With the Puerto Rican government assuming some $310 million of its debt, the long financially troubled Navieras de Puerto Rico shipping line expects to make money in its first year as a private company, its top executive said Tuesday.
"The company will be profitable right out of the chute," said Ron Katims, president of NPR Inc., in his first public remarks since NPR finalized its $140 million purchase of the state-owned shipping line this week.Profitability will mean money to reinvest in the line's operations, which in turn will mean maintaining the service level that shippers demand, said Mr. Katims.
Reassuring shippers is a key goal for the company, which has been bleeding market share in recent years as uncertainty about the money-losing company's future has mounted. "A lot of customers left this company because of the lack of stability," said Mr. Katims.
When he first headed up Navieras in 1974, Mr. Katims said the company held over 80 percent of the market share between Puerto Rico and the mainland United States. That market share now stands at only 28 percent.
The fact that a Puerto Rico trade veteran like Mr. Katims is heading up the new company is a good sign. It will go a long way toward reassuring shippers that the line intends to stay in business after the sale, rather than closing up shop after a few years and selling off its assets, said Bob Leith, a San Juan shipping executive who was a leader in a competing bid to acquire Navieras.
"The most important hurdle (for Navieras) is to convey that they're interested in the Puerto Rican trade and that it (the sale) is a business and not a financial transaction," said Mr. Leith. "If Katims wasn't there, people would think it was a financial transaction.
Mr. Katims said Navieras hopes to recover some of its lost market share, but he does not foresee a large increase and does not plan any across-the- board rate cuts to recapture the lost share.
However, the company hopes to see growing cargo volumes, both from the overall increase in Puerto Rico traffic and from exploiting other trade lanes in the Caribbean and South America.
"It (Puerto Rico) is a natural as a transshipment center," said Mr. Katims. Only about 10 percent of Navieras' traffic goes to destinations outside the United States, compared to about 20 percent to 30 percent for some of the line's competitors, he said.
With the anticipated cargo growth, NPR hopes to float a public stock offering, but that is probably at least three years away, said Mr. Katims. NPR's new owners - Pyramid Ventures Inc., a BT Investment Partners subsidiary, Berkshire Partners and members of NPR management - expect to be in for the long-term, he said.
In addition to trying to reassure shippers, Mr. Katims made an effort at a Tuesday press conference to reassure employees that there were no immediate
plans to lay off any of the 640-member non-marine work force. The company's 230 workers in Puerto Rico, in fact, are guaranteed their jobs for one year under the sale agreement, he said.
The completion of the deal closes a years' long saga that saw several false starts. Late last year, BT Investment Partners abruptly pulled out of the negotiations to complete the purchase only two weeks before they were scheduled to close, citing its fears that the new Republican Congress might change legislation directly affecting Navieras. BT came back to the table two months later.
The BT pullout was not the first time an effort to sell the line had collapsed. Last spring, a sale agreement with Mills Capital Advisers, a Chicago investment partnership, was canceled because of questions about how much working capital Mills would commit to the sale.