Bankruptcy American Classic Voyages Co., which had been facing an ocean of debt, left a big hole in Hawaii's cruise industry today when it pulled the plug on the state's two locally based vessels and left about 800 workers unemployed.
not a surprise
American Classic Voyages had
slashed its rates to keep its Hawaii
ships filled while isle tourism plummetedStory in News: American Classic cruise line files for bankruptcy
Questions and answersBy Dave Segal
dsegal@starbulletin.com
The decision to file for Chapter 11 bankruptcy protection was not a surprise given growing speculation, but it nevertheless raised questions about the fate of the 1,212-passenger, Honolulu-based ms Patriot and the 860-passenger, Kahului, Maui-based S.S. Independence.
"I would suspect the Independence would be laid up and the Patriot will be sent back to Carnival and Carnival would have to make a decision what they want to do with the ship," said Raymond James analyst Joe Hovorka, who last month put out a financial report saying that American Classic needed to raise additional funds if it were going to have enough money to meet its financial obligations through the end of next year.
In today's Chapter 11 filing in U.S. Bankruptcy Court in Delaware, American Classic listed assets of $37.4 million and debts of $452.8 million.
American Classic's departure will leave the 2,220-passenger, foreign-flagged Norwegian Cruise Line Star as the only Hawaii-based ship when the vessel makes its maiden voyage from Honolulu Dec. 16. The ship is able to operate out of Hawaii because its itinerary includes a stopover in the Republic of Kiribati.
"Our view, generally speaking, is that Hawaii is quite an opportunity for the cruise industry," Robert Kritzman, senior vice president and general counsel for Norwegian, said last week as speculation about American Classic's fate was intensifying. "We do think it's a big enough market for us and American Classic, and basically our view is focused on making our business work."
Carnival Corp., whose Holland America Line subsidiary owns the mortgage note on the Patriot, said today it is in discussions with American Classic to determine the status of the ship. American Classic recently renegotiated terms of the mortgage on the vessel to defer principal payments on its remaining $80 million debt in the hope that doing so would enable the ship to continue operating.
"It's way too early in the process to be saying definitively what will happen," said Tim Gallagher, vice president of public relations for Carnival. "If the vessel is returned to the company, it has not been determined how it will be used."
Dan Bayne, American Classic's director of government and community relations for Hawaii, said a Holland America representative will be coming into town sometime today to meet with American Classic executives. He said the Independence, of which a $24 million note still remains to the U.S. Maritime Administration, will be brought to Honolulu Harbor Saturday night to join the Patriot.
"The cruises will arrive as normal at their home ports tomorrow so that the people aboard the ships will get their full complement of what they were going to receive," Bayne said. "We probably had about 125 passengers already in Hawaii who did pre-cruise deals and we left message with them in Hawaii that they're not going to sail and that their airline tickets will be honored on a space-available basis. The airline companies that we deal with, of which American is probably the largest, have said they won't charge them any change fees."
Bayne also said that the company met with crew members this morning to explain to them about unemployment insurance and what would happen with their 401(k) plans. He said they were given $300 each to help with travel expenses but were on their own. Bayne said that about 90 percent of the Independence employees are based in Hawaii and that only about 30 percent of the Patriot crew is based in the islands. Bayne said the Independence currently has about 350 crew onboard and 789 passengers, with about 400 crew on the Patriot and 1,118 passengers.
He said the decision was made on the mainland for the ships to skip their final ports of call today "to shelter the passengers and crew from press and other questions that might have come up."
"The official last day of the company is tomorrow but a handful of people are going to be going through the ship and cleaning up Sunday and Monday to protect any assets," Bayne said. "We anticipate that we will be liquidating everything in the office within the next 30 days. Paychecks will be handed out tomorrow to crew upon arrival at their home ports. Those employees staying on to assist in cleanup and those kinds of things will be paid cash and get $10 an hour, no matter if they're a vice president or a cook."
In addition, Bayne said that the ship has been contacting charity groups because the ship still contains a lot of perishable items that the company hopes to give out Sunday and Monday.
American Classic acquired the Patriot, then known as the ms Nieuw Amsterdam, from Holland America Oct. 18, 2000 for $114.5 million and refurbished it for another $20.4 million. American Classic was scheduled to pay back an $84.5 million promissory note this year beginning with payments of $5.1 million each due on March 31 and Sept. 30. The remaining $30 million was financed with convertible preferred securities of a subsidiary trust.
American Classic, the largest U.S.-flag cruise company, had enjoyed a virtual monopoly in the Hawaii market due to an exclusive, 30-year agreement it reached with the U.S. government in 1997 to operate cruise ships in the islands in exchange for helping to restore American shipbuilding. That pact led to Project America, an initiative backed by the U.S. Maritime Administration to build the first two American-built cruise ships in more than 40 years.
The deal, in which American Classic agreed to pay a total of $880 million for the construction of two 1,900-passenger ships at Northrop Grumman Corp.'s Ingalls Shipbuilding yard in Pascagoula, Miss., received federal commitments for financing guarantees of up to 87.5 percent of the cost of the ships. The project, though, has been beset by criticism and delays.
"People here are looking at the announcement and don't have any reaction to provide at this point," said John Swank, public affairs spokesman for the U.S. Maritime Administration.
What if I've already booked a cruise? A sinking feeling:
American Classic Voyages says it is not issuing refunds. If you've purchased a cruise with a credit card or if you bought travel insurance, it recommends following up with those companies.
If you paid cash for your cruise, however, since the company filed for bankruptcy, you will need to file a claim with the U.S. Bankruptcy Court in Delaware.
What if I have more questions?
You can e-mail American Classic at res@amcv.com.or call (800) 856-9904.
What will happened to passengers on the ships?
Both the Independence and ms Patriot will finish their current cruises, which are underway. No passengers will be left in an unplanned destination.
My company delivered products to American Classic. How do I now get paid?
Since the company filed for bankruptcy protection, its vendors must pursue unpaid bills through U.S. Bankruptcy Court in Delaware.