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Interview regarding the Fast Ferry

Cornel Martin, CATS CEO

City: You've mentioned that one of the major issues that must be resolved before resuming ferry service is the construction of a permanent Toronto terminal. The mayor says that still stands as the largest hurdle. What's going on with that?

            Martin: When we closed on the vessel, this was an outstanding issue. And at that time, the terminal was supposed to be completed by late October. The lenders felt if it were done by then, we'll have shelter and passengers could be dropped off at the terminal, check in, wait in the large waiting area, not unlike the one here, and then get all the way to the vessel in an enclosed, heated environment.

            The temporary terminal basically is a collection of trailers. The first trailer you walk up to is the ticket booth. You either purchase tickets there or pick up your boarding pass there. But if there's any kind of line at all... the window is actually the window of the trailer, so you're standing outside. So in inclement weather, you're not going to want to stand for more than a minute or two. If there's any line at all, you have no shelter.

            The actual passenger terminal is a portable building that can hold up to 200 people. And on any day when you have more than 200 people sailing --- which we have had many --- people just wait outside until the vessel arrives. Again, you're not going to be able to do that in November or December.

            City: The completion date on the Toronto terminal is now January 11, right?

            Martin: Right. We did the groundbreaking maybe two weeks ago or so. And it was just a couple of days before the groundbreaking that we were told it was moved to January 11.

            City: People at the Port Authority are telling us that it was known back in June that this thing wouldn't be finished until January.

            Martin: No, because in June the date was late October. Sometime in July that slid to late November. Sometime in the beginning of August it slipped to December. Then right before the groundbreaking, I was told it would be mid-January.

            City:They do say they've been talking about ways for the temporary terminal to deal with the colder weather --- covered, heated walkways, etc. Have you seen any progress on that?

            Martin: Well, I heard from another reporter last night that she had been told by someone with TPA that they were gonna build a sheltered, heated walkway. The walk from the passenger terminal to the vessel is about 75 to 100 yards. And that, again, was on an outside walkway adjacent to the water.

City: What about some of these other issues? As soon as the suspension of service was announced, local politicians were saying, We're close on the trucks, we're close on the customs fees. How close are we on some of this stuff?

            Martin: On the Canadian customs fees, we have not heard anything since before the parliamentary elections [in June]. We were told this would be resolved before the elections. Then we were told it would be just after the elections. And we haven't heard anything since. That issue has been dead in the water since then. But there seems to be some renewed activity on that front, and clearly we would welcome that.

            As for the trucking issue: We have a letter dating back to June saying we were good to go with our business plan, which everyone knows included trucks. When we were ready to move trucks, we went down to Customs and said: It looks like we're going to be putting trucks on, starting next week. I mean, obviously we didn't start the first week of service planning to put trucks on immediately. We had to ramp up.

            At some point in early July, we went to Customs and said we're going to start putting trucks on. The local Customs here said, All we've got to do is check with Buffalo and see what procedures they want us to follow. That kind of put everything on hold. When the procedures finally came back, we got a letter dated July 27 that basically said trucks had to meet certain requirements.

            City: These were the requirements that the trucks participate in the Customs Trade Partnership Against Terrorism (C-TPAT) program and the Free and Secure Trade (FAST) program?

            Martin: Yeah. And the C-TPAT was the killer. We met with the Rochester Business Alliance a week after receiving this letter, and they basically said, "None of us meet C-TPAT requirements, and none of us ever will meet C-TPAT requirements." Apparently it's real onerous; it takes months to get approved, and it's more than what most truck companies are willing to go through. There are some companies that qualify, but these are really big companies.

            City: Given all that, are you going to be able to reach the capacity you're hoping to reach with the trucks?

            Martin: Well, given this, we haven't been able to identify anyone yet who's willing to ship meeting all these requirements.

            And that's the problem. Had we just had the FAST requirement, we could move some trucks, because quite a few companies out there are FAST approved. But once you throw these other requirements on there, it so limits the pool of users that it prohibits us from moving trucks.

