Sealaska hopes to regain profitability in 2002

PHOTO/Courtesy Sealaska Corp.
The past two years have not been kind to Juneau-based Sealaska Corp., the Alaska Native regional corporation for Southeastern Alaska. But things are changing.

Sealaska expects to regain profitability in 2002 after a $21 million loss in 2001 and a larger, $122 million loss in the previous year.

The corporation was hit by successive years of lower earnings from portfolio investments, due to the weak stock market, and particularly by the decline in high-tech industries that hit a plastic injection molding venture in which Sealaska had invested.

It was a triple-whammy, too, because continued recession and weak economies in Asia contributed to lower earnings of Sealaska Timber Corp., Sealaska’s timber harvesting and marketing subsidiary that has been a big engine for earnings in past years.

Chris E. McNeil Jr., Sealaska president and chief executive, said most of the 2001 and 2000 losses reflected write-offs on unsuccessful ventures and that after reorganizations the Southeast Alaska Native regional corporation will be back on track this year.

"We expect to be able to meet our targets in our core businesses," said McNeil.

One of the corporation’s major businesses is timber harvesting and sales from Sealaska-owned lands in Southeast Alaska. While the volume of harvesting has been cut back only slightly, earnings have been hit in Japan and Korea, where Sealaska Timber Corp., subsidiary of the regional corporation, does most of its sales, McNeil said.

Those markets, affected by economic recession and competition, now appear to be set for a rebound. Also, some competitors who had been aggressively selling softwood into Japanese and Korean markets, undercutting exports by Sealaska, have now switched to selling to China, according to Richard Harris, Sealaska’s senior vice president for natural resources. He said the switch should reduce competitive pressures in traditional markets somewhat.

Sealaska remains big in timberBy the Journal Staff

Sealaska Corp. of Juneau was formed in 1972 along with the other Alaska Native corporations, following passage of the Alaska Native Claims Settlement Act.

Today Sealaska owns 290,000 acres of surface lands and 590,000 acres of mineral estate, and is the largest private landowner in Southeast Alaska.

The corporation has a diverse number of business activities. Its Sealaska Timber Corp. is the last major timber operation in Alaska. Other major companies in the forest products industry were dependent on the Tongass National Forest for wood supply. Changes in federal policy in management of the national forest have reduced those supplies.

Sealaska, however, harvests timber from its own private lands on a sustainable basis. Wood markets cycle, but Sealaska is expected to use its sustained yield to stay in the timber business for many years.

During 2001, Sealaska Timber said 53 percent of its employees were shareholders in timber operations. An economic study in 2001 showed Sealaska and its timber contractors to be the largest private employers in Southeast Alaska.

The corporation enjoyed 16 straight years of profitable operation until 2000. The corporation has paid dividends and distributions to its shareholders, many who live in Southeast Alaska, for 18 years.

In 2001, Sealaska paid $1 million in dividends and distributions to shareholders and $360,000 in special payments to elder shareholders reaching their 65th birthday from an Elders’ Settlement Trust.

Since 1981, the corporation has awarded more than $5.5 million in scholarships to shareholders and shareholders’ descendants. About $813,000 in scholarships were awarded in 2001.

Sealaska is also now investigating new markets in China, McNeil said. The growth potential there is staggering due to the enormous market size, he said.

Meanwhile, Sealaska Timber Corp. will harvest about 100 million board feet of timber from corporation-owned lands this year. The harvest level is about the same as in 2001 but is down from somewhat higher levels in earlier years.

The corporation has also done a major reorganization of a plastic injection molding venture. A plant in Vancouver, Wash., jointly owned with Arctic Slope Regional Corp. of Barrow is being closed. Closure of the facility will be complete within two months, McNeil said.

A second plant, owned wholly by Sealaska in Guadalajara, Mexico, is being operated under a joint venture by Nypro Inc. of Clinton, Mass. That joint venture has performed well, McNeil said.

The plastics plant being closed served many customers in high-tech industries, making products that ranged from molded computer cases to components for printers, telephones and cameras.

But the decline of high-tech industries nationwide in 2000 and 2001 was felt by Sealaska. The Washington plant served many small customers in the Pacific Northwest as well as a few large customers like Boeingand International Business Machines. It was particularly affected by the decline of the region’s technology industries, McNeil said.

The plant in Guadalajara serves a more diverse group of international customers, mainly large multinational corporations, and fared better than the domestic plant, McNeil said.

The apparent success of the Nypro joint venture demonstrates a path to success for future business investments, McNeil said. Sealaska’s new strategic plan has an emphasis on investing in businesses with experienced partners, like Nypro, rather than the outright purchase of operating businesses.

Another venture Sealaska is getting out of, this one closer to home, is a small operation mining very high quality calcium carbonate limestone on Prince of Wales Island in southeast Alaska. Sealaska’s SeaCal subsidiary sold the product to Pacific Northwest customers who used it in manufacture of construction products like gypsum.

Sealaska will sell the mine this year, possibly to a buyer better connected to the market structure, McNeil said. "The calcium carbonate we have is the quality and purity that could be used to make high-end coated paper," he said.

One business relationship that is making good progress is a venture Sealaska has with the San Pasqual Band of Mission Indians, which owns and operates Valley View Casino near Escondido, Calif.

Sealaska provided $14.7 million in start-up capital in the form of a loan and has a continuing profit-sharing agreement with the San Pasqual tribe. The casino opened in April 2001.

"There is now a year of operating performance with this casino, and they are seeing steady growth. They are located in a very good market area," McNeil said.

Another business initiative that has hit stormy weather was a foray into the world of wireless communications in a joint venture with two other regional corporations, Arctic Slope Regional Corp. and Doyon Ltd., along with AT&T, the telecommunications giant.

Sealaska has $40 million invested in Alaska Native Wireless, the joint venture. The group bid on potentially lucrative wireless licenses in major U.S. cities being auctioned by the Federal Communications Commission after the previous successful bidder, NextWave, filed for bankruptcy protection and was unable to complete payment to the federal government.

The deal got bogged down in litigation when the former owner sued the government. Attempts at settlement also failed, and the issue is now before the U.S. Supreme Court.

While it is in limbo, the wireless initiative is still on a track that will eventually see a resolution. Meanwhile, the FCC agreed to refund much of the money bid by the joint venture. The partners were receiving no interest payments while their funds were on deposit, despite the delays in the deal.

"Sealaska’s investment in Alaska Native Wireless is structured with AT&T Wireless Service in a way that we continue to earn an excellent return, regardless of the outcome at the Supreme Court," McNeil said.

Meanwhile, as part of the agreement on refunding part of the deposit, Alaska Native Wireless was awarded licenses bid on in smaller Western state communities, including in Alaska.

Sealaska also has a new initiative under way to form minority-owned companies to compete for federal contracts using competitive advantages unique to Alaska Native corporations, McNeil said. One company being organized in this manner is a sand and gravel sales entity. Sealaska has been in sand and gravel sales before, he said.

05/26/2002 - 8:00pm