[Federal Register Volume 62, Number 53 (Wednesday, March 19, 1997)]
[Notices]
[Pages 13209-13211]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-7073]


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DEPARTMENT OF TRANSPORTATION
Maritime Administration
[Docket S-943]


Lykes Bros. Steamship Co., Inc.; Notice of Application for 
Written Permission Pursuant to Section 805(a) of the Merchant Marine 
Act, 1936, as Amended

    Lykes Bros. Steamship Co., Inc. (Lykes), by letter of March 14, 
1997, requests written permission pursuant to section 805(a) of the 
Merchant Marine Act, 1936, as amended (Act), and Lykes' Operating-
Differential Subsidy Agreement (ODSA), Contract MA/MSB-451 to become 
affiliated after the confirmation of its Chapter 11 plan of 
reorganization (Reorganization Plan), when it will emerge from Chapter 
11 as a reorganized entity (Reorganized Lykes), with American Steamship 
Company (American). Lykes'' operating-differential subsidy (ODS) is 
effective through December 31, 1997, for seven vessels. American is a 
vessel operator in the U.S. Great Lakes trade and is the sole owner of 
the following single-vessel ship holding companies:

Bell Steamship Company, Inc.
Armstrong Steamship Company, Inc.
Franklin Steamship Company, Inc.
Fulton Steamship Company, Inc.
Edison Steamship Company, Inc.
Whitney Steamship Company, Inc.
Lawrence Steamship Company, Inc.
Morse Steamship Company, Inc.
Cooper Steamship Company, Inc.
Goodyear Steamship Company, Inc.

    American and these 10 companies own 11 vessels which operate on the 
Great Lakes as follows:

M/V Indiana Harbor
M/V Walter J. McCarthy, Jr.
M/V St. Clair
M/V American Mariner
M/V H. Lee Wilson
M/V Charles E. Wilson
M/V Adam E. Cornelius
M/V American Republic
M/V Buffalo
M/V Sam Laud
STR John J. Boland

    The issue of section 805(a) permission arises from a reorganization 
of Lykes being administered by the United States Bankruptcy Court for 
the Middle District of Florida, Tampa Division. As part of that 
reorganization, Lykes will become a subsidiary of one of its creditors, 
Blue Water Associates, L.P. (Blue Water), which when restructured at 
the time of the closing, will itself become a subsidiary of GATX 
Capital Corporation. GATX Capital Corporation is in turn owned by GATX 
Corporation, which owns 100 percent of the stock of American. Because 
of these ownership

[[Page 13210]]

arrangements, Reorganized Lykes and American may become ``affiliates'' 
as that term is used in section 805(a) by virtue of their ownership by 
a common ultimate parent company.
    Lykes indicates that although section 805(a) requires written 
permission from the Secretary before ODS may be paid to a contractor 
affiliated with a domestic operator, that section also includes a 
``grandfather'' exception that modifies the permission requirement:

    Provided, that if such contractor or other person above-described 
or a predecessor in interest was in bona-fide operation as a common 
carrier by water in the domestic, intercoastal, or coastwise trade in 
1935 over the route or routes or in the trade or trades for which 
application is made and has so operated since that time or if engaged 
in furnishing seasonal service only, was in bona-fide operation in 1935 
during the season ordinarily covered by its operations, except in 
either event, as to interruptions of service over which the applicant 
or its predecessor in interest had no control, the Secretary of 
Transportation shall grant such permission without requiring further 
proof that public interest and convenience will be served by such 
operation, and without further proceedings as to the competition in 
such route or trade. (Emphasis added)

