Honolulu’s contract with a subsidiary of an Italian conglomerate to design, build and operate the city’s rail transit project was scheduled to be signed next Friday, but a delay is needed to reassess what increasingly looks as shaky as the euro.
Despite assurances by the contractor, the Honolulu Authority for Rapid Transportation has prudently decided to take another look at the viability of the two companies that comprise the contractor that their parent company is looking to unload.
HART directors decided Thursday to review new information about the restructuring of Italy’s Finmeccanica SpA, which controls money-losing train-maker Ansaldo Breda and 40 percent of profitable Ansaldo STS, the two components of Ansaldo Honolulu JV.
The parent announced AnsaldoBreda’s "gradual deconsolidation from the group" and the willingness to sell Ansaldo STS.
The shakeup is linked to the euro-zone debt crisis, which has forced a change of leadership in Italy.
Finmeccanica, a top contractor for the Pentagon and European armed forces, is itself more than 30 percent state-owned, but that is no longer a sign of stability. The company’s shares have plummeted in the past week.
Honolulu’s contract with the Italian sister companies totals $1.4 billion, the biggest contract in Honolulu’s history.
The requirement that the contractor provide $360 million in performance bonds to guarantee performance of the contract, and the same amount to guarantee payment to the subcontractors, may have seemed assuring at the time the Ansaldo companies verbally won the contract back in March.
No longer.
In addition, Finmeccanica is required to put up a line of credit as a guarantor commitment of an additional $50 million.
"These are uncertain times and they call for extraordinary measures," Finmeccanica’s chief execu- tive, Giuseppe Orsi, said in a statement last week in explaining a proposed sale of $1.4 billion in assets, cut jobs, overhaul production and streamline supply lines to reduce costs.
As a component, he said the parent is looking to sell nonmilitary divisions, and mentioned "structural problems" in the train-making unit of the company.
Orsi has promised that it will back contractual obligations with Honolulu despite change of ownership of the subsidiaries, but questions about future uncertainty abound.
Such measures call for consideration on this side of the globe. City Councilwoman Tulsi Gabbard was right in assessing "a lot of questions and causes for concern with such a huge contract that we’re looking to execute here with the city."
In a strong sign of alarm, a majority of Council members, including supporters of the rail project, a few days ago called on the HART board to delay signing with Ansaldo and reconsider approval of the contract.
The board wisely will do so.
HART Finance Committee Chairman Don Horner pointed out that the board had made a similar review when Finmeccanica’s planned sale of AnsaldoBreda was first announced last summer, but "a lot has happened" in the past three months.
"We’re never going to satisfy everyone," Horner said, "but our job is to satisfy ourselves as representatives of the public that the process has integrity and is effective."
Executives of the Ansaldo companies remind Honolulu that their products have earned acclaim over the past 15 years, especially regarding Copenhagen’s European Metro of the Year rail system.
But these times have grown financially precarious — and these are our hard-earned taxpayer dollars at stake.
HART board members will need to do much- required research and due diligence in the coming week, or weeks, to decide whether prudence during uncertain times must lead them to reconsider who gets Oahu’s rail contract, and for how much.