of the U.S. Department of Transportation to audit the Maritime Administration's loan guarantee program, particularly the loans to American Classic.
The audit, released yesterday, recommends that the Maritime Administration be more careful about relaxing loan approval standards without better collateral, seek external reviews of loan applications, and monitor the finances of borrowers and the physical conditions of ships and shipyards more thoroughly.
The Maritime Administration agreed with the recommendations and is taking steps to tighten oversight.
American Classic had been granted about $1.3 billion worth of loan guarantees for seven ships — including the two "Project America" ships — the largest amount for an affiliated group ever in a program that first began in 1936.
American Classic's bankruptcy "significantly affected" the entire loan guarantee program, the audit found, forcing the Maritime Administration to borrow $136 million to help cover the $330 million in losses it was forced to pay out.
"Close financial monitoring of (American Classic) did not occur over the terms of the loans before default, and neither did close monitoring of the foreclosed assets,'' the audit concluded.
The audit also raised concerns about potential losses from three companies tied to Enron Corp. that have $173 million in initial loan guarantees.
Overall, the inspector general found the loan guarantee program has helped preserve the U.S. commercial fleet and modernize shipyards.
Neither McCain nor Inouye were prepared yesterday to comment on the audit.
Norwegian Cruise Line last year purchased a "Project America" hull and other material and a new ship is being completed at a shipyard in Germany, with a second ship possible. The Maritime Administration has recovered about $2 million from the Norwegian sale and another $5 million from other sources.
In February, Inouye and Rep. Neil Abercrombie, D-Hawai'i, added a provision to a federal spending bill that gives Norwegian exclusive rights to operate up to three foreign-built cruise ships under U.S. flags in Hawai'i.
The provision was necessary because the Passenger Vessel Services Act requires foreign-flagged ships to make a foreign stop when cruising between U.S. ports. Norwegian now stops at Fanning Island in the Republic of Kiribati on cruises between the Islands.
