From OrlandoSentinel.com
Port Canaveral waives $400,000 penalty against Disney Cruise Line
Port Canaveral waived the cruise line's 'shortage payment' during negotiations for a lucrative 15-year pact.

Jason Garcia
Sentinel Staff Writer

April 4, 2008

Port Canaveral allowed Disney Cruise Line to avoid a payment of about $400,000 during negotiations on a long-term contract that were completed last month.

Disney was facing the six-figure penalty because its cruise ships were not going to make enough calls at the Brevard County port this year.

Stan Payne, the port's chief executive officer, called it a small concession in exchange for securing a new contract that ensures Disney ships will continue sailing out of Brevard for the next 15 years. Disney's original deal with Canaveral would have expired this summer.

Payne said the new long-term contract will generate $200 million in revenue.

"This was an opportunity to clean the slate," he said this week. "By cleaning the slate, it allowed things to move forward."

With the contract signed, Canaveral is scrambling to get started on more than $30 million in construction upgrades needed to handle two new ships Disney is having built in Germany. Each will be three decks taller and carry about 1,300 more passengers than Disney's existing ships, and the company has committed to basing the new liners in Brevard until at least the end of 2014.

The first new ship could arrive as early as February 2011, according to notes from a meeting of port officials and Disney executives, with the second vessel to follow in early 2012. But Disney Cruise Line spokeswoman Christi Erwin Donnan said it is too early to set specific arrival months because the ships are still being designed and construction has yet to begin.

"It's really too premature to nail down an exact delivery date," Donnan said.

The company would not discuss specifics of its negotiations with Port Canaveral. But Donnan said, "In the end, both our needs and Port Canaveral's were met through the new agreement."

The impending payment to the port was one of many issues that came up during the negotiations, which lasted for more than a year.

Under its initial contract, Disney's two ships had to make at least 150 combined calls at Canaveral each year. If it fell short, Disney had to pay Canaveral to cover the lost revenue -- or allow the port to open Disney's nearly $30 million terminal to rival cruise lines.

The new pact has the same requirement, with one exception: Disney ships have to make only 139 stops at Canaveral this year.

The reason: Disney has already committed to sending one of its ships to the West Coast from May to August. With one ship sailing out of Los Angeles for the summer, Disney would not have met its 150-call obligation at Canaveral.

Disney ran into the same problem last year when it sent a ship to Europe for the summer. But it had to pay the port only about $100,000, because it had made more than 150 stops in previous years. It would not have had a similar cushion this year.

Payne said Disney's "shortage payment" this time around would have been about $400,000. But he said both sides ultimately agreed that they did not want to begin a new long-term deal with a penalty already built into the first year.

"It made no sense to Disney, nor did it to me," he said.

Beyond the payment and the required number of port calls, much of the back and forth during negotiations focused on what terminal improvements were needed for Disney's new mega-liners -- and who would pay for them.

The two sides ultimately agreed that the port would borrow money to finance $22 million in expansions and upgrades. But Disney will guarantee annual payments of $2.4 million -- raised through a $7 round-trip charge to passengers -- to cover the debt.

A terminal budget includes everything from $10,000 to carve out a 40-square-foot "character changing area" to $2 million to ensure a "wow factor."

Canaveral will separately spend as much as $10 million to build a 1,000-space parking garage for Disney guests. It will be connected to the expanded terminal by an elevated walkway.

Payne said he expects the port to sell bonds or obtain a loan to pay for the construction by summer. The work must be completed by Oct. 1, 2010.


Jason Garcia can be reached at [email protected] or 407-420-5414.
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