    American was founded in 1907 as a vessel owning company. The 
partnership of Boland and Cornelius acted as vessel manager for the 
American vessels. American has owned vessels in continuous seasonal 
service in the Great Lakes trade from 1907 until the present. In 1966, 
American was merged with Oswego Shipping Corporation to form Oswego 
Steamship Company. The name of Oswego Steamship Company was then 
immediately changed to American. No change in operations or customer 
relationships occurred at that time. Since 1966, American has taken 
over from Boland and Cornelius the vessel management tasks originally 
performed by Boland and Cornelius. Boland and Cornelius continues to 
exist as a separate company wholly owned by American, but its remaining 
functions are largely as a payroll and retirement fund administrator.
    Lykes contends that as the foregoing demonstrates, American, with 
which Reorganized Lykes may become affiliated as a result of the 
Reorganization Plan in the bankruptcy case, has engaged in continuous 
seasonal domestic operations in the Great Lakes trade since 1907, and 
the transaction is thus covered by the grandfather exception to section 
805(a). Accordingly, Lykes believes that Secretary must grant this 
request for permission without further proceedings.
    Lykes concludes that because the application of the ``grandfather'' 
exemption precludes review by the Secretary of competition and public 
interest issues, there is no requirement for a hearing (because only 
competitors have standing to challenge requests), and publication of 
notice of this request can and must be waived pursuant to 46 C.F.R. 
380.5 and the final sentence of the first paragraph of section 805(a).
    Lykes contends that this permission request is subject to the 
grandfather exemption and therefore must be granted without further 
analysis of competition or public interest issues. In the interest of 
completeness, however, Lykes addresses the substantive issues that 
would be considered in the absence of the applicable exemption. 
According to Lykes, pursuant to 46 C.F.R. 380.4(6), the substantive 
issues to be addressed by the Secretary in considering a section 805(a) 
permission request are (i) whether the proposed operations would result 
in unfair competition to parties operating exclusively in the coastwise 
or intercoastal trades and (ii) whether such operations would be 
contrary to the objections and policies of the Act.
    According to Lykes, the ``affiliation'' giving rise to this request 
for permission will be created as part of a restructuring under the 
supervision of the United States Bankruptcy Court. Lykes states that 
the operational facts of this situation should be distinguished from 
the more common section 805(a) situation in which an ODS contractor 
wishes to directly or indirectly establish a domestic service. Here the 
domestic service at issue has been provided for some ninety years by a 
company that until now has had no affiliation whatever with the ODS 
contractor, and the circumstances giving rise to the need for section 
805(a) permission will have absolutely no impact on the way in which 
that domestic service is provided.
    Lykes and American currently have no operational relationship 
whatsoever. The situation will continue after approval of the 
Reorganization Plan and acquisition of ownership of Lykes by Blue 
Water. Reorganized Lykes will continue as the ODS contractor, and 
American will not be involved in any way in Reorganized Lykes' 
operations. Reorganized Lykes and American will have separate 
management, separate books, and separate operational staff, and will 
provide geographically separate services. The only relationship between 
the companies will be that they will have common ultimate parent. In 
the case of Reorganized Lykes, that ultimate parent (GATX Corporation) 
is three companies ``upstream'' in the corporate ownership hierarchy. 
According to Lykes, no subsidy paid to Reorganized Lykes will be 
diverted directly or indirectly to American, nothing in American's 
finances or operations will change as a result of the reorganization 
and there will be no impact on any competitor.
    Lykes states that the objects and policies of the Act include 
maintenance of a U.S.-flag merchant marine manned by U.S. personnel and 
maintenance of a fleet capable of serving as a naval and military 
auxiliary in times of national emergency. Lykes believes the creation 
of the affiliation here involved will not contradict any of the objects 
or policies of the Act. Lykes contends that to the contrary, grant of 
the requested permission will allow Lykes' Reorganization Plan to move 
forward, thus preserving U.S.-flag service in the U.S. foreign commerce 
and preserving jobs for U.S. seamen that would otherwise be lost. 
According to Lykes, approval will also allow Reorganized Lykes to make 
its vessels available to the military under the Maritime Security Act 
and VISA programs. Lykes concludes that failure to grant the 
permission, on the other hand, would undermine the reorganization being 
overseen by the Bankruptcy Court and would result in the loss of U.S.-
flag vessels and the jobs of a number of U.S. seamen. Lykes emphasizes 
that in light of these realities, the objects and policies of the Act 
clearly require that the permission request be granted.
    For the foregoing reasons, and in light of the degree of separation 
between Reorganized Lykes and American and the short remaining term of 
Lykes' ODS contract, Lykes requests that the Secretary issue written 
permission pursuant to section 805(a) for Reorganized Lykes to become 
affiliated with American. Because this permission is an integral part 
of the Reorganization Plan under consideration by the Bankruptcy Court, 
Lykes respectfully requests that its application be given the most 
expeditious possible consideration and that written permission be 
granted no later than March 28, 1997.
    The application may be inspected in the Office of the Secretary, 
Maritime Administration. Any person, firm or corporation having any 
interest (within the meaning of section 805(a)) in Lykes' request and 
desiring to submit comments concerning the request must by 5:00 PM on 
March 25, 1997, file written comments in triplicate with the Secretary, 
Maritime Administration,

[[Page 13211]]

together with petition for leave to intervene. The petition shall state 
clearly and concisely the grounds of interest, and the alleged facts 
relied on for relief.
    If no petition for leave to intervene is received within the 
specified time or if it is determined that petitions filed do not 
demonstrate sufficient interest to warrant a hearing, the Maritime 
Administration will take such actions as may be deemed appropriate.
    In the event petitions regarding the relevant section 805(a) issues 
are received from parties with standing to be heard, a hearing will be 
held, the purpose of which will be to receive evidence under section 
805(a) relative to whether the proposed operations (a) could result in 
unfair competition to any person, firm, or corporation operating 
exclusively in the coastwise or intercoastal service, or (b) would be 
prejudicial to the objects and policy of the Act relative to domestic 
trade operations.

(Catalog of Federal Domestic Assistance Program No. 20.805 
(Operating-Differential Subsidy).)

    By Order of the Maritime Administrator.

    Dated: March 17, 1997.
Edmund T. Sommer, Jr.,
Acting Secretary.
[FR Doc. 97-7073 Filed 3-18-97; 8:45 am]
BILLING CODE 9410-81-P