Project America: When Pork Barrel Goes to Sea

[ranwhenparked]

In an effort to revitalize the aging merchant fleet, and help US shipyards transition away from total reliance on US Navy contracts in the post-Cold War era, President Clinton signed into law the National Shipbuilding and Conversion Act of 1993, which created a new program called the National Shipbuilding Initiative. Managed by the US Maritime Administration, the NSI provided federal loan guarantees for US-based shipping companies ordering new ships from US shipyards, or having existing ships rebuilt there; loan guarantees for shipyards to modernize their facilities and expand into commercial shipbuilding; loan guarantees for foreign companies seeking to build or refit ships in US shipyards (provided the ships involved had no military purpose and were not sold or transferred to a hostile power); and, finally, direct construction assistance subsidies to US shipyards to offset much of the cost difference between them and foreign shipbuilders. The hope was that, over time, as American shipbuilders became more experienced building modern merchant vessels and upgraded their facilities, the financial incentives could be gradually reduced and the industry could eventually support itself. The Navy backed the plan, believing that it would help maintain a domestic shipbuilding capability without them having to foot the entire cost, and also that it would eventually reduce the cost of Naval vessels by helping shipbuilders improve their economies of scale.

Although designed with oil tankers, container ships, and bulk carriers in mind, one company that sought to benefit was Illinois-based American Classic Voyages Company (AMCV). AMCV had been organized in the early 1990s as a new, publicly traded holding company for the Mississippi river cruise line Delta Queen Steamboat Company (which had 19th century origins as Greene Line Steamers), and, shortly after, used their fancy new IPO money to take over American Hawaii Cruises. Since the early 1980s, American Hawaii had been using the two 1950s vintage former transatlantic ocean liners, Constitution and Independence, in inter-island Hawaiian islands cruise service, and, following the bankruptcy of Aloha Pacific Cruises, had the market largely to themselves. However, there was no getting around the fact that Independence and Constitution were over 40 years old, powered by inefficient steam turbines, lacking in amenities demanded by modern passengers, and suffering from metal fatigue and corrosion.

AMCV borrowed funds under the NSI program to send the two American Hawaii ships to Newport News Shipbuilding in Virginia for extensive refurbishment and modernization. Independence went first, in 1994, but the costs of repairs skyrocketed well beyond original estimates as extensive corrosion was discovered under the waterline. Once the work was finished, AMCV decided they could no longer afford to do a similar job on Constitution, so that ship was retired in 1995 and laid up as a source of spare parts for Independence, until sold for scrap a few years later. With their Hawaiian fleet reduced by half, and the work done on the elderly Independence clearly only a stopgap, AMCV turned their attention to total replacement.

Under the terms of the Passenger Vessel Services Act of 1886, as amended by the Merchant Marine Act of 1920 (also known as the Jones Act), only American-owned, American-registered, American-crewed, American-built ships can carry passengers directly between US ports without stopping in a foreign country en route. That created American Hawaii Cruises' niche, allowing them to remain competitive for so long with such old vessels – any other cruise line operating in Hawaii would have to divert to the nearest foreign territory – Fanning Island in Kiribati, wasting two days of the cruise sailing down and back, while American Hawaii could stay in Hawaiian waters for the entire itinerary. Any new ships would have to be built in the United States, but no US shipyards had built an ocean going passenger ship since 1958.

AMCV turned to the Maritime Administration for assistance, and enlisted Senator Daniel Inouye (D) of Hawaii for further support. Senator Inouye sponsored an amendment to the 1998 Defense Appropriations Act, signed by President Clinton in 1997, which added some special provisions to the National Shipbuilding Initiative, specifically tailored to AMCV's Hawaiian operations.

The Maritime Administration would guarantee $1.1 billion in loans to build two cruise ships in the United States, which would measure about 72,000 gross tons, carry about 1,900 passengers, and enter service between 2003-2004. Republican Senator Trent Lott of Mississippi helped in pushing the legislation through, as, once Newport News Shipbuilding signaled their lack of interest in the project, the Ingalls yard in Pascagoula, Mississippi was left as the only viable candidate. AMCV was responsible for securing the remaining $300 million from other sources.

