The Navy has been challenged for awarding a contract for hauling supplies to U.S. troops in Europe to a new shipping company formed by a Texas company that lost its business license for nonpayment of taxes, the man who owned the SS Poet, which sank in a storm with 34 men aboard two years ago, and a Swedish firm that is also an agent for the Soviet merchant fleet.
The company, American Coastal Lines, of New York, caused a sensation in the maritime industry by underbidding established carriers for the contract. American Coastal, which is scheduled to begin operations Oct. 1, is assured by its contract with the Military Sealift Command of about $25 million worth of cargo billings in its first six months.
It owns only two ships, both of World War II vintage. Critics say the Navy contract defeats one of the purposes of a law requiring government cargo to be shipped on American vessels, which is to stimulate construction of new vessels for the merchant fleet.
The contract is being challenged by the two unsuccessful bidders, Sea/Land Services Inc. and United States Lines, long-established companies that were stunned by the loss of the military contract to an unknown newcomer. They have appealed to the General Accounting Office, and are also expected to take the case to the courts.
They claim that American Coastal was not a qualified bidder because it was not an established freight carrier when the contract was made, that the dissolution of the Texas partner invalidates American Coastal's bid, and that the links to the Soviet merchant fleet could create security problems by giving the Soviets access to information about the size and location of U.S. troop deployments.
They have also circulated an analysis by the Defense Contract Administrative Services office in New York questioning the financing of American Coastal.
But John G. O'Hara, one of the founders of American Coastal, and Edward L. Sheppard, the firm's Washington lawyer, said the company is legitimate, the contract is valid, and the complaints of the industry giants are unsupported by anything except their outrage over losing their monopoly on the business.
"This is the first U.S-flag shipping company to start up in a long time," O'Hara said. "If the big boys drive us out, I don't know if anybody else will be interested in trying it. Are new companies allowed to go into business to compete with established firms? If not, it's a sad day for the country."
O'Hara was the head of Merchants Terminal Management Corp., of Fort Worth, which was listed on American Coastal's application as one of the three partners. Records in the office of the Texas secretary of state show that the company's business license was revoked for nonpayment of taxes in February.
O'Hara said the demise of Merchants Terminal Management has nothing to do with the Navy contract. The actual partner in American Coastal, he said, is Merchants Terminal Corp., a Delaware corporation he recently set up, which is the owner of record of American Coastal's two ships, which were purchased from the Puerto Rican state shipping company and registered in Wilmington. Sheppard said the Texas company was listed on the application through error or inadvertence. American Coastal has since been incorporated.
The president of American Coastal is William J. Keeley, a former vice president of United States Lines, O'Hara said. But the president at the time of the application to the Navy was Henry J. Bonnabel, president of International Cargo and Ship Cartering Consultants Inc. and former owner of the Poet.
The Poet disappeared without a trace in a storm in October, 1980, on a voyage from Philadelphia to Port Said, Egypt. At a congressional hearing into the incident, Bonnabel was named as the owner of several other old ships that have sunk or had mechanical difficulties while at sea. Among them was the Silver Dove, which went down in the Pacific, without loss of life, in 1973.
Bonnabel was not accused of any wrongdoing in the Poet incident--except for letting it go to sea with a radio officer who was not a U.S. citizen--and he has a long record of success in maritime ventures.
"He's a decent, honorable guy," said Sheppard, American Coastal's lawyer. "Ships go down all the time. He came out of that incident without any fault being found." Members of Congress and leaders of maritime unions, however, criticized Bonnabel for what they said was his failure to maintain the vessel properly and for his alleged delay in reporting its disappearance to the Coast Guard.
The third partner in American Coastal, with a 24 percent stake, is Salen Project Liner Services Inc., a Swedish company that operates ships around the world. According to documents compiled by Sea/Land and port notices in maritime newspapers, Salen or its subsidiaries or affiliates is the booking agent for the Soviet merchant fleet in Long Beach, Calif., San Francisco, Hong Kong and other ports.
"We're aware that the national security issue has been raised," O'Hara said. "Salen does have 24 percent. The Navy reviewed it; it's permissible by law, and we are proud to be associated with them." He said United States Lines "has hauled a lot of goods back and forth to the Soviet Union, and they'd do it again if they had the chance."
A spokesman for the Military Sealift Command said the command is preparing its response to the challenges for submission to the GAO, and it would not comment in detail until the response is complete.