Tuesday, September 18, 2007

Hawaii Superferry may be dead in the water

Hawaii Superferry aimed to transform how residents and tourists travel and conduct business among the islands. But after being rocked by a storm of protests and legal challenges, the company says it may be forced to shut down after investing $300 million and hiring 300 employees.

John Garibaldi, president and chief executive of the Superferry, said he needs to have "actionable information" within four to six weeks in order to determine whether to continue operations of Hawaii's first regular car-passenger ferry service. He declined to elaborate.

He also would not comment on a possible backup plan or how much money his company is losing while its high-speed, luxury catamaran remains idle in bustling Honolulu Harbor. A second ferry is currently under construction in Alabama and is scheduled for service in 2009.

"Our current efforts are focused on the resumption of services," Garibaldi said in an e-mail.
Despite fulfilling all of the state's requirements and getting the green light from the Legislature, the Superferry has run into more turbulence than just the rough Pacific seas that have discouraged previous efforts to establish such a service.

The ferry's Maui route has been suspended as state Judge Joseph E. Cardoza determines if it will be allowed to operate while an environmental assessment is conducted.

A state judge on Kauai on Monday will consider a request for a permanent injunction to keep the ferry from using that island's Nawiliwili Harbor.

The state Supreme Court last month unanimously ruled that the state should have required an environmental review before the Superferry started service. Environmentalists worry that the sleek, four-story vessel could collide with whales and spread invasive species.

The Superferry voluntarily suspended its Oahu-Kauai service Aug. 28 after two days of demonstrations at the harbor, where dozens of defiant protesters on surfboards, canoes and kayaks blocked the $95 million ferry.

The 350-foot ferry plans to resume Kauai service Sept. 26 with heightened security and a revised daytime schedule.

Jeff Mikulina, director of the Sierra Club's Hawaii chapter, said the group's goal was never to sink the Superferry but to get an environmental review completed.

"This is a brand-new sort of operation, unlike anything we've had previously. It comes with a certain amount of risk and we just want to understand that risk," he said.

Mikulina said his group requested an environmental review three years ago, so the Superferry's present challenges could have been avoided.

Gov. Linda Lingle, a strong supporter of the ferry, has maintained that the state followed the law. The state determined in 2005 that an environmental review was not necessary because the project fell under an exemption. Judge Cardoza on Maui agreed with the state.

"It was only recently that the Supreme Court came out with its own interpretation of the law, which was different than everyone in the state had interpreted," she said.

University of Hawaii law professor Jon Van Dyke, an expert on environmental and maritime law, said environmental reviews have been required in the U.S. since 1969 and are needed to protect Hawaii's fragile environment.

"This is a well established procedure that's now done all over the world," he said. "So the idea that you would try to leapfrog over this logical and important requirement is to me a little bizarre."

Despite only being required for Maui, the state plans to conduct an environmental assessment on the potential impact on harbors statewide. The review is expected to take at least eight months and possibly longer if it is challenged.

Superferry said it will be forced to cease operations if it is not allowed to sail while the review is being conducted.

"We are unable to sustain operations for that length of period without revenue," Garibaldi said.
The governor said there is no doubt the Superferry would be out of business by then.

"I don't think the majority of the people in the state want to see that happen," she said.

If the Superferry folds, the state and the federal government could wind up losing millions. The state has provided $40 million worth of harbor upgrades and equipment, and the federal government has approved $140 million in loan guarantees for the ferry.

The Superferry is a privately held company. The largest investor is New York-based private equity firm J.F. Lehman & Co., which has an $80 million stake in the venture.

Despite the state having a major role in the Superferry's troubles, it cannot be sued for damages.
Van Dyke said the contract between the state and Superferry stipulates that the company cannot seek damages if an environmental review is required.

"The state was very careful. They negotiated very carefully and they wrote a good contract and they protected themselves from being sued," he said.

Meanwhile, the Superferry had stirred strong emotions in this laid-back state. Many people were eager to use the Superferry, which offers the only alternative to air travel. Supporters point to Superferry's obstacles and possible shutdown as feeding the idea that Hawaii is an unfriendly place to do business and setting a dangerous precedent.

"We share the business community's concern about the message this sends to the outside world about investing in Hawaii or undertaking a viable business venture here," Garibaldi said.

The Sierra Club's Mikulina said it's the companies and government officials who are creating bad business practices by trying to "cut corners" and ignore laws.


"We have clear rules to play by," he said. "If you come here and abide by the rules, we'll get along just fine."

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