As production at Gateway Forest Product's mills in Ketchikan slows this month because of financial problems, the company and the community are dealing with a Chapter 11 bankruptcy filing and an uncertain future for 145 employees.
Gateway's veneer plant employees are scheduled to return to work this week after a temporary shutdown. The company's sawmill remains closed.
Gateway President Jim Erickson said he is not sure when the sawmill will reopen. While the company has a good supply of veneer logs, the market for lumber is tough, he said.
The veneer plant has been lauded by Alaska's congressional delegation and local and state officials as the future of the timber industry in Southeast Alaska. But the company filed for Chapter 11 bankruptcy protection on Feb. 26 to reorganize.
Erickson counts the bad lumber market, construction overruns and delays in computer programming at the veneer plant among the start-up problems.
"I don't think anyone expected a market decline nearly to the level we saw," he said.
Gateway took over operations at Ward Cove from Ketchikan Pulp Co. in 1999, running a sawmill and a timber sortyard. Financing for a $14.7 million veneer plant came from Louisiana-Pacific, Wells Fargo's Foothill Capital and the Ketchikan Gateway Borough.
Erickson said Gateway is now working with Foothill and the borough to secure additional financing.
Don Rhine, who worked at Ward Cove for 11 years, was head of maintenance at the sawmill. He is not working for Gateway now and said his plans have been affected by the uncertainty at the sawmill. He isn't sure what he's going to do next.
"I think the veneer plant has a pretty good set-up. But with the sawmill and lumber prices, I don't think it looks good," he said. "It's a poor time for it to be so low."
Rhine said employees are concerned about paychecks from two weeks of work that are tied up in bankruptcy court.
After 11 months of construction, Gateway's veneer plant began operating in late January. Inside, a computer-controlled lathe spins hemlock logs, rapidly peeling the wood into ribbons one-tenth or one-sixth of an inch thick. The pieces are sliced, sorted and stacked in Ketchikan.
According to Erickson, the company's first 3,000-ton barge-load of veneer is in Seattle, waiting to be shipped to Oregon to be dried and turned into plywood and other building products.
Still incomplete are massive conditioning vats that will make peeling easier and more productive. Erickson said the company hopes to finish the vats in the next three to four weeks and bring on a second shift of workers to keep pace with production.
Longer-term, Erickson said it is too early to tell what reorganization might look like. He said a plan should be in place quickly, however.
"One of the big issues this company has is that it is kind of like two companies. It's an operating forest products company and it also got a tremendous amount of real estate. That real estate is a long-term asset that really needs to be converted to cash or we need longer-term financing against it," he said. "That's our dilemma right now."
In a memo to the Ketchikan Assembly, Borough Attorney Scott Brandt-Erichsen estimated a reorganization plan could be approved by June.
The borough loaned Gateway
$7 million from the community's federal economic disaster funds. According to borough documents, the loan is secured by collateral in the form of the company's administrative offices and 32 parcels of land near the mill site and elsewhere in the Ketchikan area.
Gateway's predicament has hit other local businesses. According to borough documents, Gateway owes $5.6 million to 85 vendors in Ketchikan.
According to company records, some of the largest creditors in Southeast Alaska include Boyer Towing, Anderes Oil, Erickson Electric, Sealaska Timber Corp., Ketchikan Public Utilities, Island Electric, South Coast Inc., Evergreen Timber, Ty-Matt Inc., Construction Machinery and Silver Bay Logging. The Ketchikan Assembly meets Wednesday to consider taking on local debt.
Contractor South Coast Incorporated and Evergreen Timber have asked the Ketchikan Assembly for direct financial help from the economic disaster funds.
The borough's involvement in the project long has been a source of controversy in Ketchikan. Assembly member George Lybrand has pointed to the project as a poor use of public money.
"I foresee they'll go from Chapter 11 (bankruptcy protection) to Chapter 7, then another company will buy that place out on a dime or 20 cents on the dollar and run it as a veneer plant," he said.
Ketchikan resident and environmental activist Wayne Weihing also has spoken out against the borough funding.
"I think the borough should take a serious look at throwing any more money after bad. We don't know if they're going to be a viable corporation. If they go under we're going to end up owning a lot of questionable land," he said.
Other community members take a different perspective. Assembly member J.C. Conley said he's optimistic, but nervous. He would like to see the borough buy local debt and represent the community in bankruptcy court.
"My goal is to keep the plant operating. I haven't seen anything that convinces me the plant is going to make it, but I do believe it is important," he said.
Conley said a job loss immediately would hurt local schools. Ketchikan School District administrators are anticipating a 5 percent drop in enrollment this fall.
"Gateway was our year-round industry. It was also the beginning of rebuilding our economy with resources," Conley said.
Ketchikan Borough Manager Georgianna Zimmerle said people who have lost their jobs in the timber industry have gone to work at Ketchikan's shipyard and at Gateway. Both are shining stars of industry in Ketchikan, she said.
"It's really hard to judge how optimistic to be or how pessimistic to be. I just hope for the best that it is going to continue to look better as it goes on," she said.