In the meantime, AMCV would be permitted to purchase one, modern, foreign cruise ship and temporarily re-register it in the United States, until the two new vessels could be completed. Furthermore, the law guaranteed AMCV a monopoly on inter-island cruises in Hawaii for a period of 30 years, which was supposed to help ensure that they would have the revenue to pay back the loans.

Senator John McCain (R) of Arizona objected to the deal, particularly the monopoly provision, claiming that he had read AMCV's business plan, and believed their projections for growth in the Hawaiian cruise market, needed to make such expensive new ships viable, were overstated.

In 1999, American Classic Voyages closed on the purchase of Holland America Line's 1983-built Nieuw Amsterdam, and had her refurbished at a yard in California, replacing the Dutch-influenced neo-Art Deco interiors with Hawaiian tropical themes (Holland America had retained most of the ship's considerable art collection, anyway), and placed her in service as their new Patriot. Rather than join Independence under the American Hawaii Cruises banner, Patriot was used to relaunch the famous United States Lines name.

United States Lines had been America's flag carrier on transatlantic routes from the 1920s-1960s, then continued as a cargo line until collapsing in bankruptcy in the 1980s, leaving the trademark available for AMCV to revive. Both of the new ships would enter service with United States Lines, which would eventually become AMCV's sole brand in Hawaii.

Contracts were signed in 1999, and Ingalls brought in Finland's Kvaerner as partners, as Ingalls had not built any passenger vessels in over 40 years. In 2000, the keel for the first ship of what AMCV was now calling the “Project America” program was laid. After that, things started to go awry, much of the design and engineering work was being done in Finland, and Ingalls insisted on converting many of the drawings to Imperial measurements from metric. Mechanical and electrical components were imported from Finland for the hotel portions of the ship, and Ingalls had difficulty properly integrating them with the American-built systems on board. There were also supply delays and cost overruns from steel mills, and problems with the construction of a giant new, 600 ton crane at the yard. By 2001, Project America Ship #1 had had its delivery date slip from 2003 to 2005, and work had not yet started on Project America #2. New President George W. Bush was in favor of ending the program, and AMCV issued a work slowdown order, due to uncertainty of whether they would be able to continue. During the summer of 2001, Senators Inouye and Lott lead a bipartisan group to push through a package increasing loan guarantees and subsidies to AMCV and Ingalls to over $3 billion, covering the cost overruns, and allowing the project to continue.

However, AMCV was not a healthy company. They had borrowed heavily to buy American Hawaii in 1993, refurbish the Independence in 1994, build the new Delta Queen Steamboat Company riverboats American Queen and Columbia Queen in 1995 and 2000, buy and refurbish Patriot to launch United States Lines, and also startup a new coastal cruise line, Delta Queen Coastal Voyages, with two new ships ordered for that – Cape May Light and Cape Cod Light. By the fall of 2001, they were also in the process of moving their corporate headquarters from Illinois to Florida. It was a lot of expansion, and a lot of spending, for such a small company, and was sustainable only as long as the economy stayed healthy, and nothing happened to derail the growth in the travel and tourism market.

Then, September 11, 2001 happened. The global travel industry went into a deep contraction, and AMCV was hit with massive cancellations and refund requests on all their cruise lines, and new bookings plummeted. Work on Project America was suspended in late September, and, in October, AMCV filed for bankruptcy. Independence was repossessed by the Maritime Administration, its mortgage holder, while Patriot was repossessed by Holland America, its mortgage holder. Project America #1, less than 50% complete, also passed to Maritime Administration ownership, as AMCV defaulted on their loans. Project America #2 had still not yet officially started work, but Ingalls had taken delivery of some steel and mechanical equipment, and the engines for it, which also became Maritime Administration property.

In early 2002, under pressure from Congress, the Navy began studying whether to complete the two ships as command and control vessels, but, by April of that year, concluded that the design changes needed were too extensive. The local Congressman for Pascagoula advocated for the Navy to buy them anyway, and complete them as barracks ships, but that idea was officially rejected in the Summer of 2002.

