Superferry Recap 2012

Mr. Axe does a good job explaining the Superferry venture and how John Lehman made use of it with Austal, Atlantic Marine, and BAE Systems in the years since the Superferry's failure.  Lehman only ended up doing well with it because of his perseverance.  If it had been just the Superferry, it would have been a miserable failure.  In comments below, Mr. Lehman is too hard on the Hawaii Supreme Court, the problem was in the construction of Act. 2 by the Hawaii Legislature.  Maybe he has some purpose in blaming the Court rather than a Legislature he might need to deal with again in the future.  Agree with Mr. Axe's closing point that "campaign talk of a massive naval buildup may fade as budget realities set in."  Lastly, it's a little off topic for the article, but Lehman's position on the 9/11 Commission was a noteworthy responsibility that went unfinished and determining details unattended to as with the Superferry's business plan...

Source:  http://www.wired.com/dangerroom/2012/10/big-business-romneys-navy/all/

Romney’s Big Navy Guru Made Millions From Building Ships
By David Axe October 23, 2012

...one of Romney’s most important advisers on Navy issues, a man who oversaw a massive naval expansion for Pres. Ronald Reagan, there’s more at stake than U.S. national security. John Lehman, an investment banker and former secretary of the Navy, has strong and complex personal financial ties to the naval shipbuilding industry...

Lehman invested in a government-backed “Superferry” in Hawaii — a business that ultimately failed, but not before boosting the standing of Austal USA, an Alabama shipbuilder that constructed the ferry service’s ships. Austal USA’s rising fortunes in turn benefited international defense giant BAE Systems, which then bought up shipyards owned by Lehman in order to work more closely with Austal USA.

...But Ryan Sibley — an editor at the Washington, D.C.-based watchdog Sunlight Foundation who has closely tracked the former Navy Secretary’s investments — says that ”Lehman’s involvement with the Superferry shows that he is no stranger to using personal connections to influence costly decisions.”

...Lehman was the chairman of Hawaii Superferry, a transportation startup based in Honolulu that briefly provided passenger service between the Hawaiian islands of Oahu and Maui. It relied on a new type of fast catamaran ferry built by Austal USA, a shipbuilder in Alabama specializing in speedy aluminum vessels.

Founded in 2003, Hawaii Superferry secured a $136-million loan from the Maritime Administration, a federal agency that oversees sea transportation. Lehman’s own equity firm, the controlling private investor, put $85 million into company. Hawaii Superferry also benefited from $40 million in port enhancements paid for by the state of Hawaii.

The ferry company bought two ships from Austal USA, each more than 300 feet in length and capable of carrying hundreds of passengers plus their cars at speeds in excess of 30 knots. The vessels cost $105 million apiece.

The first ferry entered service in mid-2007. But with low ticket prices and soft demand, the service was a money-loser. The company was also mired in controversy over the environmental impact of its facilities. In 2009 Hawaii Superferry declared bankruptcy. Lehman reportedly lost his entire $85 million investment, and says his total losses were much, much greater than that.

“The two Hawaii Superferrys that we built — on time, and on budget — were operated in commercial service, with no government customers,” Lehman tells Danger Room. “We were put out of service by the chicanery of the State Supreme Court and we lost over $300 million.”

But in another regard, the ferry was a smashing success. Austal USA, which builds aluminum warships for the Navy, was angling to build military versions of the Hawaii ferries to meet a new Pentagon requirement for fast transports called Joint High-Speed Vessels, or JHSVs. “Building the Superferry was very helpful in demonstrating that we can build these ships,” said Bill Pfister, Austal USA’s vice president for external affairs.

Out of direct public view, Superferry officials touted their ship’s military potential. Superferry’s pitch to the Hawaiian Public Utilities Commission included a slide claiming the ferry could haul the Stryker vehicles belonging to a Hawaii-based brigade. The company paid a lobbying firm $70,000 to try to convince the Navy to add the ferry to a program that assigns military transportation jobs to civilian vessels.

In late 2008, the Navy tapped Austal USA to build 10 military versions of the Hawaii ferry for $1.6 billion. Some critics have questioned whether Superferry was intended all along to serve as a proof-of-concept — admittedly, a money-losing one — for a much more valuable military program. “The fact that the Superferry was already in the water, proving its seaworthiness while the JHSV contract was being considered, suggests that it may have always been intended as a prototype or demo model for the larger deal,” Koohan Paik and Jerry Mander, who penned a book about the ferry controversy, wrote in The Nation.