            We need Customs to loosen the requirements on those trucks. The ultimate goal would be to move any truck. But even if we have to do that in stages, with some commitment from Customs that they would allow us to move to general cargo, that would be huge. There's nothing at this point telling us that will happen, other than a commitment from our political leaders that they're gonna help us work on this.

City: You found out about both these requirements on July 27, after you had the service up and running?

            Martin: Right. When we first started the service, the Toronto terminal was going to be up by October. We had permission from Customs to proceed with our operations, saying we had met all their requirements....

            City: And that included the trucks?

            Martin: Well, it didn't specifically list the trucks. But it said they reviewed our business plan and they approved it and we were ready to go with our business. A third of our winter revenue was projected to be from trucks. They knew that was part of our business plan. The terminal here was designed to accommodate trucks.

            Why would they say "you're good to go" and not say "except for trucks," if there was an exception in there? We didn't think to ask, because we assumed that when they said "you're OK to go," that means "you're OK to go." There was no reason to think otherwise.

City: Where do you stand on the American flag issue?

            Martin: That's really an issue between our lender and the Coast Guard. CATS has met every other requirement. We were scheduled to go to US flag Thursday of this week. On Friday of this past week, pilotage was going to go away and we were automatically going to incur that $6,000-a-day savings [Canadian]. On Monday night [Labor Day], we received word from the lender that they could not and would not approve of the process by which the mortgage was going to transfer from the Bahamian title to the US flag title.

            The lender is saying they don't want any time to lapse between the removal of the mortgage from the Bahamian and the attachment to the US mortgage. They want that to happen at exactly the same time. They don't want any space there, whether it's a few minutes or a couple of hours.

            And the Coast Guard is saying that's impossible.

            Again, people say, "You should have known this." But this is an issue that came up Monday night. And what it did was throw the US flag into an uncertain category that prevents us from losing the pilotage costs, which continue to prevent the company from going forward. It immediately pushed that onto the list of unresolved issues, for which the lender says, "If you can't get these issues resolved, we question the viability of this business to go forward."

            I'm confident that once the lender gets here and sits with the Coast Guard, they can resolve that issue. They've got to come up with a solution that gives them satisfaction.

City: These daily fees you've been paying for Canadian Customs and pilotage: What exactly does that money go towards?

            Martin: In the case of pilots, it goes to paying the pilots, it goes to paying the limousine service that drives them back and forth to work. They actually get to and from work in stretch limousines, which I think is interesting.

            City: Where are they coming from?

            Martin: They're not local. The St. Lawrence Seaway Pilots Association [provides] the American pilots. They're from Cape Vincent, New York. The limo service is $195 one way.

            City: So the pilotage fees are just what these piloting companies are asking you to pay?

            Martin: They are actually authorized by the US Department of Transportation. Their fees are set by regulation and approved by the US Coast Guard. The Coast Guard was who we had to appeal to. The Coast Guard initially told us we only needed pilots for transiting the lake, not docking and undocking the vessel. That was in August in 2003. That letter was later rescinded and they said they'd reconsidered, that we would have to pay pilots for docking and undocking.

            Remember, too, that the pilots are not actually piloting the vessel, and they're not docking and undocking the vessel. They're standing there, watching and telling our captains if they're doing anything differently from what should be done.

City: What about the $2,500 a day in Canadian Customs fees?

            Martin: That goes to Customs. It pays for their expenses. It should be noted that I'm pretty sure we're the only border crossing along the United States-Canadian border for which these fees are assessed. From what I understand, this is a law that passed not long ago. These fees have been enacted for any new border crossing. What had happened is, initially, because it was a relatively new requirement, the owners had been told by Canadian politicians that they would grandfather The Breeze into the law, so we would not have to pay the fee. They had assurance this would happen prior to the elections but, for whatever reason, it didn't. Then they got the reassurances it would happen immediately after the elections, and it still hasn't happened.

            So it's $2,500 a day to the Canadians. And that has to be paid every day. So before the vessel can dock the first time in the morning, the First Mate has to hand a check for $2,500 to the Customs official standing there.