At that point, Malaysian-owned, US-based, Norwegian Cruise Line stepped forward with an offer and was able to put together a deal similar to that enjoyed by AMCV. Norwegian would be allowed to re-register one of their foreign built ships in the US and start inter-island Hawaiian cruising with a new US subsidiary, and, in exchange, would buy all the Project America assets off the US government and would be permitted to finish construction overseas.

The 1999-built Norwegian Sky hoisted the US flag and began service for the new NCL America Cruises in 2004 as their Pride of Aloha. In the meantime, construction resumed on Project America I until the hull was complete enough to float, at which point she was towed across the Atlantic to Lloyd Werft in Bremerhaven, Germany. Once there, she was cut in half and lengthened from 850 ft to 921, increasing her size from 72,000 tons to 80,439 and passenger capacity from 1,900 to nearly 2,200. Construction was further delayed when a major storm hit Bremerhaven, causing the ship to sink at her fitting-out berth, though with no structural damage. The new ship finally joined the NCL America fleet in 2005, as Pride of America.

The steel, engines, and other equipment ordered for the second Project America ship were sent to Meyer Werft, in Papenburg, Germany, and incorporated into the Pride of Hawaii, which entered service for NCL America in 2006. Although incorporating some materials intended for Pride of America's stillborn sister, Pride of Hawaii was otherwise identical to the three other Jewel-class cruise ships built for Norwegian Cruise Line by Meyer Werft, and, at over 90,000 gross tons, became the largest passenger ship ever under the US flag.

Norwegian also purchased the old Independence and the historic United States, stating that they were considering refurbishing both vintage ocean liners for US-flag cruise service, provided their new Hawaiian operations were successful. They did extensive design and engineering work on a rebuilding plan for United States, at considerable expense, which suggests the plan was at least partially genuine, and not just an effort to keep two more Jones Act-compliant hulls out of the hands of potential competitors.

Unfortunately, the Hawaiian cruise market proved insufficient to support three giant mega-ships, so the newest and largest, Pride of Hawaii, was transferred to the main Norwegian Cruise Line fleet in early 2008, to become their Bahamian-flagged Norwegian Jade, followed by Pride of Aloha later in 2008, which reverted to her former name of Norwegian Sky and also came back under the flag of the Bahamas. This left Pride of America as the only ship in the NCL America fleet, and the only ocean-going passenger ship under US registry. The long inactive Independence was eventually sold for scrap in India, while United States was donated to a nonprofit organization, which continues to work towards eventual restoration as a static attraction.

NCL America suspended all operations in March of 2020, due to COVID-19 restrictions, and Pride of America has been laid up with a skeleton maintenance crew since that time.

Never officially named under their time with AMCV, it was nonetheless widely assumed that the two Project America ships would have carried the names of United States Lines' two most famous ocean liners, America and United States, had they entered service as planned.

No attempts at developing a US-flag passenger fleet, or a domestic cruise shipbuilding capacity have been made since the failure of Project America, and Pride of America remains the only large passenger ship in operable condition, under US registry.

[WhoIsTheLeader]

@ranwhenparked It's fascinating to see the fall of US flagged passenger ships and the immense challenges behind overcoming the financial, legal, and practical hurdles towards revitalization. Of course, the Jones Act can be seen to be overly severe and actually hurting business by making creating new eligible ships nearly impossible. It seems abundantly clear that there simply were no US shipyards capable of taking the bid that also had experience in the field.

[ranwhenparked]

@whoistheleader That's a bit of an understatement - the last passenger ships entirely built in the United States were the sister ships Argentina and Brasil for Moore-McCormack Lines and another pair of sisters, Santa Rosa and Santa Paula for Grace Line, all in 1958. They were pretty small combination passenger-cargo ocean liners, and pretty much a world removed from modern cruise ship construction techniques.

To their credit, they were at least very solidly built - 3 of the 4 stayed in service into the 21st century, and the remaining one was destroyed by Iraqi forces in the invasion of Kuwait.

But, yeah, even if Litton Ingalls had delivered the Project America ships as planned, its hard to see how that would have ever translated to winning any additional orders from other operators.

