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Friday, June 7, 2002


Cruise plan won’t
float, skeptics say

Voyager Holdings seeks $1.6 billion
in loan guarantees to build ships,
including 1 for isles


By Tim Ruel
truel@starbulletin.com

A Washington, D.C.-based investment firm's plan to seek $1.6 billion in federal loan guarantees to build three cruise ships and enter the Hawaii tourism market is drawing scrutiny in aftermath of the bankruptcy of cruise firm American Classic Voyages Co.

The D'Arcinoff Group, through its subsidiary Voyager Holdings Inc., is attempting to forge a deal to build three 1,000-foot cruise ships in Maryland, one of which would be launched for service in Hawaii. Financing for the $1.8 billion project hinges on support from Congress for the loan guarantee. Voyager is also seeking a waiver of federal law to allow the firm to run temporary service of a foreign-built vessel in Hawaii while the Maryland ship is built.

Rep. Neil Abercrombie is all for the deal, saying it would create jobs in Maryland and boost tourism in Hawaii. Voyager's Hawaii ship would carry 2,000 passengers for three-day and four-day cruises.

The hardest part for Voyager will be getting its loan guarantee approved by the U.S. Maritime Administration under the agency's "Title XI" ship-building program. The company applied for the loan guarantees last month. One of Voyager's ships, which are slated to cost $600 million each, would reportedly tie up the program's entire current budget for guarantees. A spokeswoman for the Maritime Administration could not be reached for comment. Congress would have to increase the allocation, said Geri Wolff, senior vice president for Voyager Holdings.

Sen. John McCain, R-Ariz., who has criticized the Title XI program in the past, said he is extremely skeptical of the entire maritime loan guarantee program and will oppose all efforts to fund it.

"The Title XI maritime loan guarantee program has experienced several defaults since February 2000, which have resulted in federal payouts totaling more than $441 million," said McCain, ranking member of the Senate Committee on Commerce, Science and Transportation. McCain is awaiting reports from the General Accounting Office and the Inspector General's Office, which announced an audit of the Title XI program on Nov. 6 to assess the effect of American Classic Voyages' bankruptcy.

In the late 1990s, American Classic received $1.1 billion in U.S. Maritime Administration loan guarantees, plus a monopoly on inter-island cruises and the right to re-flag a foreign ship. It ordered two 1,900-passenger "Project America" cruise ships at a cost of $440 million each from Northrop Grumman Corp. Following Sept. 11, American Classic went bankrupt, the Maritime Administration pulled its loan guarantees, and in October work on the ships stopped at Northrop's Ingalls Operations shipyard in Pascagoula, Miss.

Two years ago, the Maritime Administration lost $59 million when a lender called in a loan that was financing renovation of the former Fore River Shipyard in Quincy, Mass. In 1996, state and federal officials from Massachusetts had celebrated the passage of the loan guarantees to revive the shipyard, which shut down in 1986, according to the Associated Press. But the shipyard owner failed to meet extended deadlines for payment.

"Certainly we understand those concerns," Wolff said. Voyager has retained Morgan Stanley Dean Witter & Co. as a financial adviser. The firm has told Voyager that it can raise the $1.8 billion, she said.

Voyager plans to build the three new ships at the former Bethlehem Steel shipyard in Sparrows Point, Md., which has drawn some fire as well.

"Essentially, they've been a repair yard for the last 20 years," said Tim Colton, a maritime consultant in Biloxi, Miss. "I don't know where these guys get the idea they can make it happen."

Voyager's Wolff insisted Sparrows Point is ready for work, though she couldn't immediately recall the last time the shipyard built a large vessel.

After it builds the Hawaii vessel, Voyager is planning to build the other two cruise ships to be ready to haul military troops in time of need, which could help secure support from the government. Such a plan makes sense for the military, which had to lease ships during the 1991 Persian Gulf War, Abercrombie said.

Abercrombie praised Voyager's president, Albert Wallack, and said that several lawmakers were backing the proposal. When asked specific questions about the project, such as how the Maritime Administration budget could accommodate a $1.6 billion guarantee, Abercrombie became reluctant to discuss the issue further. "We'll do what's necessary," he said. "I want to see what the final proposal is before I get into that." He mentioned the possibility of a demonstration project, but wouldn't offer specifics, saying that he didn't want the plan to appear to be set in stone.

"People are rightfully skeptical, right. This is a huge undertaking," Abercrombie said. "We're talking huge money." He acknowledged that he has taken a "pummeling" over the idea of boosting the Hawaii cruise industry through exemptions to federal law, but said he still thinks it's a good idea.

Colton said the Voyager proposal marks another bad move for the maritime industry, which has a history of projects that cost too much and took too long. The industry is prone to rough economic cycles and an empty shipyard creates enormous pressure to find jobs, Colton said.

"You have to laugh because you can't cry," Colton said.



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