            City: Was there similar early political movement here on the pilotage fees? That it was thought we could get them waived?

            Martin: Well, we were told initially that we wouldn't have to pay them. It wasn't until May that we received a letter from the Coast Guard saying they'd reconsidered, and that we will have to pay them. We were going to always have to pay for transiting the lake. But they estimated those costs at $500 per six-hour period. Basically, it would be $1,000 a day. But then when you throw in the docking and undocking, you throw in the limousine service, and it adds up to, between American and Canadian pilots, about $6,200 [Canadian].

City: What exactly will be happening when the lender comes here? Obviously they won't be able to see the ferry in service.

            Martin: What's more important to the lender is that they see this is a viable business going forward. That's what they question at this point. What we also would like to see is a community that really supports this service and wants to see this service going forward.

            City: But the fact is, when the lender arrives, the service will be, in essence, dead in the water.

            Martin: Not in their minds. What we did was required to preserve the business until these issues could be resolved. In their minds, moving the business forward without having these issues resolved is not a prudent move. People here are looking at this with emotion, but [the lenders] are looking at this as a business. And to continue operating a business when you know you can't succeed because of these obstacles is not prudent.

            We hope they'll recognize that it made a lot more sense to stop the operations temporarily so these issues could be resolved without incurring more bookings and more day-to-day costs that are bleeding the company.

            We're hopefully going to have access to the escrow, which will help us cover what we know will be lower ridership numbers heading into the fall and winter. But without that escrow, or some financial resources, this will not be a viable business going forward.

            Now, let me back up and say: Had we started on May 1, the way we were supposed to, we never would have dug that $2.1 million hole, that debt that's hanging out there. And we would have been building up the cash needed to carry us through the fall and winter.

            But because we were not able to start until June 19, we started in the hole. We had a few glitches in the beginning that further hurt the operation. It wasn't until mid-July that we were providing a good, reliable service, and the numbers shot up to the sell-out capacity we had through the month of August.

City: How did the announcement to suspend service come about? The mayor says he was told by CATS that it was leaked, but they were going to stand by it.

            Martin: I don't know about that. I wasn't involved in the discussions between the mayor and the owners. I do know that on Tuesday, when I arrived at work, I was going on the expectation that we had been advised late last week that we would not be able to access the escrow. So the owners had begun looking for alternative sources of funding. We went through the weekend thinking that alternative resources had been secured. At a meeting on Tuesday morning, it became clear that those other resources were not available.

            We got the call from the owners just after lunch on Tuesday saying that the other resources were not going to be available, the lender was not going to release the escrow, and that it will be irresponsible for us to continue taking bookings and running the business knowing there was no revenue coming to help carry us through.

            With this meeting with the lenders next week, hopefully we can show them the business plan, show them where our thoughts are --- maybe get some of these issues resolved, or have commitments that they will be resolved before the lenders get here --- and then the lenders would free up the escrow and we can move forward.

            City: Are you optimistic about that happening sooner than later --- say, before the spring comes around?

            Martin: Yeah, I really am. I feel we'll be in service again, but it would be unfair for me to put a date on it. I do feel it will be before next spring. The April 15 date was put out there, but maybe it shouldn't have been, because people are focusing on that. I think what was intended was, Look, even if we have to work through the whole winter to get these issues resolved, we know we have a business on April 15 of next year. We know we can build the boat up again and produce the revenues needed to move this company forward. It's the interim we have to fix. And we have to fix it by securing that escrow and even securing additional financing.

            But if we get the escrow, I think that will allow us to secure additional financing to get us through to the other side. While the escrow alone is probably enough to get us close to the other side from an operations standpoint, we still have that $1.7 million in debt we need to resolve. So, we need to take care of both those issues.

City:Since the service suspension,people have complained about things like the website being shut down last week and having a hard time reaching anyone at CATS. [CATS has since restored the website,]

            Martin: When we shut down, we did it completely. We laid off most of our employees. Only a handful of us remain. We've had several dozen volunteers come in daily to help with the phones and take messages off the recorder and call people back.