Superferry president Thomas Fargo, also a J.F. Lehman & Co. board member, denied the claim. “We always get the question, ‘Was this designed as a military operation?’” he told The New York Times. “That’s absolutely not true.”

Regardless, the Hawaii ferries themselves did become military assets. In 2010 the Maritime Administration sued to take over the two ships in order to recoup some of its $150 million investment. The administration later sold both ferries to the U.S. Navy for a total of $70 million.

At first glance it’s not clear how Lehman could have benefited from his money-losing investment in Hawaii Superferry. The answer lies in another of the former Navy secretary’s investments: the Atlantic Marine family of shipyards.  In 2006, Lehman purchased the shipyards in Alabama, Mississippi, Florida, Boston and Philadelphia for a reported $170 million. In 2009, the federal government awarded three of the yards $2.7 million in stimulus grants for improvements.

In 2010 international defense giant BAE Systems, which handles ship repairs among other specialties, acquired the Florida, Mississippi and Alabama yards for $352 million — ringing up an estimated $180 million profit for Lehman that more than makes up for his “failed” investment in Hawaii Superferry. Lehman held onto the remaining two yards in Philadelphia and Boston. Recently both have received lucrative ship-repair contracts from the Navy. They could receive even more such contracts if the sailing branch were to grow at a faster pace, as Lehman intends.

Today the Alabama yard, which is adjacent to Austal USA’s own facilities, plays a critical role in military programs on which Austal USA and BAE Systems collaborate. “We launch both their JHSV and [Littoral Combat Ship] vessels with our dry docks; we also support Austal with warranty repairs, if requested,” BAE Systems spokesperson Stephanie Moncada tells Danger Room. Austal USA did not respond to an e-mail requesting comment on the company’s relationship with BAE.

In addition, Austal USA does work on aluminum structures as part of BAE Systems’ ship-repair contracts with the Navy. Being in such close proximity to each other makes BAE Systems and Austal USA’s collaboration possible, or at least more efficient.

Even before the acquisition of the Alabama yard, BAE Systems enjoyed close ties with Austal USA, namely in providing guns and radios for the Littoral Combat Ships Austal USA builds for the Navy. That made BAE Systems an obvious prospective buyer for Lehman’s yards — the Alabama one in particular.

But Lehman’s investments in the partially taxpayer-funded Hawaii Superferry reportedly helped Austal score the military transport deal, thus improving the business case for a closer partnership between Austal USA and BAE Systems. That partnership is being facilitated by BAE Systems’ Alabama shipyard, purchased at a 100-percent markup from Lehman.

To put it plainly, Lehman’s investment in the failed, government-backed Superferry boosted Austal USA, whose rising fortunes also benefited BAE Systems, which in turn bought up Lehman’s shipyards — improved by stimulus funds — in order to work more closely with Austal USA. That roundtrip deal helped earn Lehman’s firm a reported $180 million profit. In that sense, Lehman in fact more than doubled his $85 million investment in Hawaii Superferry, with a big assist from the taxpayers.

“While I don’t know how typical Lehman’s conduct is, his involvement with the Hawaii Superferry suggests his expertise lays in the strategic deployment of taxpayer resources for personal gain,” Sibley, the watchdog, tells Danger Room.

Lehman calls the allegation “kind of amusing. We have never owned a shipyard that builds Navy ships. We have owned four shipyards that repair, not build commercial ships and Navy ships. The Navy business made up about 15 to 20% of the repairs. We still own two of those four, having sold the other two to BAE.”

Ultimately BAE Systems, whose shipyard purchases added significantly to Lehman’s already substantial personal worth, stands to earn potentially tens if not hundreds of millions from the ships specified in Lehman’s naval buildup scheme. Each LCS costs around $500 million; the Navy plans to acquire at least 55 of the ships. As Romney’s naval adviser, Lehman specifically promised to continue the program, and mentioned possibly adding more combat gear to the vessels — gear that could be built by BAE Systems.

