Euro Disney's Tragic Kingdom

All is far from magical at Disneyland Paris. Euro Disney, the debt-burdened operator of the theme park, announced on Thursday that unless creditors can be persuaded to give the ailing enterprise more breathing space after the end of May, Mickey, Pluto and Goofy could be looking for alternative employment come June.

The group's chief executive, André Lacroix, delivered the bad news that Euro Disney would be unable to meet its financial obligations if it failed to agree a new restructuring strategy with lenders and shareholders.

The group has revealed that it has sufficient liquidity until May 31, but after that the future looked increasingly uncertain. "If up to the end of this time no solution has been found, the group would not be able to fulfill the totality of its financial obligations," Lacroix told a news conference.

Huge debts and financial losses

The operator, which has debts of €2.43 billion ($2.87 billion), also announced that the Disneyland Paris theme park had increased its losses over the past six months from €82.7 million to €108.9 million, while sales were up 1.6 percent at €473.8 million. While financial charges associated with the groups debt accounted for €53.1 million of the losses, the resorts division epitomized the state of Disneyland Paris by posting a €56.3 million deficit.

Euro Disney has been feverishly negotiating with banks and Walt Disney, the entertainment and media group which has a 39 percent stake in the operating group, "to reach a mutually acceptable resolution to the company's financial situation." In an attempt to keep the park afloat, Walt Disney has deferred payments of royalties until 2005 and waived certain rights to ease the pressure.

Royalty costs and management fees jumped from €8.1 million to €25.5 million in the six month period ending March 31, but Walt Disney is not expecting payment from Euro Disney until the first quarter of the next financial year.

Stakeholders to be approached for aid

Lacroix told reporters that Euro Disney would continue to concentrate on sales growth and marketing efforts in its core businesses in an attempt to turn the deficit around. "At the same time, we must reach an agreement with our stakeholders to resolve our financial situation."

Disneyland Paris has been plagued by problems since it opened on April 12, 1992 at a cost of 22 billion French francs (€3.3 billion). On the inaugural day, an expected crowd of 500,000 visitors failed to materialize. In fact, barely 50,000 people were admitted. This was blamed on widespread protests throughout France as people feared their culture would be damaged by one of the most powerful and popular symbols of America. During the live opening television broadcast, a major electricity circuit was cut and signposts showing the way to the park's Marne-La-Vallee location were damaged.

Problems piled up from opening day

The problems continued throughout its first year, with up to 3,000 employees quitting in May 1992 over pay and working conditions. Attendances also remained below expectations with visitors on sunny weekend days totalling between 20,000 and 25,000, much lower than the predicted 60,000 announced before the park opened. Anti-Disney feelings continued to be expressed by stay-away locals. Only three out of 10 visitors at the time were French.

European recession hit hard

By the end of 1992, Disneyland Paris had attracted around 2 million visitors less than originally projected. At the same time, the European recession was causing a property slump which pushed Euro Disney over the precipice into its first bout of serious financial difficulty. High interest payments on its massive start-up loans further exacerbated the problems, and the cheap dollar rate meant that many tourists found it cheaper to fly to Florida for their holidays and visit the flagship Disney World resort there.

Further blame was placed on overstaffing and over-capacity at the Euro Disney hotels, since visitors could do the park in one day and few found the need to stay on site. Souvenir and food prices were also accused of being prohibitively high, meaning that visitors weren't spending enough money while inside the park. Original estimates had visitors spending around $33 per day at 1992 rates but analysts at the time suggested spending per person was only 12 percent of that.

Crisis meetings and rescue packages

The resort and theme park limped through the remainder of the 1990s shrouded by persistent rumors that it would have to close due to massive losses. A number of crisis talks were held with the banks and backers towards the end of the decade as the problems increased.

In the end, a financial rescue package was announced including a massive injection of $500 million by a Saudi prince. The Disney Company also agreed to waive its royalty fees for the first time, the group announced a new share issue, and a number of banks offered Euro Disney better loan repayment schedules. Disneyland Paris entered the 21st century in pretty much the same fragile state as it had left the last.

Thursday's announcement suggested that over a decade of bailing out Euro Disney might ultimately fail to secure the future of Disneyland Paris.