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Old 02-02-2009, 01:12 AM
Bill McCready Bill McCready is offline
Join Date: Jan 2009
Location: Southern California
Posts: 11

Could the Delta Queen survive? Like many of you, by the middle of 2007 I had become emotionally invested.

In addition to tracking events through this forum, I also followed google news accounts, AMIE investor message boards and AMIE’s quarterly conference calls (where the CEO summarized results and plans; and answered tough questions from shareholders). Additionally, as I was still working with the Delta Queen’s owners to hammer out a charter on the Columbia River, I had access to knowledgeable AMIE insiders.

[In case anyone is confused, the Delta Queen was purchased in 2006 by Ambassadors International, Inc., whose stock is listed as AMIE. Since 2007 the various river boats owned by Ambassadors International have been operated by a wholly owned subsidiary named Majestic America Lines. Since AMIE is easier to type, I’ll typically use it instead of the more-accurate monikers].

The inside scoop at AMIE towards the end of 2007 was that an additional Delta Queen exemption had been placed out of reach---and was no longer worth pursuing. As if that wasn’t bad enough, some expressed doubts that AMIE would continue to operate the Delta Queen even if an exemption was granted. Filling the bigger Mississippi boats would be the priority---and it was with this newer product that AMIE planned to succeed.

In my August 23, 2007 e-mail to a friend at AMIE's Seattle headquarters for Majestic America, the line I typed directly below my signature was “PS: Who is PO’d about the Delta Queen’s demise.” While I intended my line to be read as a statement (i.e. Bill is unhappy!), my friend interpreted these words as a question (i.e. Does anyone care?). The unexpected next-day response… “Answer to your PS – Only one person in the Seattle Office.” …left me in a state of complete despair. With the passage of time, however, I came to accept the “hopeless” situation. Here’s why:

Imagine if you will, a company that operates a half dozen modern limousines plus one old Rolls Royce. (Or a charter airline company with a fleet of jets plus a single DC-3). Because my hypothetical company needs to promote its newer and more numerous assets in order to survive and make payroll, the solitary older stable-mate ends up being a bit of a distraction.

Was the DQ that different from the other boats? By 2007 the Mississippi Queen was in the process of being rebuilt with fewer but larger rooms. I actually saw the MQ’s plans and color renditions, and can report that she would have outshone the American Queen. The Columbia Queen and Empress of the North were already at a higher-than-AQ standard. The Queen of the West was to receive its upgrades by 2011. By then, the least desirable contemporary boat would be the American Queen. The Delta Queen? Because, the DQ is impossible to upgrade, how could she be integrated into AMIE’s “luxury” program?

AMIE bought their three Mississippi boats for a single lump-sum. For this price they received “pink slips” for the DQ and MQ, plus the AQ’s “take over payments” coupon-book with most of its stubs stamped “paid.” I am told that neither the seller nor the buyer ascribed individual equity values to the three vessels. It later turned out that one of these three boats, because of an unrenewable license, was a “lemon.” Fortunately (for shareholders), the lemon was the smallest boat AND the only one that couldn’t be upgraded to the desired corporate standard. Because the Delta Queen had never been given a value, AMIE’s sense of loss may have been abstract. While a few of us might view the DQ as the crown jewel of the Mississippi, others (including AMIE officers and shareholders) might reasonably view her as the smaller and older boat that came as a free bonus.

Why not sell the “lemon”? AMIE’s entry into the cruise business was via the Columbia River. It bought cheap because on this once highly-profitable river two estimable competitors had fought to a draw by defeating each other! The lesson was clear. If you have a profitable operation and can’t meet demand; you’ll create new competition. Prices and profitability will then drop to the point that the next downturn will drive both competitors out of business. AMIE’s unique solution was to buy up ALL of America’s operable riverboats at fire-sale prices. The result was a market (American river cruises) where erstwhile competitors would not be able to find a used boat, or project a profit after building a new one. Selling the DQ to someone who might operate her would be an act of negligence --- and would invite an immediate lawsuit from disgruntled AMIE shareholders.

Given my possibly wrong interpretation, by the end of 2007 I had become extremely concerned that AMIE would need to find a way to scuttle the Delta Queen.

I am sorry to note that my saga with a hopeful ending has now grown to four installments. As I'll have less time to write during the coming work week, please be patient.

-Bill McCready
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