...Perhaps none of this will have an influence on a Romney Pentagon. Perhaps the campaign’s talk of a massive naval buildup will fade as budget realities set in. But if a Romney administration does embark in such an enormous increase in military shipbuilding, it’s worth noting that one of the brains behind the expansion has profited rather handsomely by encouraging the Navy to build.

Superferry Certificate of Public Convenience and Necessity Cancelled Yesterday‏‏

Here was how I summarized it to a friend after reviewing the following two docs. I may be simplifying it, but:

The bankruptcy representative asked the PUC to cancel the CPCN because Superferry does not have the finances to perform some of the obligations under the CPCN and this needs to be cancelled so that the bankruptcy can be completed. The PUC approved it, and closed the docket on the Superferry yesterday. So basically somebody from the private sector who might try to come in again and operate under the Superferry's prior charter will not be able to do so (unless the PUC reverses it's decision?). The process would have to begin again, and that was about a 2 year process with public input again. Superferry is completely dead. The ships will be auctioned by MARAD soon.

The full-text docs are:
03/10/10 Request to Surrender CPCN
05/27/10 Order Approving Voluntary Surrender of CPCN

Other related news today on this otherwise old story:

From: http://www.honoluluadvertiser.com/article/20100528/BREAKING01/100528052/Lingle+criticizes+Hannemann+over+Hawaii+Superferry+remarks

BREAKING NEWS/UPDATES
Updated at 5:06 p.m., Friday, May 28, 2010
"Lingle criticizes Hannemann over Hawaii Superferry remarks"
Associated Press

HONOLULU — Gov. Linda Lingle is criticizing Democratic gubernatorial candidate Mufi Hannemann over his remarks about her handling of the Superferry controversy. Hannemann, the mayor of Honolulu, contended Thursday Lingle will not allow his proposed commuter rail project to move forward while she is in office. Lingle is now reviewing the project's environmental impact study. Hannemann said the irony is Lingle "blew the Superferry" because she didn't want to conduct a full environmental report on the interisland vessel. Lingle said in a statement Friday that Hannemann's comments were "misinformed and patently false." She says the state Supreme Court blocked the Superferry in March 2009 with an unprecedented reading of state environmental law.

I say, let 'em Duke it out. I'm only hangin' around this story long enough to find out who buys the vessels at auction and at what price. Otherwise, I'm done wit' dis' story...
A - L - O - H - A!

NEPA EIS for JHSV

From: http://aec.army.mil/usaec/nepa/topics00.html

Programmatic Environmental Impact Statements

Joint High Speed Vessel

• The Army intends to prepare a programmatic environmental impact statement in 2010 for the proposed stationing and operation of joint high speed vessels. The JHSV is a strategic transport vessel designed to support the rapid transport of military troops and equipment in the U.S. and abroad. All interested members of the public, including native communities and federally recognized Native American Tribes, Native Hawaiian groups, Guam Chamorro Groups, and federal, state, and local agencies are invited to participate in the scoping process for the preparation of this PEIS. Comments may be sent to the Public Affairs Office, U.S. Army Environmental Command, 5179 Hoadley Rd, Attn: IMAE-PA, Aberdeen Proving Ground, MD 21010-5401; (410) 436-2556; fax (410) 436-1693; e-mail USAEC NEPA.

U.S. Army Environmental Command seeking Comments on JHSV's in Guam, Hawaii, San Diego and Seattle

From: http://www.guampdn.com/article/20100204/NEWS01/2040302/Guam-may-host-Army-fast-ships

"Guam may host Army fast ships"
By Gaynor Dumat-ol Daleno • Pacific Daily News • February 4, 2010

Guam is one of several areas being considered as a station for up to a dozen high-speed catamaran-style military ships each capable of transporting more than 300 people per ship, according to an Army Environmental Command announcement.

Hawaii, San Diego and Seattle are also being considered, according to the command's announcement, which was issued as an advertisement in the Pacific Daily News to solicit public comments.

A cooperative effort between the Navy and the Army, the Joint High Speed Vehicles, or JHSVs will be used for fast intra-theater transportation of troops, vehicles and equipment, according to an earlier Defense Department announcement of the program on defenselink.mil.

"JHSVs will be capable of transporting 700 short tons (within) 1,200 nautical miles at an average speed of 35 knots, and can operate in shallow-draft ports and waterways, interfacing with roll-on/roll-off discharge facilities, and on/off-loading a combat-loaded Abrams Main Battle Tank," according to the Defense Department.