[WhoIsTheLeader]

@ranwhenparked What about US shipbuilding for large cargo vessels?

Even American flagged passenger ships are almost nonexistent because of more favorable taxes in other countries. They still probably saved more money than they would have received in a government bailout for a cruise line.

[ranwhenparked]

@whoistheleader said in Project America: When Pork Barrel Goes to Sea:

At this point, almost non-existent. The only areas where US-built cargo ships have any advantage is in mainland-Hawaii, continental US-Alaska, mainland US-Puerto Rico services, and routes on the American side of the Great Lakes, and there isn't much new construction activity going on, at all.

Philly Shipyard, built on part of the decommissioned Philadelphia Naval Shipyard, delivered 24 new container ships and oil tankers to US shipping companies between 2004-2019, but orders dried up once those companies had all the new ships they needed for the time being. Currently, they're building a class of 5 multi-mission training and disaster response ships for the US government.

Costs are simply too high for anyone to be interested, unless they're planning to use the ship under US flag on a Jones Act route, otherwise there's no point in building here.

[facw]

@whoistheleader I don't really think the Jones Act is a good idea, but I think there's also a pretty strong case that we are too accommodating of companies using foreign shipping (and especially flags of convenience) to bypass US rules. Of course I think that's more relevant for operations than for shipbuilding.

[ranwhenparked]

@facw I think, at some point, we need to think about which industry we really want to have -a large, healthy US-flag merchant fleet, with employment for shipboard crew OR a large, healthy US shipbuilding industry, with employment for shipyard workers, because it doesn't really seem possible to have both, and you could revive the former independently of the latter.

We could also, alternatively, do what the United Kingdom, The Netherlands, and Norway all did, which is create cheaper, sub-registries that would allow ships to be placed under some form of US registry, without all the costs and manning requirements of the United States proper. Norway has their International Ship Register, the UK allows their overseas territories (Bermuda, Gibraltar, etc) to have their own, separate maritime registries - maybe we could do that with Puerto Rico or Guam. At least then, we'd still have a reserve of ships we could call upon in wartime or other national emergency. You'd have to find some way of doing it without killing jobs in the maritime industry we already have, while still offering enough advantages to encourage companies to flag there, and I don't know what that middle ground would be.

[facw]

@ranwhenparked said in Project America: When Pork Barrel Goes to Sea:

a large, healthy US-flag merchant fleet, with employment for shipboard crew OR a large, healthy US shipbuilding industry, with employment for shipyard workers

I think that's an insanely easy choice, given that the US shipbuilding industry is almost entirely dead already, aside from military shipbuilders, and even those are limited to just a few sites (and honestly I wouldn't be at all surprised if we see Bath go under, especially with the Zumwalt class cancelled). Sure you could dream of revitalizing it, but of the industries you could attract, shipbuilding really isn't especially appealing, dirty, and not really well compensated.

[LooseonExit]

@ranwhenparked

Firstly, I want to say I really appreciate this post. This is the really up there in Pork Barrel stupidity. Not only does it include cruising to Hawaii, which offers the worst possible cruise experience (4-5 days at sea each way - kill me now!) but with the support of the government AND the Jones Act with everything that comes with it. Amazing. Also spelling Pascagoula wrong is encouraged as it is Pascagoula and they deserve it lol.

A Jones Act cruiseliner dies

@WhoIsTheLeader @facw The Jones Act is virtually a national jobs act for Louisiana given the number of GoM O&G supply vessels they crank out. It is a really complex issue. The Cajun Boat Cos really pushed the 2017 reform and it did not go well. Who could know GoM O&G work would come to a screeching halt if you removed all the large foreign flagged construction vessels?

There’s no experience to build large construction vessels here. And there’s no need as everyone that does it, does it well and there’s no supply constraint issues. There’s also more than enough supply and support vessels in the GoM for the current activity level so competition is just between the Cajun mob, not Europe or SE Asia, so in my little world of O&G the Jones Act is just cumbersome. So many boats sent off to the breakers in the last five years...

