Chugach Alaska Corporation

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Chugach Alaska Corporation

560 East 34th Avenue
Anchorage, Alaska 99503
U.S.A.
Telephone: (907) 563-8866
Toll Free: (800) 858-2768
Fax: (907) 563-8402
Web site: http://www.chugach-ak.com

Private Company
Incorporated: 1971
Employees: 5,000
Sales: $354 million (2002)
NAIC: 561210 Government Base Facilities Operation Support Services; 611710 Educational Support Services; 236220 Construction Management, Commercial and Institutional Building; 561310 Employment Placement Services

Chugach Alaska Corporation (CAC) is one of the most successful of the 12 Alaska Native Regional Corporations that were formed in 1971 as part of the Alaska Native Claims Settlement Act. The company, whose shareholders are 2,000 Native Alaskans of the Aleut, Eskimo, and Indian peoples, controls about 900,000 acres of mostly coastal land in the Chugach region of Alaska (south-central Alaska and Prince William Sound). Since emerging from bankruptcy in 1991, CAC has followed a new corporate plan. Rather than focus exclusively on developing its rich natural resources of timber and fisheries, the company has become a leading provider of government services contracts, ranging from managing U.S. military bases to employment services to telecommunications. Through its six subsidiaries and numerous joint ventures, CAC now oversees 51 such projects in 21 states and six foreign countries.

ANCSA and the Creation of CAC: 1971

In 1971, the U.S. Congress broke with established federal Indian policy when it enacted the Alaska Native Claims Settlement Act (ANCSA) to resolve aboriginal land claims in Alaska.

For over a century, Native Alaskans had sought the return of their lands, which had been illegally confiscated by Russians in the eighteenth and nineteenth centuries and then sold to the U.S. government. Little progress was made until 1968, when oil was discovered in Alaska's Prudhoe Bay. Recognizing that the pipeline needed to transport the 9.6 billion barrels of oil out of Alaska would have to cross disputed land, the oil industry pushed Congress to settle the land claims once and for all.

Congress, with the approval of the majority of Alaska Natives, chose to break with the reservation system it had used with Native Americans in the Continental U.S. for over a century. Instead, Congress applied a corporate model to solve the problem in Alaska. ANCSA returned $962 million in cash and 44 million acres of land to the 12 regional native corporations (and nearly 200 village corporations) it created. Native Alaskans were made shareholders in these corporations. ANCSA's radical innovation was to break with the trusteeship model of federal Indian policy and, instead, have the corporations, and thus the indigenous Alaskans, use the land itself as the foundation from which they could build an economic and political future.

Transition to a Corporate Model: 1970s to the Early 1980s

With nearly 2,000 shareholders, Chugach Alaska Corporation (CAC) was the second smallest regional corporation formed by ANCSA. CAC was promised $11.5 million and 930,000 acres in the coastal areas of south-central Alaska, a region rich in fish and timber. Like the other regional corporations, CAC had a difficult transition to make. ANCSA had instantly transformed rural—and often subsistence-level—Alaskans to shareholders in major corporations. Few of CAC's shareholders or managers had significant business experience. "We didn't know what we were doing," a shareholder in another regional corporation told the Seattle Times. "We were taken out of a village culture and put into a corporate culture that we didn't understand." Moreover, the structure imposed by ANCSA was somewhat artificial. Unlike in the "real" business world, where people form corporations to fulfill a specific business need or make a specific product, the Native regional corporations were launched, endowed with federal dollars, and then charged with discovering a business purpose.

CAC followed what seemed a sensible course, investing in the local resource industries (fishing and timber) that it knew best. Unfortunately, CAC's start-up difficulties were compounded by ongoing legal battles. The actual conveyance of lands promised under ANCSA stalled. CAC sued the U.S. government in 1975, but the matter was not resolved until 1982, when Congress passed the Chugach Natives, Inc. Settlement Agreement, which finally transferred the land and awarded the corporation an additional $12 million to make up for lost opportunities. However, the monetary settlement could not wholly undo the lost years. In the intervening period, global markets for CAC's staple businesses had plummeted. A worldwide salmon glut proved particularly harmful to the fisheries-dependent CAC. A fire at one of its canneries in Prince William Sound and a botulism scare at another in 1982 also hurt the company.

Despite these problems, CAC's strategy for most of the 1980s remained centered on its local resource-base industries. At the same time, CAC also looked to profit from other resources on its lands. The Bering River Field on CAC's properties near Cordova had the potential to produce nearly 59 million tons of coal. To explore the field, CAC formed the Bering Development Corporation, a joint venture with a consortium of Korean companies called KADCO to explore and extract coal, which was destined primarily for export markets. However, as the Alaska Journal of Commerce noted in 1996, mining was subject to the same pitfalls as fishing and timber. All three were "extremely volatile businesses influenced by market events far beyond the influence of the corporation's managers."