These ships all give commanders the ability to roll on a company with full gear and equipment, or roll on a full infantry battalion if used only as a troop transport, haul it intra-theater distances, then move their shallow draft safely into austere ports to roll them off, according www.defenseindustrydaily.com.

Initial uses of the high-speed vessels have led to a $1.6 billion program called the Joint High Speed Vessel, which could involve up to 10 ships, according to defenseinustrydaily.com.

The Army Environmental Command notice for public comment says up to 12 Joint High Speed Vessels will be stationed.

TO COMMENT

The U.S. Army Environmental Command welcomes public comments on the plan. E-mail comments to the Public Affairs Office, U.S. Army Environmental Command, 5179 Hoadley Road, ATTN: IMAE-PA, Aberdeen Proving Ground, MD, 21010.

You can also call (410) 436-2556; (410) 436-1693; or e-mail APGR-USAECNEPA@conus.army.mil.

Hawaii interisland shipping news

Interesting blog post on interisland shipping...
like the dueling economists coverage in this piece:

http://bizbites.honadvblogs.com/2009/11/26/laissez-unfair/

Biz Bites| Biz Bites blog, honoluluadvertiser.com | Honolulu, Hawaii

bizbites.honadvblogs.com By Rick Daysog

Guggenheim Corp. Funding Seeks Dismissal of HSF Holding Bankruptcy

From: http://www.netdocketsblog.com/2009/07/guggenheim-corp-funding-seeks-dismissal.html

Thursday, July 9, 2009

Guggenheim Corp. Funding Seeks Dismissal of HSF Holding Bankruptcy

On Wednesday, Guggenheim Corporate Funding, LLC filed a motion seeking the dismissal of the chapter 11 bankruptcy case of HSF Holding, Inc. HSF Holding, Inc. is the parent holding company of Hawaii Superferry, Inc., which operated a high-speed ferry business between the Hawaiian Islands before filing for bankruptcy and abandoning its ferries. Guggenheim does not seek dismissal of Hawaii Superferry, Inc.'s bankruptcy case.

Guggenheim holds a security interest in all of HSF Holding's assets, which consist solely of the stock of Hawaii Superferry, Inc., as a result of providing $47.75 million in senior secured funding in 2007. Guggenheim also holds $7.5 million in an escrow account, which is the subject of a joint stay relief motion of HSF and Guggenheim scheduled to be heard on July 20, 2009.

In support of its motion, Guggenheim argues that cause for dismissal exists because there is "a lack of good faith purpose" for HSF Holding's bankruptcy case. In furtherance of that argument, Guggenheim points to seven factors:

1. The only asset in HSF Holding's case is the Hawaii Superferry stock that is subject to Guggenheim's lien.
2. Guggenheim "appears to be the only creditor" of HSF Holding.
3. HSF Holding has no on-going business or employees.
4. HSF Holding's chapter 11 petition was filed "on eve of Guggenheim terminating the escrow account and retaining such funds."
5. The only parties-in-interest in HSF Holding's case are Guggenheim and HSF.
6. HSF Holding has no cash or income.
7. HSF Holding has no possibility of reorganization because it has no business to reorganize.

Download copies of every document filed in this case and the bankruptcy cases of over 600 other major corporations using netDockets. Sign up now for a free trial account and $100 of free research.

Posted by Randall Reese

OK, here's a brainstorming idea for you ferry lovers

[Second Edition: Have made two paragraph additions at the bottom of this post.-Ed.]

Haven't fully evaluated this idea yet, but was just thinking about the 2 vessels that have been operated by TheBoat, the M/V Rachel Marie and the M/V Melissa Ann.

Why not us them for an interisland service, with DOT either taking over their lease or buying them from the City and County of Honolulu? Many states where ferries operate successfully, the State owns the ferries, like Alaska, Washington, and Texas to name a few.

The vessels used by TheBoat actually have many of the operational characteristics that could work logistically and financially for an interisland service, unlike the Alakai and Huakai who's scale, engines and capacity were inappropriate for the distances and market. Plus, most of the Chapter 343 EIS has already been done for TheBoat, maybe only a few slight changes would be needed on that.

