<FONT SIZE="+3"><B>Mega-Ship Plan Proceeds</B>
</I>By Lauren Bielski
For more than a decade, the eccentric cruise industry executive Knut Kloster has held onto a vision of building a luxury passenger ship 2 1/2 times larger than any ever made, creating a floating convention center that isn't limited to serving leisure markets.
That vision appears to be closer to reality now that Kloster, founder of Norwegian Cruise Line, has signed on a wildly enthusiastic Juergen Bartels, the president and CEO of Westin Hotels & Resorts, and announced a joint marketing venture with Westin, which has invested $10 million in equity. Project sponsor World City Corp., which Kloster joined in 1989, has secured $150 million in equity from strategic partners and has expressed confidence that the ship will be operational by the year 2000.
"We are very excited about this project," Bartels said. "I think that it will be a very special place-there is no better way to spur on the dying shipbuilding industry and create jobs."
Hurdles remain, however. The Maritime Administration, which stalled the application review process for Title 11 debt security funding last February, took some heat from the cruise company, which has appealed the termination decision with the Department of Transportation. Secretary Federico Peña is still evaluating the points raised in the appeal.
World City Corp. has spent $32 million over the past seven years to come up with the ship's design, secure competitive bids in U.S. shipyards and assess the design feasibility of building the "largest moving object ever built-ever" in a domestic industry that many say is defunct.
If Kloster and Bartels have their way, the ship will grab market share from the $50 billion convention industry, generating-from pent-up demand-significantly more than the $5 billion the cruise industry currently takes in. Because it will be U.S.-built and staffed, the ship will be able to trade between domestic ports, allowing the pick-up of passengers anywhere along the eastern seaboard.
It also will offer cruisers the same level of tax deductibility that landlocked venues here can provide-a draw that the current stable of cruise ships lacks.
Slated to be called America World City: The Westin Flagship, the vessel will come equipped with four 400-passenger day cruisers, three eight-story hotel towers with 2,800 staterooms, a comprehensive medical facility, a casino, more than 30 boutiques, a 2,000-seat theater, a museum and planetarium, and 100,000 square feet of meeting space.
The concept of the "floating city" seems to be an effort to up the ante on the trend toward outfitting cruise ships with increasingly sophisticated technological capabilities and chic amenities.
To listen to Bartels and World City Corp. chairman John S. Rogers outline the project, the funding and building of the 250,000-ton vessel is a mere formality-as is the revamping of the 452-acre Military Ocean Terminal site in Bayonne, N.J., and 90-acre development at Port Canaveral, Fla., which will both serve as home bases for the ship.
In fact, all financing for the project will be contingent on a Department of Transportation Title 11 loan guarantee for 87.5 percent of the project. The benefit of a Title 11 loan guarantee is that it allows amortization over a 25-year period, which allows a lower break-even point. This government guarantee, for which all federal agencies must petition DOT for financing, is notoriously difficult to obtain. World City has attempted over the past 15 months to secure its approval without success.
To allay the Maritime Administration's fears about risk, World City proposed to fund a portion of the "set-aside," an insurance premium at a discretionary percentage of the loan guarantee required under the Federal Credit Reform Act. But in order to make this change in funding appropriation, the government will have to amend existing law, a change that World City has lobbied for since the fall of last year, and would have to occur in time for a closing of Title 11 financing, which typically occurs six months after the Letter Committment is signed. World City also came up with a counter guarantee, which is additional security worth the value of the land at Cape Canaveral.
Rogers expressed hope that the Letter Committment-which will initiate the process of attracting specific contracts with builders to get exact project costs and schedules and initiate a public offering-will be signed before the November election.
But many in the industry have their doubts. "I don't mean to be a naysayer, but I'm not optimistic that this project will get built," said Brent Hubele, president of Cruise Link, a travel consortium in West Islip, N.Y., that represents 20 cruise lines in addition to scores of agencies, two airlines and many hotels.
"Not only are the obstacles to obtaining $1 billion in financing considerable," Hubele said, "but the pressure of the lobbyists representing the foreign-flag cruise industry is also considerable. I think Congress will pass legislation giving foreign-flag carriers tax deductibility before World City and Westin will obtain their financing."
Rogers is adamant about the project's fiscal feasibility. "People who say that this is impossible to fund, and too big of an operation to fund, are just ignorant of the facts, and ignorant to the nuances associated with the terms of this deal," he said, pointing out that billion-dollar deals are commonplace and that Wall Street securities companies such as Donaldson, Lufkin and Jenrette have asserted that the money in an initial public offering can be raised.
"Charging as little as $67 per day, with a conservative load factor of 80 percent, we can break even in year one," Rogers said. "Not only is our return on equity excellent at 30 percent, our debt service coverage [how many times net profit can cover the cost of interest plus amortization] is solid." Furthermore, the cruise ship would create jobs for U.S. citizens and pay some $5 billion in taxes over the life of the loan.