Sealaska strategy helps it get through recession

Like most Alaska Native regional corporations, Sealaska Corp. of Juneau has navigated the recession with a successful strategy of business diversification, but there are major uncertainties out there. The economic recovery is weak, which has caused slower growth than expected in some Sealaska businesses, Sealaska President and CEO Chris McNeil says.

While that has been offset by stronger growth in Sealaska’s business with government agencies, possible federal budget cuts may have a dampening effect this next year.

Meanwhile, Sealaska is still tied into one market that is strong. Demand for timber in Asia is still growing and this has allowed Sealaska Timber Corp. to maintain steady harvests from Southeast Alaska forestlands owned by the corporation, McNeil said.

Timber harvesting has been a core business for Sealaska since 1980, and Sealaska Timber currently employs about 400.

Legislation now pending in Congress would allow Sealaska to sustain these harvests and also avoid harvesting in ecologically sensitive areas that the corporation now has rights to but would prefer to preserve in their natural state.

So far, Sealaska’s revenues remain on a growth track. About $223.8 million earned in 2010 are up from $196 million earned in 2009, and significantly up from $169.8 million earned in 2006. Net profits took a dip in 2010, however, with $15.1 in 2010 profits compared with $20.2 million in 2009. Sealaska suffered a $40.8 million net loss in 2008, but there were strong profits of $41 million and $30 million in 2006 and 2007.

Sealaska has been an economic engine for Southeast Alaska. Since the corporation was formed in 1972, it has distributed $463.5 million to approximately 20,000 shareholders and to village corporations in the Southeast region, and has paid $317.1 million in shared resource revenues, the bulk of it from timber sales, to other Alaska Native regional and village corporations. 

One new venture for Sealaska is the formation in 2010 of its Haa Aani LLC subsidiary, which has a focus on Southeast business development. Haa Aani’s goal is to work toward sustainable industries for the region, particularly in helping shareholders’ small businesses and tribal enterprises.

McNeil said Sealaska’s revenues are expected to continue growing in 2011, but the new uncertainties over the federal budget could affect 2012.

“This is very difficult to forecast. The uncertainties in federal procurement will affect all Native corporations doing business with the government as well as ourselves,” he said.

For Native corporations that have subsidiaries with an 8(a) disadvantaged business certification, including Sealaska, there are also changes in federal minority contracting. There is more competition in these programs, for one thing, with Native 8(a) companies now competing with each other for contracts and there is less sole-source negotiations, McNeil said. The rules of the program are also more stringent.

A lot of this has resulted from recent criticism of the 8(a) federal contracting.

“Most Alaska Native corporations including Sealaska are adjusting rapidly to these changes, and it’s still a business where we would like to grow,” he said. Federal spending may be cut but the government will still buy and build things.

Sealaska is proud of the accomplishments of its subsidiaries. For example, Sealaska Environmental Services is testing and installing a device that will help detect radiation at U.S. border crossings, a development that is important for national security. Another subsidiary, Security Alliance, was named the 2010 Prime Small Business Contractor to the U.S. Department of State. 

Sealaska’s plastics design and manufacturing holdings include a partnership with Nypro Inc. in a jointly owned company, Nypro Kanaak, which has plants in Iowa, Alabama and Mexico. 

Within Alaska, McNeil said Sealaska has high hopes for Haa Aani with its focus on regional development.

“Our goal is for this to be a catalyst for sustainable development in our villages, where we’ve seen a steady decline in jobs and population in recent years,” he said.

For example, Haa Aani is now working with small oyster farms in Southeast.

“We want these to be locally owned enterprises, but there are areas where we can help with our experience in marketing to large customers and expertise in logistics,” McNeil said.

Another initiative by Haa Aani this year is working with Kake Tribal Corp. with a seafood cold storage plant at Kake. The plant has not operated for a number of years but was able to open this year, creating opportunities for local fishermen.

“In this case, we were able to take the operating risk in opening the plant, which had been mothballed,” McNeil said.