[WhoIsTheLeader]

@facw I think a crackdown on foreign flagged passenger ships sailing between US ports would be more effective at what it tries to do. That's a bigger business than building them It's a pretty dated piece of legislature and one that doesn't fit well with the intricacies of foreign trade.

[ranwhenparked]

@looseonexit well, it wasn't to Hawaii, it's in Hawaii, you've got to fly in to Honolulu and pick up the ship there. With NCL, a 7 day cruise visits 5 ports and spends 2 days moored at Kauai for sightseeing on the island, so there's no significant time at sea, you're in port every day.

Under foreign registry, they would have to sail to Kiribati and back, which would mean 2 out of 5 days would just be spent at sea. And there isn't much on Fanning Island, Kiribati did develop a modern cruise terminal about 20 years ago and was banking on attracting Norwegian ships to develop the impoverished economy there, but NCL backed out once the Jones Act opportunity came up.

[LooseonExit]

@ranwhenparked

I apparently can’t read. Big oof. Thanks for the correction.

That makes it just as silly IMO because as noted, it’s probably not got a huge business case for that either.

[ranwhenparked]

@looseonexit Nope, in fact, outside of Honolulu, a lot of the ports in Hawaii still just aren't really set up for big cruise ships. American Hawaii did OK for years with Independence and Constitution, but those were about 23,000 tons and barely 1,000 passengers each, and that was really what the market could handle. NCL America did seem to settle into a reasonably profitable operation with just Pride of America (which is bigger than the two old AHC ships combined), but its definitely been proven there's not much room for anything beyond that. There's enough demand to have some sort of business there, but not enough demand to grow it beyond what it already is.

[SirDrivesALot]

The wife and I sailed on the Independence in '95. It was a fun cruise, the ship was dated, but in a "charming" way. NCL did run into some staffing problems when they first started sailing the islands- the US based staff balked at the long hours they were being required to work. Historical fact: it was the Independence that took Ms. Grace Kelly to Europe to marry Prince Rainer and become Princess Grace....

[ranwhenparked]

@sirdrivesalot That is true, and Constitution was the one that was used in the I Love Lucy episode arc where they sailed to Europe (with stock footage of Independence used in some scenes). I kind of wonder if there wasn't room to market it as a nostalgic, heritage attraction for people wanting a vintage ocean liner experience, like what works for Mississippi steamboats and the Orient Express, though the much higher operating costs are probably what killed that.

[facw]

@looseonexit said in Project America: When Pork Barrel Goes to Sea:

The Jones Act is virtually a national jobs act for Louisiana

If so, it didn't save Avondale:

Granted, they were mostly a military shipyard, but it certainly didn't leave them with overflowing civilian work. Similar story around the country of course. For example I was at the Fore River Shipyard near Boston this summer:
They've managed to get some tenants, but obviously none of them are ship builders.
Bonus shipyard feature:

(even though he doesn't work there anymore)

[SirDrivesALot]

@ranwhenparked one disadvantage of sailing on the Independence was the lack of modern stabilizers. Sailing around the northwest of the islands where the trade winds hit the ship became very....bouncy. One of the few times I have been sea sick.

[ranwhenparked]

@sirdrivesalot said in Project America: When Pork Barrel Goes to Sea:

nc

I think the two of them had that reputation throughout their history, if it was that bad close in to the islands, I can't imagine how they handled the middle of the Atlantic in winter

[derp]

fascinating read, thanks for posting!

[facw]

@ranwhenparked Canada announced that they are banning cruises for 2021, which probably means cruise operators wish they had some Jones Act-compliant ships for Alaskan operations.

[ranwhenparked]

@facw That's assuming they happen anywhere in 2021

[facw]

@ranwhenparked I really the doubt the US will follow suit. If people are willing to go (and they will be), things will be available to them. Maybe they'll require tests or even vaccinations, but I don't see things staying shut down.

[ranwhenparked]

@facw American Queen Steamboat Company has already announced mandatory proof of vaccination for all passengers when/if they resume; think they're the first one to do that. Which makes sense, considering their clientele tends to be toward the older end of the scale, and the elderly seem to have been some of the most difficult when it comes to selectively following orders.