On the morning of September 19, 2001 American Classic Voyages Co. filed for Chapter 11 bankruptcy protection. The timing was cruel, but the company’s troubles had been deepening long before that terrible month of September. The collapse of American Classic Voyages was a casualty of one of the most audacious, legislatively engineered, and ultimately doomed ventures in modern maritime history: a federally subsidized bid to build American-crewed, American-flagged large cruise ship capable of sailing not just coastwise trade, but open ocean for the first time in generations.

Project America was not born in a corporate boardroom. It was born in the United States Congress, nurtured by decades of maritime nostalgia, union and congressional lobbying, and the desire that American workers deserved a share of an industry that had, by the late 20th century, become almost entirely foreign in its ownership, crewing, and operation.

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Table of Contents

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The Jones Act, Cabotage, and the Death of American Cruising

To understand the political landscape that provided for an audacious project like Project America, it’s best to take a look at that legislation in the Passenger Vessel Services Act, more commonly mistaken for a similar but newer Jones Act. Under these longstanding U.S. cabotage law, only vessels built in the United States, owned by U.S. citizens, and crewed by American sailors could carry passengers between two separate U.S. ports on a continuous voyage. For the domestic ferry and river cruise trade, this was manageable and still holds true to this day. For deep-water, weeklong ocean voyages, it was effectively a death sentence.

It’s important to note that nowadays, foreign-flagged cruise ships operating out of Miami that sail to Nassau to Cozumel and back have no such restriction as they call in a foreign port and are not transporting passengers between two separate ports. Their ships are built in Germany, Italy, France, or Finland, registered in the Bahamas or Panama, crewed largely by workers from the far east or eastern Europe. Their operating costs were a fraction of what an American-crewed, American-built vessel would require. By the 1990s, the United States had ceded all of its deep-water passenger shipping business to foreign operators.

Except for one. Sailing the protected isolates waters of the Hawaiian islands was the lone American Hawaii Cruises, later to be absorbed into American Classic Voyages Co. (AMCV). This line sailed the former ocean liners ss Constitution and ss Independence throughout the 1980’s and 90’s offering round trip voyages out of Honolulu, importantly, without having to stop in a distant foreign port.

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American Classic Voyages: The Company Behind the Dream

American Classic Voyages Co. had roots in operating the legendary Mississippi River stern-wheelers that had plied America’s inland waterways including the famous Delta Queen, Mississippi Queen, and the American Queen. AMCV acquired American Hawaii Cruises in 1993, combining river cruise nostalgia with the Hawaiian monopoly trade. On paper, the fit seemed sensible: both businesses operated under the protective umbrella of U.S. maritime law, and both catered to an American traveler willing to pay a premium for a domestic experience. But the Hawaiian operation was aging. Its two ships — the SS Independence and the SS Constitution, vintage 1950s ocean liners that had undergone many retrofits for cruising as well as for the Hawaiian islands. As regulations changed and the industry evolved in the 1990’s the ships became expensive to maintain, costly to crew, and increasingly unable to compete on quality with the gleaming new vessels that foreign-flagged lines were launching with regularity.

The solution, as AMCV’s leadership saw it, was to build new, modern ships by leveraging the political process in Washington to accomplish this.

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The Legislation: How Congress Made It Possible

The legislative history of Project America is a classic study in American lawmaking. For years, maritime labor unions, American shipbuilding interests, and tourism advocates had lobbied for relief from cabotage restrictions (Jones act and the PVSA as indicated above). The argument was straightforward: American consumers were spending billions of dollars annually on foreign-flagged cruise ships while American shipyards sat idle building only tugs and Navy ships, all the while American unioned maritime workers found no employment. The political will was there but what was needed was a financial mechanism to make construction actually happen.

Title XI of the Merchant Marine Act of 1936 (not to be confused with the other earlier mentioned Jones Act) was a federal ship mortgage guarantee program that had existed in various forms for decades, used modestly for tankers, container ships and ferries. AMCV intended to use it on a scale that dwarfed anything the program had previously supported. What AMCV and its congressional allies secured through the Transportation Equity Act for the 21st Century, signed by President Clinton in 1998, was a dramatic expansion of Title XI’s authorization which allows AMCV up to $1.1 billion in federal loan guarantees specifically to fund the construction of large U.S.-flagged passenger vessels at American shipyards. Without Title XI, there was no Project America.

Within months of the bill’s passage, Project America was formally announced. RFP’s were sent out to shipyards for two new 1,900-passenger cruise ships, flying the American flag, crewed by American sailors, and eligible for both domestic and international itineraries for the first time in a generation.

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The mv Patriot
Buried within the legislation was a controversial provision: a temporary waiver allowing AMCV to reflag and operate a foreign-built vessel in the domestic Hawaiian trade while the Project America ships were under construction. The aging SS Independence could not sustain Hawaii operations much longer and AMCV needed modern tonnage as a bridge. The provision infuriated the American shipbuilding industry and US maritime unions and associations who saw it as a direct betrayal of the legislation’s intent which was to protect United States maritime interests. AMCV moved quickly and started hunting around the market for secondhand tonnage. Originally AMCV was in deep talks with NCL to purchase the Norwegian Sea. While the Norwegian Sea was a popular ship at the time, NCL was in need of funds (NCL would later solve conundrum with a large investment by Star Cruises). AMCV President Roderick McLeod had previously worked at Carnival and, in 1999, had arranged to acquire the 1982-built Nieuw Amsterdam from Holland America Line. After an extensive drydock and refurb in San Francisco, she was reflagged her under U.S. registry and renamed the Patriot, which entered Hawaiian service in late 2000. She would not sail for long.

