A section of the FY ’98 Department of Defense (DOD) Appropriations Bill adopted by the Senate Appropriations Committee on July 15 is designed to increase the chances for U.S. cruise ship building, and bolster U.S.-flag tonnage in the Hawaii marketplace.

The most immediate impact of the legislation -­ which appears specifically geared for the benefit of American Hawaii Cruises – would allow the line the possibility of re-flagging a foreign vessel as a U.S.-flag ship.

As the only U.S. large-vessel cruise line, American Hawaii currently confronts a very limited number of U.S. vessels in the second-hand market to consider for purchase or charter – and the ability to re­ flag a foreign vessel greatly enhances its opportunity for short-term capacity expansion.

“When you look at the existing U.S. hulls that are out there – there are very few,” explained Cornel Martin, vice president of corporate affairs for American Hawaii, noting, “Last year, we successfully passed an amendment through Congress to re-flag the Regent Rainbow, but unfortunately, the ship was sold to a foreign company before that deal could be closed.”

Philip Calian, president and CEO of American Hawaii parent company American Classic Voyages (AMCV), commented on American Hawaii’s latest effort to re-flag a foreign ship: “Have we targeted a specific vessel yet? No,” he said. “But we do see a whole wide range of possibilities.”

Amendment Stipulations

The legislation’s central, long-term objective is not merely re-flagging, but rather, the much more expansive goal of spurring construction of cruise ships by U.S. yards. The amendment proposes:

• The applying cruise line must enter into a binding contract for the construction of two cruise ships in the United States – those ships being “of equal or greater size than the cruise ship being operated by such person on the date of enactment.” (In American Hawaii’s case, its only remaining vessel, the lndipendence, is 30,000 gross tons).

The first of the two U.S.-built vessels would have to be delivered by Jan. 1, 2005, the second by Jan. 1, 2008.

• By entering into a binding contract for the two U.S. newbuildings, the cruise line would be awarded the opportunity to re-flag a foreign ship for U.S. coastwise trade. That re-flagging would be effective as soon as the binding contracts for the U.S. newbuildings were in place.

It would remain in effect possibly for a decade or longer; as the legislation states, until “the delivery of the second cruise ship or any subsequently delivered cruise ship.”

Martin underscored, “This amendment makes clear that a contract must be signed and financing in place before the ship can be re-flagged, so it’s not just a ploy to re-flag a ship. It’s an amendment that promotes U.S. shipbuilding, which at the same time addresses the more immediate need for new capacity in Hawaii.”

Thus, American Hawaii’s ability to re-flag a foreign vessel comes down to its ability to finance a two-ship newbuilding contract which would cost in the hundreds of millions of dollars. “Obviously it depends on the financing,” Martin conceded, noting, “As a publicly held company we would pursue all options available to us.”

• The amendment includes language which safeguards American Hawaii’s position in the market, disallowing any cruise operator from taking advantage of the DOD proposal and entering the Hawaii market except an operator “that is operating a cruise ship in coastwise trade between and among the islands of Hawaii on the date of enactment” – namely American Hawaii.

However, the bill does allow another operator to take advantage of the proposal if it sails its re-flagged vessel and two subsequent U.S.-built ships in markets other than Hawaii.

The language also stipulates that in order to take advantage of the DOD program, the applicant must be “a corporation, partnership or association the controlling interest of which is owned by citizens of the United States.”

• Finally, the signing of the contract sets in motion funding of $250,000 for the Maritech program. According to Martin, the funds would be used to disseminate information on cruise-ship building experience from the yard which wins the contract to other yards.

AMCV Position

According to Calian, “There are a handful of U.S. yards with the capability to construct large cruise ships and we are interested in talking with each one of them.”

Of the particular design for the two proposed newbuildings, he noted, “We would look to construct something targeted at the mass market.” He said that the line would revisit and “re-examine the premise” of the 1,200-passenger Queen of Americas ship designed for American Hawaii several years ago as a Maritech project, noting that the older plans would be “very helpful” to current or future design efforts.