Hotel Online News for the Hospitality Executive Chicago, Ill.-Based Cruise Line Goes Under Chicago Tribune Knight Ridder/Tribune Business News
Oct. 20–Billionaire financier Sam Zell, better known for buying companies in bankruptcy, saw one of his own hit rough waters when his troubled cruise line filed for Chapter 11 protection from creditors.
American Classic Voyages Co., the only operator of U.S.-flagged cruise vessels, said Friday it was forced into bankruptcy by the sharp decline in tourism in the wake of last month’s terrorist attacks. But the company, which was in the process of moving its headquarters from Chicago to Florida this summer, hasn’t been profitable since 1998.
American Classic is just a small part of Zell’s sprawling financial empire, which includes two of the nation’s largest real estate investment trusts, Equity Residential Properties Trust and Equity Office Properties Trust. Together, the two real estate concerns produced revenues of $2.41 billion in the first six months of this year, compared with American Classic’s $142.3 million.
Zell is chairman of all three companies.
Although Zell’s real estate companies have not been punished as severely by the sudden downturn in the economy, they also are feeling its effects.
Both companies earlier this month said their earnings would grow more slowly next year that they had expected.
“There is not a whole lot that Equity Office or Equity Residential can do to completely avoid a weakening economy,” said Louis Taylor, senior real estate analyst with New York investment firm Deutsche Banc Alex. Brown Inc. “But earnings are still going to grow `02 over ’01.”
The prognosis is not as rosy at American Classic, which operates ships in Hawaii and on the Mississippi River. In September, the company issued a statement quelling speculation that Zell, who controls 34.6 percent of the company, was selling out. Now, he might be wishing he had.
A dearth of passengers in the four weeks following the attacks saw gross bookings fall 50 percent and cancellations rise 30 percent, exacerbating a “weakened cash position,” the company said. As of June 30, American Classic had $76.7 million in cash.
“The Chapter 11 filing became the only alternative to us to preserve our present cash supply,” said Chief Executive Philip Calian.
The company’s net loss during the first six month of the year quadrupled to $20.4 million, or 97 cents per diluted share, compared with the same period last year. Skyrocketing operating expenses, largely linked to the addition of several new ships, more than offset rising revenues, which grew 40 percent in the first six months of the year compared with the same period last year.
American Classic will sharply scale back operations, ceasing cruises on all but one of its seven ships, the Delta Queen. Three of its ship brands — Delta Queen Coastal Voyages, American Hawaii Cruises and United States Lines — will shut down, leaving only the Delta Queen Steamboat Co., operating out of New Orleans, said spokeswoman Fran Sevcik.
As it seeks to reorganize, the company, has laid off 450 shoreside employees and 1,700 ship workers. It will retain 30 shore-based employees and 80 shipboard jobs as part of the Delta Queen operations.
Plans to move into a new 240,000-square-foot leased headquarters, now under construction in Sunrise, Fla., were scrapped.
The bankruptcy filing raises questions about the future of Project America, a federally subsidized plan to reintroduce shipbuilding in the U.S. after it ceased half a century ago.
In 1999, American Classic struck a deal with the federal government that would give it a 30-year monopoly to cruise Hawaiian waters. In return, American Classics agreed to buy a pair of 1,900-passenger ships to be built in a Mississippi shipyard.
The construction was to be financed by bonds backed by a $1.1 billion guarantee from the U.S. Maritime Administration.
American Classic and the ship builder, a unit of Northrop Grumman Corp. agreed to delay completion of the first ship until Feb. 1, 2004, with the second one to be delivered a year later.
American Classic has already invested $100 million to finance construction, and is in negotiations over its commitment to invest another $42 million, Calian said.
By Thomas A. Corfman and Delroy Alexander. Tribune news services contributed to this report.
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