Chugach Alaska Corporation

Rebecca Stanfel

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

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.