            The priority was to call people already booked, to see who had transportation to get home because they were on the first leg of a round-trip journey. We didn't want to leave those people stranded.

            We've been doing our best with the resources we have. But, again, these are volunteers, and you can only demand so much.

            City: There must be some impact on CATS' ability to make progress, now that the majority of its staff has been laid off.

            Martin: Well, on those issues, yes. And for that, we're gonna take our lumps. But we do have some of our senior people here working on putting the information together for our meeting with the lenders. And we have a whole bunch of volunteers here working the phones, trying to get back to people.

            In hindsight, maybe announcing earlier would have helped. But we really thought on Friday that alternative financing would come through. And, on Tuesday, we thought it best to try and get the vessel to complete her day before making the announcement, because it would have put an unbelievable hit on those passengers riding the remainder of the day, from a media standpoint and otherwise.

City: Can you break down the amount of public vs. private investment made in this ferry?

            Martin: I don't have that at my fingertips. The public investment has been mostly in the Rochester terminal. There is some state and city money that has gone into the acquisition of the vessel. But all of that went to the direct purchase of the vessel. It was a $42 million vessel initially, but after this money went into it, it reduced the price and the money that's actually owed the lender. I couldn't get you the breakdown, because there were other pieces that were financed by other entities, like the engine manufacturer, and it's complicated. But suffice it to say, most of the money from the city and state went into the cost of the vessel and not the operating costs.

            City: Once public money is involved, though, don't these government entities get access to the company's books?

            Martin: No, not really. An individual who gets welfare doesn't have to give daily reports on what they spend their welfare check on. Surely, we're subject to audit, and I'm sure we'll be producing audits and statements as a regular course of business.

            City: Was this project expected to make money from the outset, or were you guys expecting to take a hit initially?

            Martin: I think any startup has to expect a period where you're not going to make money. But if we just look at August as the first real month of service, we were able to cover our operating costs and we were able to reduce that $2.1 million debt we built up before start-up to $1.7 million. So one could argue, without giving you an audited statement, that we had $400,000 extra above operating expenses to pay toward past debt, just from the month of August.

            Some would ask: "Why didn't you hold on to that $400,000? You might have used that to continue operating in the fall." But the fact is we thought we had other resources available to get us into the fall and winter. Maybe the escrow. We were paying our bills.

City: At what point did CATS start talking to the city about the likelihood of suspending service?

            Martin: Clearly, we mentioned to city leaders weeks ago that we were concerned, that we were under some financial strain, that these issues were putting a lot of pressure on us. A couple of weeks ago the Rump Group [Rochester business leaders] had sent a letter to our congressional delegation, urging them to resolve some of these issues. It's fair to say that dating back to that, we were telling political leaders around town that we were having some concerns.

            City: Do you think there's any chance the fast ferry might wind up requiring some sort of annual public operating subsidy, that it become a form of mass transit?

            Martin: That's hard to say. I don't think we envision that at this point. Of course, we haven't been through a fall and winter yet. Can this entity hold itself up through a fall and winter? Maybe.Maybe not. If the public wants the service through the fall and winter, and the business can't sustain itself, there might be a call at that point. But that's not something we're asking for. Certainly it wouldn't be needed during the summer. We've proven that.

            Who knows, going forward, whether you operate fall and winter? Every other passenger vessel service on the Great Lakes shuts down for the late fall, winter, and early spring. I'm president of our national trade association, and all of our Great Lakes members shut down for the winter.

            City: If The Breeze isn't operating this fall and winter, how will you get by without an income?

            Martin: It's going to require either access to the escrow or other financing.

            City: Is there a chance that if that doesn't happen right away, Austal [the shipbuilder] will come along and take over the ship?

            Martin: I think that is going to be determined in the meetings next week. If the lender doesn't want to give us any flexibility on the mortgage payment, and they want to take the boat, that's possible. We don't think it's probable. It's not under consideration at this point. The lenders are coming here with the intent of letting us resolve this issue so we can move forward.

            Does that mean we start operating again seven days a week? Maybe not. Maybe it's a reduced schedule through the fall and winter before cranking it up in April.