Posted on March 13, 2024
Long Beach has spent more than $45 million on repairs and improvements for the Queen Mary over the last eight years, a deep financial hole out of which the city has only begun to climb.
For at least the last 17 years, the ship has struggled to operate in the black, turning a profit only a handful of times. Last year, the ship generated just over $3.5 million in operating profits from April through December, according to financial records reviewed by the Business Journal, but that pales in comparison to the high-dollar figure the city invested to keep the ship afloat.
Long Beach officials celebrated the ship’s return to profitability last year, holding it up as an economic engine that brings hundreds of millions in tourism dollars and other peripheral spending to the region, but — until now — the amount of public money that’s been required to maintain the Queen has been murky.
Documents the city provided to the Business Journal give, for the first time, a comprehensive look at the repair bills the city has footed since 2016, including items like $3.35 million for bulkhead repairs and lifeboat removal, and $4.8 million for supplies, soft goods and critical room repairs for the ship’s onboard hotel, restaurants and other amenities.
The small operating profit the Queen Mary has started collecting will be funneled back into more repairs and maintenance, according to city officials, but it remains unclear how much of a dent that will put in the ongoing expense.
Significant projects like fixing a soft spot in the hull and portions of the deck remain on the horizon, and city officials are unsure how much those and a host of other repairs and continued maintenance will cost.
“It’s cliche, but we won’t know until we open it up,” said Johnny Vallejo, deputy director of the city’s Economic Development Department.
One example, Vallejo said, is impending repairs to the ship’s Sun Deck. The project calls for the deck to be pulled up and replaced, but the true cost of the project won’t be known until the wood is up and the metal subfloor can be properly inspected, he said.
If the deck’s subfloors need to be repaired, Vallejo said the project could cost millions. If not, simply replacing the deck would be significantly cheaper.
Long Beach is on the hook for all the overdue repairs aboard the Queen after the city trusted a string of failed private operators to maintain the historic ship.
Since the ship arrived in Long Beach in 1967, the city has struggled to find a stable long-term partner to take responsibility for it under a model where the city would lease the ship to private companies that would handle operations and maintenance.
From 2007 through 2019, the ship’s operators only turned a profit three times, reporting nearly $31.4 million in combined losses across that period, records show. Earlier records were not available, according to city staff.
In that time, the costs to maintain the aging ship have mounted.
In 2016, a city-commissioned marine survey estimated it needed between $235 million and $289 million in repairs after years of neglect by the city and its leaseholders.
In light of the staggering figure, the ship’s private operator at the time, Urban Commons, asked for $23 million from the city to handle critical repairs.
Despite the infusion of cash, Urban Commons filed for bankruptcy in January 2021 after a failed public offering on the Singapore stock exchange.
When no one stepped up to buy the lease out of bankruptcy, the city had no choice but to retain sole control of the ship for the first time in more than half a century.
The city kept the Queen shuttered until a partial reopening in April 2023 as it poured millions into completing the critical repairs left unfinished by Urban Commons.
In fiscal years 2021 through 2023, the city spent nearly $18.75 million in repairs and re-opening expenses, according to financial records provided to the Business Journal. The figure does not include $3.8 million spent by the city for daily operations and upkeep from June 2021 to June 2022 until the city could hire a management company, Vallejo said.
Even when closed, the Queen Mary required a skeleton crew to run its systems daily, according to Vallejo, the city employee who oversees operations.
“They had to run around and turn on every faucet, flush every toilet, they had to turn the air on and off,” he said, adding that the expense also includes utilities and normal, day-to-day maintenance.
Where is the money coming from?
The funding sources for repairs have varied. About $8 million came from the Public Works Department, documents show, and more than $6.3 million came from a $12 million land swap deal with the Port of Long Beach that was announced in April 2023.
This year, the city already has spent another $471,000 to repaint the ship’s rear smokestack and install an automated parking system, according to Vallejo.
In all, since 2016, the city of Long Beach has spent nearly $45.65 million keeping the Queen Mary afloat.
When the ship reopened in April last year, it wasn’t immediately profitable. Over the first two months, the ship netted $2.86 million in losses, according to financial reports provided to the Business Journal, but once the hotel and other amenities started reopening, the ship began generating profits, records show.
From June through December, the Queen Mary generated between $38,000 and $760,400 in gross operating profits per month for a total of just over $3.5 million.
Lack of inspections leaves many unknowns
The city says it does not know how much more money it will have to pour into the Queen Mary in part because they have not been performing detailed, regular inspections.
Vallejo said the ship’s various critical safety and other systems such as fire suppression, water and HVAC underwent extensive testing and inspection ahead of reopening, but the Queen Mary has not had a comprehensive inspection in over four years.
For decades, it was inspected top to bottom once a month. In December 2019, however, as reports about conditions became increasingly bleak in the face of Urban Common’s neglect, the city fired its longtime contracted inspector.
The city is in the process of developing a new inspection program, Vallejo said.
In the city’s 2023 budget, Public Works was allocated funding for a senior civil engineer dedicated to the Queen Mary. Now, well into 2024, the position has yet to be filled, but Vallejo said the city is actively working through the process.
The engineer would be responsible for administering the city’s new inspection program, Vallejo said, adding that they will work in tandem with the ship’s facilities director to ensure the ship is properly maintained and necessary repairs are made.
Despite the unknowns, Vallejo said a recent study of the ship’s tanks and hull has staff feeling optimistic that repair costs will be a fraction of the hundreds of millions that the 2016 marine survey said were needed.
“What we found was that it wasn’t as bad as everybody thought it was going to be,” Vallejo said, noting that a deteriorating hull was expected to be the most expensive repair.
Instead, a study by marine consulting firm ABL Group found a single “soft patch,” according to a city memo. ABL “provided a relatively easy and cost-effective fix,” Vallejo said, but the city has not yet received a quote for the job.
Funding for the future
Outside of its gross operating profits, there are several funding sources that pour directly into the Queen Mary to cover operational and repair costs.
In 2003, Carnival Cruise Line relocated operations from San Pedro to Long Beach adjacent to the Queen Mary. Since then, the city has collected a fee for every ticket sold by Carnival for cruises out of its Long Beach terminal, which today amounts to between $2.5 and $3 million annually, Vallejo said.
Since 2018, a portion of the Carnival passenger fees has been going to repay the $17.7 million in bonds the city issued in 2016 to cover critical repairs under Urban Commons, many of which the company never completed. Through 2023, the city has repaid just over $12.3 million, data shows, with just over $7.8 million owed over the next five years.
Starting this year, the city is also routing about $1.5 million annually from parking fees at the Carnival terminal into the Queen, Vallejo said. That money is newly available because bonds used to finance the structure were finally paid off last year.
Additionally, music festivals and other events on the land around the Queen Mary, known as Pier H, generate revenue for the city that is then rerouted back into the ship, Vallejo said. A single music festival, for example, generates upward of $400,000 for the city, almost all of which is profit, he said.
Vallejo said the historic ship is on track to close out FY2024 with about $4.5 million in operating profits after a $2.71 million bond payment in September.
If the city can manage to make the ship self-sustaining, Vallejo said it would be easier to entice a developer to realize the city’s longtime vision of creating a commercial district with restaurants, shops and more adjacent to the ship.
“When we look for a developer, we’re not [saddling] them with … an old, historic ship,” Vallejo said. “No developer has that expertise. No developer wants to do that.”
