Congressman Questions Cruise Ship Deal

Sunday, October 23, 2005
A controversial federal charter of three cruise ships for hurricane housing is yielding Carnival Cruise Lines far more than the ships earned in actual cruise operations, a key congressman charged on Thursday, according to a report on Rep. Henry Waxman, D-Calif., said the cruise line got about $25 million a month in revenue from the three ships, based on an internal Carnival financial document from 2002. The ships were chartered to the federal government shortly after Hurricane Katrina at a cost of $192 million for six months. The figures suggest a gap of at least $42 million between what Carnival is getting under the Sept. 2 charter and what it earned from the ships in 2002. "This financial data reveal that the federal government appears to be paying Carnival significantly more under the federal contract than the ships earned on their own," Waxman said in a letter to Homeland Security Secretary Michael Chertoff. The letter also said Carnival is saving the cost of more than 800 shipboard personnel, including 175 bartenders, 110 entertainers, 99 casino workers, 31 child camp counselors, 28 photo lab employees and 25 shore excursion staff. "None of these expenses is being incurred under the federal contract," Waxman's letter said. Carnival officials, in a statement on Thursday, reiterated that "the contract was priced to be profit neutral," based on a good faith estimate of its revenues had the ships been kept in regular service for six months. Carnival also noted that it incurred some one-time expenses, such as the cost of canceling 120,000 cruises and the protection of travel agent commissions owed on those sales. The Carnival statement did not detail those costs. Although several senators and representatives have criticized the charter in broad terms as a "sweetheart deal" Waxman's critique is the first to offer specific data about the finances underlying the deal. The $192 million charter price was calculated to offset lost ticket revenue, plus projected onboard income from drinks, gambling, shore excursions and so on, according to Carnival. Waxman calculates that Carnival included casino revenue of $12.5 million and bar revenue of $10.5 million in the charter. Bars and casinos are shut on the ships, which currently house 5,500 evacuees and relief workers such as New Orleans police officers. The $192 million Carnival is being reimbursed includes $35 million for federal taxes it owes on the charter, a provision Waxman called "question-able." Typically, Carnival doesn't pay U.S. income taxes on its cruise operations because it is incorporated in Panama and is exempt under shipping treaties from those taxes. Waxman's letter said the casino and bar expenses are "extrapolations from the 2002 financial data." Karen Lightfoot, a spokeswoman for Waxman, would not say where or how the finance documents were obtained.

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