Haa Aani has also been working to expand wood biomass heating to give Southeast communities an alternative to heating with expensive fuel oil. Sealaska itself led the way on this with conversion of its corporate office building in Juneau from oil to wood-pellet heat. There are now two public buildings in Ketchikan heating with wood pellets, and Haa Aani is working with building owners on several other possible conversions.

Rick Harris, Sealaska’s executive vice president, said wood heat has allowed Sealaska to save about $18,000 so far this year on the heating bill for its corporate office. Sealaska decided to make the conversion to demonstrate that large buildings could be retrofitted and reliably served by wood biomass.

One challenge is that there are not yet enough buildings in Southeast using wood biomass to justify building a pellet-manufacturing facility in the region, so for now the pellets have to be shipped in from Washington state.

“A pellet plant will need to produce about 15,000 tons per year to be economically viable and with what we have on-line right now and probable conversions in the near future, we’re about one-fourth of the way there,” Harris said.

If all schools and public buildings in Southeast were to make the conversion there would be sufficient demand, however.

Wood pellet manufacturing is done mainly with residue from other timber harvesting. It wouldn’t make sense to go out into the woods and cut trees just for pellets, but it could work if done as part of an integrated wood products manufacturing, such as at a sawmill.

Meanwhile, Sealaska is continuing its harvesting on corporation-owned lands in Southeast at a rate of about 50 million board feet per year.

“Five years ago we were harvesting 100 million board feet yearly but we slowed things down,” to keep the harvest sustainable, Harris said. One new development is that Sealaska is now harvesting second-growth timber, or trees that have grown up since an area was previously logged. 

Sealaska used selective harvesting with the use of helicopters for the second-growth harvest in an area near Grace Harbor. The initiative proved Sealaska can economically harvest second-growth trees, and introduced these kind of trees to customers, mainly international.

Harris said it was surprising to learn that many customers actually preferred the smaller-diameter, second-growth logs of less than 20 inches in diameter, mainly because their mills were set up to handle these sizes of logs more efficiently than larger-diameter logs.

This has prompted Sealaska to rethink how second growth harvesting could be done.

“It has caused us to step back and think about the proper rotation,” between first and second harvest, Harris said.

“We’re still learning a lot about these forests in Southeast. Unlike in the Pacific Northwest, we don’t have a century of experience to draw on,” he said.

McNeil said, “The forest industry is changing, and Sealaska intends to be part of the transition.”

Passage of the federal legislation is critically important to this, however, because it will allow Sealaska to avoid cutting in watersheds that are important to fish habitat and community subsistence activities.

Under the 1971 Native claims act Sealaska was given rights to select 375,000 acres of federal lands. Now, 40 years later, only 290,000 acres has been conveyed to the corporation.

With 85,000 acres left to select in its 1971 entitlement, Sealaska can choose from within a large 327,000-acre “withdrawal” area set aside by the government. However, much of this is in roadless wild areas, high-value fish and wildlife habitat or watersheds that are important to communities.

Sealaska believes that much of this area is more suited to public ownership.

In its legislation, the corporation has proposed an alternative selection area of 85,000 acres, 70 percent of which is in areas served by roads with sufficient timber to allow Sealaska to continue harvesting at a rate of 50 million board feet per year. The bills would also set aside 8,600 acres as sites for cultural and historic preservation and, most significantly, would allow Sealaska to gain ownership of more than 200 sites with cultural, historic and archeological significance to Native people.

McNeil said the House version of the bill was approved last May, on a bipartisan vote, in the House Natural Resources Committee. A vote on the Senate version, in the Senate Resources Committee, is still pending.

“We’re very encouraged by the bipartisan vote in the House and the support we’re getting overall,”

 McNeil said. Congress has a lot of other things on its plate, like the effort to reduce the federal deficit. “Our concern is now timing, in terms of getting final action this year,” he said.

Tim Bradner can be reached at [email protected].