Aleut's Adak gamble could pay off big for shareholders, region

The Aleut Corp. is doing fine, according to company officials. The Aleutians-area Native regional corporation is profitable -- not wildly so, but steady -- and has been for years.

Its commercial office buildings in Anchorage are full of tenants and making money, according to president Vince Tutiakoff Sr. A $6 million-plus investment portfolio turned in a record performance last year, though this year represents a challenge.

In its business ventures, an innovative initiative in the federal facility management service business has been such a winner that the company, SMI International (formerly Space Mark Inc.) has graduated from its preferred minority status.

SMI now competes for business on a straight commercial basis, and the competition is tough.

The risks are big. The Aleut Corp., with $2.4 million in earnings last year, has already invested $2.5 million in various expenses related to Adak, although government contracts with Aleut Corp. subsidiaries have recouped some of that. Still, it could easily become a costly white elephant.

Partly, the Aleuts have to take advantage of an opportunity to do something with Adak, as risky as it is, Tutiakoff said. To do nothing would risk continued decline of the region’s economy, jeopardizing the communities there.

For example, with the Adak naval base closed and cutbacks at other military installations like Shemya, vital air and marine services to the region and its communities have been affected, Tutiakoff said. This has become an extremely serious problem for the entire Southwest Alaska region, he said.

Cargo airlines are interested in serving the area, but what is really needed are passenger operators who can fly planes big enough to move large numbers of people with the cargo. If airlines could operate combination cargo/passenger services it would be ideal, but waivers are needed from the federal government to allow this, Tutiakoff said.

Added to that are the uncertainties of commercial fishing in the Bering Sea and western Gulf of Alaska due to restrictions on fishing to protect Steller sea lions.

If Adak can be developed commercially, it will not only reinforce the regional transportation network, vital in such a remote area, but will open new commercial fisheries that are undeveloped mainly because support services were previously unavailable, Tutiakoff said.

If the Aleuts can pull it off at Adak, it makes the corporation an economic kingpin in its home region and gives it a big stake in supporting commercial fisheries, Tutiakoff pointed out.

He said it’s also a big benefit for the corporation’s shareholders because a new community, soon to become a second-class city, populated partly by shareholders holding good jobs, will have been brought into existence.

For now, things are going well at Adak. Despite the slowness of the transfer process, Tutiakoff compliments the Navy for streamlining and expediting things. Most communities involved in military base closures and transfers are far behind where the Aleuts are now at Adak, he said.

The State of Alaska has approved formation of a second-class city, and it is in the process of being created. The Aleut Corp. itself will soon take title to 47,000 acres of land in and around the community. Congress must approve the transfer, but that is fairly certain when the remaining details are worked out, Tutiakoff said.

There are about 280 people now living and working on the island, and about 25 children in school. Aleut Enterprise Corp., a subsidiary of Aleut Corp., sells fuel, provides port services, housing and commercial lease space to fishing boats, according to Sandra Moller, who is in charge of AEC. The Navy maintained 20 million gallons of fuel storage capacity, making it now the largest regional commercial fuel facility in the Aleutians and Bering Sea area. Unalaska/Dutch Harbor has about 17 million gallons between three plant owners.

The largest fuel storage facility in Western Alaska is much farther north, Moller said. It is at the Red Dog Mine north of Kotzebue. It has 25 million gallons of storage capacity.

Interestingly, AEC purchased diesel fuel from Russia last year, and it was delivered in October by a Russian tanker. A similar delivery is expected this spring. The Russian fuel is high quality and is tested as it is loaded in the Russian Far East by a U.S. firm and retested as it is unloaded at Adak, Tutiakoff said.

He said there are substantial economies of scale in fuel shipment if fuel can be moved by large tankers rather than barges, such as those employed by Crowley Marine, the major U.S. fuel shipper serving the region.

AEC may next be working out an arrangement to supply communities in the region from Adak, Tutiakoff said

Norquest Adak, a Seattle-based fisheries company, had a good first year at Adak after its acquisition of a fish processing plant on the island, Tutiakoff said. The plant, now 2 years old, was opened in 1998 and operated by Adak Seafoods, a start-up company. Fishing vessels, mostly larger boats up to 220 feet in length, have been fishing for cod, halibut, and crab in the region.

One encouraging sign is that halibut landings increased from 300,000 pounds two years ago, the first year of local fishing, to a million pounds last year, Tutiakoff said.

"Adak also had the largest catch per unit of effort in the Pacific," Moller said.

Previously there was no fishing around Adak because the Navy maintained a 20-mile vessel exclusion zone around the island, and there were no services available.

The Aleut Corp. hopes to eventually see a year-round small boat fishery established at Adak, Tutiakoff said. The North Pacific Fishery Management Council has established an allocation of cod for small boats fishing from the island, and the state Department of Fish and Game has set aside an exclusive fishing area for small boats, up to 60 feet in length.

There will be continuing work on environmental cleanup and demolition of some structures for which there can be no use, Tutiakoff said. Adak also will play a support role for a new cleanup program planned for Amchitka Island, where underground nuclear tests were carried out, he said.

In the future, Tutiakoff said Adak could become a support base for regional fisheries research, which could be important given the high priority placed on gathering biological and other data in the region. He said the corporation could assist in establishing no-trawl and even no-fishing areas in waters around the island for scientists to study, Tutiakoff said.

There are, of course, challenges at Adak. One is the complicated process of taking over the closed Navy facility. The Navy, by law, must deal with a public entity, so the Aleut Corp. had to secure state legislation establishing an Adak Reuse Corp. to work with the Navy.

The corporation, through Aleut Enterprise Corp., is working on marketing commercial uses, but the Navy deals officially with the Reuse Corp. Eventually, the new city government will take over public functions.

A practical issue is how to modify, or to mothball, electrical generating facilities that are now running at 30 percent capacity, a rate which can cause damage to equipment, Tutiakoff said.

Another issue is what to do with a thousand military housing units, some almost new, but which will deteriorate in the damp, windy Aleutian climate unless maintained and used.

Tutiakoff said many of the duplex-type units may be sold and moved off the island by barge. Units which cost $150,000 to build might be sold at a discount to regional housing authorities and moved to nearby communities by barge.