Work halts on
American Classic ships

Northrop Grumman stops
construction as feds withdraw
loan guarantees

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By Russ Lynch
rlynch@starbulletin.com

A shipyard building two cruise ships for use in Hawaiian waters stopped all work on the project today, saying it cannot go ahead because the U.S. Maritime Administration has withdrawn its loan guarantees.

The ships, being built by Northrop Grumman Corp. for bankrupt American Classic Voyages Inc. at a cost of about $400 million each, were to be finished in 2004 and 2005.

The shutdown, with the first of the 1,900-passenger ships 40 percent completed, affects the jobs of about 1,250 of the 1,600 employees working on the ships at the Northrop's Ingalls Operations shipyard in Pascagoula, Miss. Another 500 workers for subcontractors will also be affected, Northrop said. The company said it will try to find slots for its workers in other projects but there will be significant layoffs if the financing problem cannot be resolved and the contract is terminated.

The shipbuilder said it is trying to get the government to renew its backing for the loans. New financing cannot be obtained without the federal guarantee, the company said.

The construction halt is the latest blow for American Classic, which filed for Chapter 11 bankruptcy reorganization Friday and tied up its two existing Hawaii ships, the SS Independence and the ms Patriot, in Honolulu Saturday when they completed their last voyages, laying off 1,150 Hawaii crew members and support staff.

The company laid off another 1,000 employees in its mainland coastal voyages business and inland waterways cruises and stripped itself down to just the Delta Queen Steamboat.

American Classic officials could not be reached for comment. The company had said earlier that it was working to keep the project going.

Just hours after the company filed for bankruptcy Friday in a Delaware court, American Classic Chief Executive Officer Philip Calian expressed optimism that the financially ailing company would be able to return to Hawaii once the first of the company's new U.S.-built ships was delivered in 2004.

"Between now and 2004, we remain confident in the Hawaii cruise market and anticipate when the new ships are built in 2004 (and the second in 2005), it will make sense to operate them in Hawaii," he said.

American Classic said it was forced to seek bankruptcy court protection after its bookings fell by 40 percent or more after the Sept. 11 attacks.

Legislation introduced by Sen. Daniel K. Inouye gave the company a virtual monopoly in Hawaii cruises for 20 years in return for building the new ships.