Tuesday, July 20, 2010
We can crow—we told you so (Superferry)
by Larry Geller
Kudos to AP reporter Mark Niesse for his article on the Hawaii Superferry Hawaii Superferry shorted state (7/20/2010) and the investigation behind it. Niesse requested and reviewed Hawaii Department of Transportation records to learn that the Superferry company was in financial difficulties at least 11 months before it finally declared bankruptcy.
The Hawaii Superferry's operating agreement with the state required a minimum of $191,667 in monthly payments during the first three years of service for various fees including dockage, port entry, passengers and vehicles. The company paid the full amount from the time it started service in December 2007 until July 2008, and then payments gradually declined until March 2009, when it stopped paying altogether.
Neither the company nor the state had disclosed that the ferry service couldn't make its required payments until the the DOT released the Superferry's payment records at the AP's request.
Essentially, the state continued to hide the fact that the Superferry was a failing business.
See also a KITV story based on the AP report: AP: Superferry Cut State Payments Month Before End (7/20/2010).
The state sent letters demanding payment and threatening legal action, but never followed through. The company owed the state $1.3 million, the AP reported. The state got about half of that back in a bankruptcy settlement.
This blog reported analyses conducted by Brad Parsons over the life of the Superferry that demonstrated it was likely not making money. One extensive review was in his presentation on May 20, 2008 to an Eco-Roundtable meeting, which concluded (skipping all the numbers he cited):
In recap, HSF is unlikely to ever be profitable as a commercial business only. Furthermore, it is only marginally competitive moving people interisland. HSF's most noticeable market potential is in rapid transport of vehicles interisland, quite likely at the expense of Young Brothers. Little to no road improvements on islands such as Kauai do not appear to be ready to receive that kind of influx. HSF may have an uptick in ridership in June, July, and August, but will likely have a drop off in Fall 2008 and problems again with high surf in Winter 2008-9. In the meantime HSF investors appear to be willing to accept operating losses at current levels provided progress continues on other related investments.
A business cannot continue running at a loss. Supporters on Oahu were in denial of this. For example, Sen. Sam Slom, quoted from an Advertiser article in an article here on May 31, 2009:
State Sen. Sam Slom, R-8th (Kahala, Hawai'i Kai), called the Superferry bankruptcy a "tremendous tragedy for Hawai'i."
Slom said he believes opponents of the project were in the minority and that the Supreme Court's decisions were wrong. He said the ferry had the potential to unite the Islands economically and to create more business opportunities on the Neighbor Islands.
Slom, a proponent of privatization, should have known that while government can subsidize a public service, private business cannot. While uniting the Islands is an admirable goal, that would require a state-run service since the Superferry (at least with the ship it was using) was not a viable business.
Even when the Superferry reported record loads, Brad Parsons painted a different picture. Snipping from his May 28, 2008 analysis (click on the link if you’d like to follow his numbers):
NOT Enough on average to cover just their fuel costs for the month of May. Furthermore, those trip averages for the Month of May are actually lower than the trip averages they were having in the latter part of April.
That particular May included a four-day Memorial Day holiday.
The handwriting was on the wall. Thanks to Brad’s careful analysis, his readers and Disappeared News readers knew (based on estimates) that the Superferry was not a viable business. When the AP story hits the papers tomorrow, everyone else will find out. I hope the editors will question the Lingle Administration on why the information was kept from the public.
As to why the two daily newspapers did not follow up on Brad’s estimates all along, well, remember that the Superferry was a big advertiser. Those days are over, now they can ask the hardball questions (hint).
Thanks for flagging the article today and using all the quotes from the past. Funny, just today I was talking with some hikers, "locals" from Oahu who came out of Kalalau Valley. Somehow we got onto the Superferry story and they were under the assumption that it had been successful up until the Supreme Court decision. I had to review for them the situation so they would understand that that was not the case. We covered other stuff, like that Maui was worried about the whales and Kauai was worried about the invasives like the Mongoose and at that time overdevelopment. Anyway, one of them had ridden it and he said, it was something one would ride once, but the rough ride made it such that you might not ride it again. Another one of them chimed in "yeah, we got some of the roughest channels in the world." They understood that one might not ride it more than a time or two, and therein lies the crux for something like the Superferry. Later today I got a note from a State Rep. about this article and then saw your blog post in my Google alerts. Thanks for the cites, Larry.
It has always boiled down to the fact that Lingle and her legislative conspirators did not do their due diligence.
I can only blame Lingle and DOT.
Any business will attempt to get away with what they can, but when the state assists, thatʻs significant criminal activity.
I think the HSF episode was truly a looking glass into the intellectual and moral deficiencies of the legislators that stood by these criminal acts and came very very close to sacrificing the outer islands.