Some would say the M/V Rachel Marie and M/V Melissa Ann might not be able to handle the channel conditions. To that I would say, worse case they just don't operate December through February. Maybe the State runs them only intra-island during the swell months. These two passenger only vessels otherwise fit all of the demands that Neighbor island critics have raised. Plus they can make the distance in a reasonable amount of time. They would allow the harbor improvements to continue to be used. You could charge at least $40 one-way per person and I believe fill the vessel most of the time and actually breakeven for the state. With only a 6 ft. draft the State might even use the old FAP routes.

More evaluation would need to be done to determine if this would truly be realistic, but just on the main constraints that caused HSF to fail, I think this would work.

Here's a video of TheBoat. The video gets good starting about about the 3:50 minute mark. Here are some pictures of TheBoat. TheBoat is just a little small, still would work well on some of the FAP routes to quieter destinations. There are also some very interesting 600 passengers only (no vehicles) fast ferries operating in Santa Catalina, Martha's Vineyard, Boston, and in the U.S. Virgin Islands to compare to.

Hope Kallai added the following comment to this idea, "Awesome idea. Who owns them? City & County? Didn't they use Fed funds? The DEIS or whatever that prelim study was could be re-fashioned as a Programmatic EIS; then the whole project idea should really be put out to bid - with all the other ferry proposals given a chance to apply. After selection only a Supplemental (vessel-specific) EIS would need to be prepared."

Hawaii Superferry Joins Interisland Fare Wars

Howard Dicus has a good video report at:
http://kgmb9.com/main/index.php?option=com_content&task=view&id=14517&Itemid=40

From that:

HD: ...They're trying to put butts in seats.

SU: But at the same time, are they making any money?

HD: No. No, they're probably all losing money on their interisland service right now...

HD: I think all of them, including Superferry, are struggling a bit. It depends a lot on how much worse the recession gets...

I'll just add that this fare war is much more expensive to HSF in losses per passenger than for any of the airlines. Mokulele, though, appears to have shallow pockets, and will likely go down first. But, Mokulele has the most comfortable looking seats to put your butt into and not get motion sick. It's a toss-up as to whether Go! can last longer than HSF. The only strong player in this is Hawaiian. If you got money to burn, I'd recommend Mokulele for as long as they are around.

Aloha, Brad

A Pinoy Story in this and Reporting from Australia

Just as Austal (parent company of the maker of Hawaii Superferry) prepares for a major top-dollar government contract in the U.S. for which it will need 500 more workers, the following article (bottom) appears on a Filipino news website:

Austal close to securing JHSV contract WA Business News - Northbridge, Western Australia
Austal is on the verge of receiving confirmation from the United States Navy that the Henderson-based ship builder has been successful in winning...

Home-grown shipbuilder wins international acclaim The West Australian - Perth, Western Australia Henderson shipbuilder Austal received a major boost to its international expansion plans after a high-ranking US Senator praised the decision of the US Navy...

75 Filipinos Laid Off In Australia Pacific News Center - USA The company, Austal, one of the biggest ship builders in the world, downsizes in Australia. The company is giving the laid off Filipino workers 28 days to look for news jobs, or they will be sent home. Today's layoffs come a day after the British Company Voltcom laid off 100 Filipino workers in England...

Mass termination of OFWS in Australia brings tears before Christmas ABS CBN News - Philippines
By Gigi Grande, ABS-CBN News 11/13/2008 2:05 PM Seventy five Filipino workers in Western Australia have lost their jobs at Austal...[see below]

For Filipinos abroad, a Pinoy Story in all of this:
http://www.abs-cbnnews.com/pinoy-migration/11/13/08/mass-termination-ofws-australia-brings-tears-christmas
"Mass layoff of OFWs in Australia brings tears before X'mas"
By Gigi Grande, ABS-CBN News 11/13/2008

"Seventy-five Filipino workers in Western Australia have lost their jobs at Austal, one of the biggest ship builders in the world.

Thirty Australians and two Croatians also got the chop.

Austal chief executive officer Bob Browning told ABS-CBN the global recession and the credit crunch are to blame. He says it caused “commercial customers to slow down” on the acquisition of new vessels. As a result, employees engaged in the early stages of vessel production, such as fabricators and welders, were left without assignments. “Majority of our Filipino workers are employed in this area,” Browning explained.

