18 June 2002

The $0.2billion adventure in Pascagoula. Note, for the record, that these ships were in trouble well before September 11th:
This article from NYTimes.com
Critics Christen Ship Project as an Off-Course U.S.S. Pork

June 18, 2002 By LESLIE WAYNE

Two years ago, with waving flags and hula dancers swaying,
the government announced an ambitious program to build two
passenger cruise ships - the first in a United States
shipyard since the 1950's - and provided more than $1
billion in loan guarantees to get the program going.

It did not hurt that the ships were to be built in the
Pascagoula, Miss., shipyard where the father of Trent Lott,
the Republican Senate minority leader, once worked. As a
result, Senator Lott became one of the strongest supporters
of the program, which was named Project America.

Today, the project is being derided as an example of
political pork gone wrong. What remains of Project America
is an unfinished hull the size of two football fields and
pieces for a second ship lying around. The hull is not
floatable; it has neither a completed bow or stern; and its
future is in doubt. The price to the government for the
failed project is $187 million - money the government is
trying to recoup by putting the half-finished hull on the

This dismal reality only confirms the worst fears of the
project's critics - and is a far cry from the high hopes of
those who backed it. Critics, who call Project America
corporate welfare, say it shows the dangers lurking behind
the tens of billions in loan guarantees the government has
extended to an array of businesses, among them airlines,
the housing industry and American exporters.

"This has turned into a corporate welfare debacle," said
Stephen Moore, senior fellow at the Cato Institute, a
Washington research group that promotes free-market
economics. "Congress likes loan guarantees because they do
not show up on the budget and appear to be free to
taxpayers. Yet there are so many instances, like this one,
where the project explodes into the taxpayers' lap."

Who wants to buy a half-finished cruise ship? Not many, it
turns out. Not the Navy, which turned down a proposal from
a Mississippi congressman to run it as a
rest-and-relaxation ship for battle-weary troops. Not
commercial cruise lines still trying to lure passengers to
existing ships after the terrorist attacks last September.

"It's very difficult," said Jean E. McKeever, associate
administrator for shipbuilding at the Maritime
Administration, which is now advertising for buyers.
"That's been shown by the lack of a satisfactory response
to our ads."

For Project America's Congressional backers, Senator Lott
among them, the ships were a way to jump-start the dormant
commercial shipbuilding industry. The ships were being
built by American Classic Voyages and fell into the
government's hands after the company filed for bankruptcy
protection last October.

As an extra dollop of support, Congress had passed
legislation giving American Classic and the two
1,900-passenger ships a monopoly on the Hawaiian cruise

In the critics' corner is Senator John McCain, the Arizona
Republican, who put Project America on his annual "pork"
list. In the meantime, the project's failure is being
investigated by the inspector general's office of the
Department of Transportation and by the General Accounting

On Senator McCain's side is the Bush administration, which
has tried to eliminate the shipbuilding loan guarantee
program - only to be thwarted by Congress. This year, for
instance, the administration is asking that the program be
given no funds, while a letter is circulating in the Senate
seeking $50 million for it. The program is run by the
Maritime Administration.

Between those two points of view lies a seven-story hull
sitting under the hot Southern sun, hardly a tantalizing
prospect for anyone.

That includes the Navy. The Mississippi Democrat whose
Congressional district includes the Pascagoula shipyard,
Representative Gene Taylor, led an all-out push this year
for the Navy to buy the hull. He even put language into the
military appropriations bill encouraging the Navy to do so.
Mr. Taylor is a senior member of the House Armed Services

Mr. Taylor's idea was to turn the hull into a floating
military barracks. A cruise ship, the argument went, would
give sailors more space and better facilities than many of
the barracks where they currently live overseas and would
provide the Navy with a quick escape route if anti-American
sentiment should build on foreign shores.

In addition, after noting that the Navy had leased the
Cunard Princess to provide a floating respite for gulf war
troops, Mr. Taylor thought a Navy-owned cruise ship could
do the same.

What tired soldier would not want to enjoy what the Project
America ship would offer - one of 950 staterooms, most with
outside balconies; a spa and swimming pool; a 590-seat
cabaret lounge; an 840-seat theater; a four-story atrium;
and, according to the ship's promotional literature, a
"uniquely Hawaiian outdoor performance stage."

"It would be similar to a college dorm," Mr. Taylor said.
"In our all-volunteer military, you would have housing with
a movie theater, health care and a swimming pool. It would
be a floating barracks. It also provides protection against
any security threat. Heck, if there are any problems, you
can take it beyond the horizon and your troops are safe."

But the Navy declined, saying it needed destroyers and
other warships instead.

While Mr. Taylor's proposal might seem lighthearted, his
intention is anything but. He wants to keep workers
employed at the Pascagoula yard, formally known as the
Ingalls Shipyard, and encourage someone - anyone - to
finish the ship.

"This is America," Mr. Taylor said. "People wait for
something to go on sale before they buy. My hunch is a
cruise ship company or third-party investor is waiting for
the price to get right before buying and finishing it.
Taxpayers would be better off if the ships were finished
and we got as good a price as possible."

Senator Lott did not respond to requests for comment.

Maritime Administration's loan program is intended to
support domestic shipyards by guaranteeing the debt issued
to finance commercial ship construction. Last year, the
agency guaranteed $362 million; in 2000, $885 million.

When a project fails - as happened after American Classic's
bankruptcy filing - the government steps in to pay off the

In this case, the $187 million went to institutional
investors who had bought Project America debt, which became
worthless after the American Classic bankruptcy. The
largest shareholder and chairman of American Classic is Sam
Zell, the Chicago financier who made a fortune as a
financial turnaround artist.

Mr. Zell cannot complete the ship and, with the Navy out of
the picture, it is hard to see who would buy the hull and
pay the millions needed to turn it into the passenger ship
it was intended to be. For more than 50 years, all cruise
ships have been made in Europe or the Far East, where
construction costs are lower and shipyards have pioneered
the latest in cruise ship technology. Moreover, the cruise
ship industry, while rebounding after Sept. 11, is still
looking more to fill existing vessels than to buy new ones.

"You can't even float the hull out at this point," said
Joseph Hovorka, a maritime analyst with Raymond James. "I
don't know what anyone would do with it at this point. You
wouldn't see a major ship company like Carnival or Royal
Caribbean coming in to buy it. There's not a roster of
companies out there wanting to build a cruise ship,
certainly to take on a project of this size."

Even before Sept. 11, Project America had run into trouble.
It had fallen behind schedule and was far over budget. As a
result, Northrop Grumman, which owns the shipyard, took a
$60 million write-off from it and American Classic lost
$100 million. The yard itself will continue to make and
repair Navy vessels.

"The project was behind schedule and millions in the hole,"
said John Graykowski, former administrator of the
government's shipbuilding program. "The terrorists' attack
masked this reality and perhaps allowed the emperor to
maintain his modesty. "

Still, the impact of Sept. 11 was stunning. David Heller, a
lawyer for American Classic, said, "You cannot imagine the
body blow that 9/11 brought to the whole viability of the

For the moment, Northrop Grumman has assigned 350 workers
to make the ship floatable while the government looks for a

At its worst, the Project America hull could be chopped up
for scrap. But, with the keel laid, much interior work
done, and a large part already built, many feel it would be
a shame to reduce it to rubble.

For that reason, Mr. Taylor, the Mississippi congressman,
remains optimistic. "It would be a mistake to drag it down
to Mexico and scrap it," he said. "That would be the worst
of all worlds. I do think that, with time, someone will see
its value and will make a cruise ship out of it."


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