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The Ships: Pride Before the Fall

AMCV contracted with a yard better known for building Navy destroyers, Ingalls Shipbuilding in Pascagoula, Mississippi. The choice had an interesting connection in that Pascagoula was in the congressional district of one of the lawmakers who had helped push Project America’s legislation through Congress.

The choice of Ingalls was also telling in a more troubling sense. No American shipyard had built a large commercial passenger vessel in decades. The specialized knowledge, the tooling, the workforce training, the supply chains did not exist in the United States at that time. European yards in Finland, Germany, France, and Italy had refined the art of building cruise ships to a science, delivering massive, technologically sophisticated vessels on schedule and within budget. American yards, whatever their prowess in naval construction, were entering genuinely unknown territory. To solve this, Ingalls partnered with Finland’s Kvaerner Masa-Yards to provide the naval architecture and design expertise that the American yards lacked.

Almost immediately however, the problems began. Cost overruns mounted. Construction timelines slipped. The projected costs of the vessels climbed steadily from initial estimates.

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The Operating Cost Problem: An Impossible Arithmetic

Construction costs were only one component of the financial challenge facing Project America. The other was the cost of operating an American-flagged vessel with American crew. The cost differential between a fully American crew and the international crew that a Carnival or Royal Caribbean ship might employ was enormous. Industry analysts estimated that an American-flagged cruise ship of comparable size might face crew costs two to three times higher than a foreign-flagged competitor.

AMCV’s business model attempted to address this through a combination of higher ticket prices and a monopoly on the protected Hawaiian market. All of this led to a much higher cruise fare for passengers. A 7-day roundtrip Honolulu-to-Honolulu cruise fare was actually higher than a one way 10-day cruise, one way from the west coast to Honolulu (or vice versa) on one of the international cruise lines.

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Political Support and a Shifting Market

Project America enjoyed substantial political support. However that political support had it’s limits. As the construction delays at Ingalls mounted and the cost overruns accumulated, questions began to surface in the trade press and among financial analysts. The stock price of AMCV began a gradual decline. The company repeatedly reassured investors that the program was on track, but the gap between the optimistic public narrative and the underlying financial reality, as well as rumors from out of the shipyard, was widening.

The competitive environment was also shifting against AMCV in ways that no legislation could address. The late 1990s were a period of explosive growth in the mainstream cruise industry. Carnival, Royal Caribbean, NCL, and Princess were designing and quickly launching ships of previously unimaginable scale. It was truly the time of a race to the biggest. Ships like the Sea Princess, Carnival Destiny, Grand Princess, and Voyager of the Seas, were all eclipsing each other in size and tonnage and all pushed the limits of what the public perceived cruising to be. AMCV was never going to play in that ballpark; it never was intending to. What it did however was allow for more lines with a burgeoning fleet to start to get creative with itineraries on some of their older tonnage.

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The Events of September 11

When the terrorist attacks of September 11, 2001 devastated the American travel industry virtually overnight, American Classic Voyages had almost no resilience left. Airlines, hotels, cruise lines. All suffered immediate and severe booking cancellations as Americans stopped traveling. For a company already teetering on the edge of insolvency, and burdened with a $1 billion loan, the post-9/11 travel collapse was the final, fatal blow.

Eight days after the attacks, on September 19, 2001, American Classic Voyages filed for Chapter 11 bankruptcy protection. The filing was technically triggered by the travel crisis, but the bankruptcy trustee, creditors, and subsequent court proceedings made clear that the company had been dire straits long before.

Construction then halted on the two Project America hulls in Pascagoula. Hundreds of millions of dollars had been spent on hulls and superstructures that would never be completed as cruise ships. The U.S. government, as the guarantor of the Title XI loans, faced significant financial exposure. As is standard with that type of loan agreement, the US Governments Department of Transportation, Maritime Administration seized the vessels and took them into government possession as the loan was then defaulted on.

In an arrangement of considerable legal and political complexity (of which possibly deserves it’s own exploratory [and equally long] post) Norwegian Cruise Line, now with new capitol from their 2000 acquisition by Malaysia’s Star Cruises, purchased both hulls in 2002. NCL America was then established to fill the void left by AMCV. That venture, too, would ultimately prove commercially challenging and was wound down, suggesting that the fundamental economics of American-flagged ocean cruising remained as daunting as AMCV had always found them.

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Lessons from the Wreck

The cost of building large cruise ships at American yards that lacked the accumulated expertise, supply chains, and workflow efficiencies of their European counterparts was substantially higher and more daunting than anyone had thought. The cost of crewing them with American mariners earning American wages was substantially higher than crewing foreign-flagged ships with international labor. These were not problems that a federal loan guarantee program could solve; they were structural features of the American economy relative to the global maritime industry.

The story of American Classic Voyages and Project America is, at its core, a story about the limits of legislative engineering when applied to fundamentally economic problems and the complex nature of the maritime industry. Congress could mandate that American ships carry passengers between American ports. It could provide loan guarantees that allowed a company to raise capital it could not otherwise attract. It could write exceptions into existing law and create new competitive frameworks. What it could not do was make the arithmetic work.