New Challenges: Mid-1980s and Early 1990s

CAC's debts mounted in the mid-1980s as global salmon and timber markets remained saturated. Like its compatriot regional Native corporations, CAC cast about for a way to remain afloat in a shifting business climate it was just beginning to understand. In 1985, two Native corporations failed and were forced into bankruptcy. In response, Congress changed the tax code in 1986 to allow Native corporations to sell net operating losses to private firms seeking tax breaks, which provided CAC and other Native corporations a much-needed infusion of cash and helped return them to profitability. CAC obtained $54 million in 1986 from the sale of its net operating losses.

At the same time, CAC benefited from a marked improvement in its resource-based businesses. For the first time since its inception, CAC paid a dividend to its Native shareholders. Nineteen eighty-six was "a year in which the mistakes and losses of the past were corrected and reversed but not forgotten," CAC's president and CEO Michael Chittick told the Alaska Journal of Commerce in 1988. CAC's fisheries sector led the company-wide turnaround. Seafood product sales alone accounted for 89 percent of the company's corporate revenues in 1986. Hoping to capitalize on the positive trends in this sector, CAC purchased another cannery in 1987 on Kodiak Island. This new acquisition increased CAC's fish processing capacity by 30 percent and gave the corporation access to lucrative new salmon runs.

CAC also began to exploit its timber assets more thoroughly. In 1986, the company made plans to begin harvesting timber on its land on the remote Montague Island. This sale garnered the company $2.3 million in 1987. CAC formed a new subsidiary, Chugach Forest Products, to oversee its timber-related operations. In 1988, CAC approved construction of a new sawmill, which had the capacity to produce kiln-dried dimensional lumber, in Seward. The $22 million project used computer-controlled lasers to scan logs to make the most efficient cuts.

CAC suffered a huge setback in 1989 when the Valdez,an Exxon oil tanker, ran aground in Prince William Sound, spilling 11.7 million gallons of crude oil into the pristine waters where CAC carried out its commercial fishing. The economic catastrophe not only threatened the traditional way of life of the Alaska Natives living in the area and sullied the spectacular beauty of the region, but it also threatened to destroy CAC's fragile financial success. Nearly 85 percent of CAC's profit-making operations were in the area. The spill ground commercial fishing activity to a halt and jeopardized the company's three canneries in the area. Although CAC eventually reached a settlement with Exxon, CAC's condition did not improve. "The Exxon Valdez is what in many people's minds put us over the side," CAC's president would remark in 2001 to the Alaska Business Monthly. "It's hard to put a number on the impact of the spill, but it was certainly devastating on fishing."

CAC's debts began to mount once again. The Valdez catastrophe compounded underlying business-cycle problems that had plagued the company since its inception. Fishing prices plummeted in the early 1990s, and CAC's top-of-the-line sawmill in Seward encountered a host of difficulties. The Alaska housing boom of the 1980s tapered off, shrinking a major market for the mill's dimensional lumber. Furthermore, the mill had an inadequate power supply and was too far from other markets to realize its full potential.

After disastrous fiscal performance in 1990, when the company posted net losses of $25.3 million on revenue of $46.9 million, CAC entered bankruptcy proceedings in 1991. As part of its reorganization, the company moved away from the volatile fishing and timber sectors and to became a smaller organization rooted in less capital-intensive industries. As the Seward mill's losses continued to mount, CAC closed it in 1991, briefly reopened it as part of a joint venture in 1993, and then closed it again soon thereafter. The company emerged from bankruptcy in 1992 and appointed Michael E. Brown as president and chief executive officer in 1993.

Company Perspectives:

The company is committed to profitability, celebration of our heritage, and ownership of our lands.

A New Direction in the Mid-1990s

CAC's new leadership immediately involved CAC in a series of diverse enterprises that required less risk and lower capitalization than the big resource-oriented projects the company had taken on in the past. These new ventures positioned CAC as a service provider, focusing on facility management, services for the oil industry, personnel and computer services, and tourism.

CAC's new strategy began to pay off in 1994, when the company won two contracts with the U.S. government. The first paid CAC $1.2 million annually to maintain family housing units at the Adak Navy base in Alaska. The second provided CAC $4.5 million a year to provide an array of base services operations for the King Salmon Airforce Base in Alaska. CAC performed both contracts successfully and was eager to win more. To do so, the company formed a subsidiary, Chugach Development Corporation (CDC), which qualified for bid preferences in government services contracts under the Small Business Administration's Section 8(a) program. "This is what shaped our life after bankruptcy," a company executive stated in the Alaska Journal of Commerce for August 12, 2001. After landing a base operations contract in Wake Island, Alaska, in 1996, CDC was awarded a multi-year contract worth $18 million to oversee base maintenance and operations at the U.S. Navy base on Whidbey Island, Washington.

CAC moved into other new areas as well. In 1996, the firm entered a four-way partnership with a Nebraska telecommunications company called MFS Network Technologies Inc. and two other Alaska Natives regional corporations to form Kansas Telecom Inc. Kansas won a contract from Alyeska Pipeline Service Co. to build and operate a $100 million fiber optics communications system along Alyeska's 800-mile trans-Alaska oil pipeline corridor. The project, which was slated to take over two years to complete, was intended to provide state-of-the-art digital and voice communications systems for Alyeska and to upgrade operations control along the pipeline. CAC held a 25 percent stake in Kansas and appointed one of its own corporate vice-presidents as Kansas' first chief executive. (After the project's completion in 2000, Alyeska terminated its contract with Kansas; CAC reduced its stake in the venture to 5 percent). Also in 1996, CAC joined with North Employment Services to form another subsidiary, Chugach North Technical Services, which provided temporary contract personnel services to private employers in Alaska and the Pacific Northwest.