Sorry, mate

Employees knew something was amiss when managers holed themselves up in the conference room on October 22. The following day, dozens of employees were called to the manager’s office in succession.

Welder Edilberto Lumanog recalls how his supervisor gave him a hand shake, a letter, and said “Sorry, mate.” The supervisor explained it was top management’s decision to downsize.

Lumanog sat down and the room began to spin. “Parang nawala ako sa sarili, kasi sa trabaho, masipag ka at saka nag-tyaga ka, bigla namang dumating yung sinabing kasali ka sa ganyan (I felt like I was not myself. In work, you're industrious and persevering. Then this comes.),” recalled Lumanog.

Tearful men

Lumanog was devastated. A devoted father, it pained him to move to Australia eight months ago. He missed his children. But he accepted the job at Austal in the hope of providing his family a better life. ” Masakit talaga. Sa Pinas pito ang anak ko. Biro mo apat ang sinusuportahan ng gatas (It pains me. I have 7 children in the Philippines. You wouldn't believe this but four of them are still on milk,) ” he said as he tried to hold back tears. “Dapat yung anak ko papasok sa college ngayon. Sabi ng anak ko, hindi na sya maka pasok sa college kasi wala na akong trabaho. Sabi ko, hahanap ako ulit ng trabaho, kahit anong trabaho. (One of my children is supposed to go to college. He said that he's no longer going to school because I don't have a job. I told him, I'll look for work, any kind of work.)”

For Johnnie Almento, the one thing more painful than losing his job was hearing his wife weep on the phone. “Tinawagan ko asawa ko. Umiyak sya, iyak ng iyak. Sabi ko huag kang umiyak, wala naman tayong magagawa (I called up my wife. She cried. I told her, we can't do anything) ” the father of five recalled.

The Australian Department of Immigration and Citizenship gave Filipino workers 28 days to find new employers, or return to the Philippines. Almento, an experienced welder, was optimistic and spent the next few days looking for a job. But after a week, he began to lose hope. He couldn’t sleep at night. He wanted to go home. “Tumawag yung panganay ko. Sabi nya, hanap ka muna, Pa, para matuloy kaming mag-aral. Yun ang masakit eh. Sabi ko, sige maghahanap ako. Mag-dasal din kayo (My eldest called, asked me to look for work so that they could go to school. That's painful. I told them to pray).”

Prayers answered

Days later, Almento believes prayers were answered as he found another job. Lumanog, too, found employment. But they cannot begin working and therefore won’t receive their salaries until new work permits are issued.

In the meantime, meager savings will go towards costly living expenses such as food, utilities and rent. Workers were given a severance package based on length of service, but Lumanog said this was only equivalent to one week’s pay.

But Fabricator Raniel Cadiles is packing his bags. After two weeks of job hunting, he has decided to throw in the towel. Australian employers turned him down because he lacked experience. Like many overseas Filipino workers, he’ll be back in the Philippines soon, but celebrating Christmas is farthest from his mind. “Parang na-blanko ako. Ang laki laki ng kumpanya tapos ganito ang nangyari. Isa o dalawang araw, wala akong imik sa kwarto, hindi ako lumabas, parang hindi ko matanggap (I feel blank. The company is so big, then this happens. For one or two days, I kept quiet, didn't go out of my room. I couldn't accept it.)”

Experienced, productive people

Only two years ago, Austal launched extensive recruitment efforts in the Philippines when advertising in Australia yielded few candidates. Australian unions and community groups criticized the move, but former Austal CEO John Rothwell stood by the decision. “There is an aluminum ship building industry in Cebu in the Philippines so the people we have sourced from there are experienced and able to come to Australia and be productive from day one,” Rothwell had told the Australian Broadcasting Corporation in 2006.

The recruitment efforts doubled the number of Filipinos employed at Austal’s Henderson plant by 2008, comprising roughly 10 percent of the workforce.

After the recent retrenchment, the number of Filipinos employed at Austal is back to 2006 levels. “Until the worldwide economy begins to recover, we will need to closely monitor our workforce requirements,” Browning said.

No further job cuts are expected."

You know, I have been told Austal-USA may have in the past used Mexican workers. I don't know why they couldn't use many of these Filipino welders in Alabama on work visas. They sound like they are pretty well skilled.

Aloha, Brad