CAC's post-bankruptcy strategy was hugely successful. The company returned to profitability in 1994 and gross revenues rose from $32 million in 1994, to $35.5 million in 1995, to $52.5 million in 1996. By 1996, CAC had paid down its debts to $4 million and had a backlog of $300 million in contracts. Although its debt prevented CAC from paying its Native shareholders a dividend, CAC's numerous base contracts throughout the Northwest provided much-needed jobs to Chugach shareholders living both in Alaska and Washington.

While CAC spent much of the mid-1990s de-emphasizing its resource-based operations, the company still hoped to exploit the natural resources, particularly timber, of its land. Beginning in 1996, CAC sought to complete a process that it had begun in its 1982 settlement with the U.S. government. ANCSA had transferred to CAC timber-rich land in the Carbon Mountain Tract of the Copper River Delta east of Cordova, Alaska. This property was completely encircled by United States Forest Service (USFS) and Bureau of Land Management (BLM) land, though, and CAC wanted to build a road that gave it access to its property. Under the terms of ANCSA and the 1982 settlement, CAC was guaranteed an easement across USFS land to access its property, but the easement still had not been granted by 1996, despite CAC's compliance with applicable environmental prerequisites.

In response, CAC twice turned to the U.S. Congress in 1998 and 1999 for legislative solutions that would allow for the road. Both efforts failed. CAC was under considerable pressure from environmental groups and administration officials to give up on the planned road and future logging and instead negotiate a conservation easement and a settlement. However, CAC was resolute, viewing the matter as one of sovereignty rather than payment. "What this is really about is the federal government keeping its promises," CAC's Brown told National Wildlife in 1999. After a flurry of negative publicity, CAC was eventually granted its easement in 2000. Given the state of global timber markets, however, the company postponed any work on the road.

Despite the media's attention to timber, CAC continued to focus primarily on its post-bankruptcy enterprises, particularly government service contracts. Michael Brown left his post in 1999 and was ultimately replaced by Barney Uhart, who continued his predecessor's business plan. In 1999, another of CAC's government services-oriented subsidiaries, Chugach Management Services (CMS), won a base maintenance contract at Kirtland Air Force Base in Albuquerque, New Mexico, worth $170 million. That same year, CMS moved even further from its home territory when it was awarded a $500 million contract to manage base facilities at MacDill Air Force Base in Tampa, Florida.

Success in the 21st Century

CAC won its most significant government services contract in 2002, when it teamed with Lockheed Martin and Bechtel to provide support services for the missile-testing site on the island of Kwajalein in the Marshall Islands. The total procurement for the three companies was worth over $2 billion and allowed CAC to hire 1,200 new employees.

Key Dates:

1971:: Alaska Native Claims Settlement Act creates Chugach Alaska Corporation (CAC).
1982:: Congress passes the Chugach Natives Inc. Settlement Agreement.
1989:: Exxon Valdez spill threatens CAC's operations.
1991:: CAC enters Chapter 11.
1994:: CAC secures its first base operation services contract.
1996:: Partially CAC-owned venture, Kansas Telecom, wins Alyeska Pipeline contract.
2000:: CAC obtains easement to access timber stands in Carbon Mountain tract.
2002:: CAC is awarded support services contract for Kwajalein missile testing site.

In the late 1990s, the company continued to diversify its operations. Through its subsidiary Chugach Telecommunications & Computers, Inc. (CT&C), CAC won a contract to operate a worldwide seismic network used to enforce the Nuclear Test Ban Treaty. CT&C also validated software for the Navy's Tomahawk missile program and tracked space debris for the Naval Space Command. Another subsidiary, Chugach Support Services, ran Job Corps facilities in Alaska, San Francisco, and Roswell, New Mexico. CAC's Ship Escort Response Vessel System escorted oil tankers into and out of Prince William Sound. In 2002, CAC bought the Fairbanks, Alaska-based McKinley General Contractors, which it converted into a new subsidiary, Chugach McKinley Corporation. In 2003, Chugach McKinley won a five-month contract to take over construction operations at Midway Atoll National Wildlife Refuge.

CAC's success was apparent in the early years of the new century. In 2000, the company paid out a dividend to its shareholders for the first time in 11 years and increased the dividend payment annually thereafter. Revenues for 2002 topped $355 million, a jump of 28 percent from the previous year. The company's future looked bright. "There are a lot new things on the horizon," Uhart told the Alaska Journal of Commerce in 2003. "Actually business couldn't be better. There's really not a lot to complain about."

Principal Subsidiaries

Chugach Development Corporation; Chugach Industries Inc.; Chugach McKinley Inc.; Chugach Telecommunications and Computer Inc.; Chugach Systems Integration, LLC; Chugach Management Services, Inc. (51%); Chugach Support Services, Inc. (51%).