America’s Iconic Yellow Buses Boarded by U.K. Bidders (Update1)
February 25, 2010, 11:14 AM EST(Adds National Express’s U.S. profit-margin target in seventh paragraph, market position of U.K. companies from 12th.)
By Steve Rothwell
Feb. 25 (Bloomberg) -- Children in St. Louis will travel to class on yellow buses that are a little less American after Go- Ahead Group Plc became the third British company to grab a slice of the $7 billion U.S. school transport market.
Go-Ahead won a $6 million contract to run 100 buses in the Missouri city with U.S. partner Cook-Illinois Corp., it said today. Aberdeen, Scotland-based FirstGroup Plc is the No. 1 yellow bus operator after buying Laidlaw International Inc. in 2007. London-based National Express Group Plc ranks second.
While regarded as a national icon, America’s 400,000 yellow buses are a drain on cash-strapped school boards, prompting some districts to outsource operations. About 160,000 vehicles are in private hands, with U.K. companies well-placed to bid because of their experience in running public transport since the 1980s.
“It’s a very attractive market,” Nick Swift, finance director at Go-Ahead, the biggest operator of London buses, said in an interview. “We’ll be cautious about it, but there is huge potential. We’re looking at all sorts of other opportunities around there.” That might include acquisitions, he said.
National Express said today that the U.S. school bus market will be a major focus in a push to restore profitability as its U.K. rail business shrinks. The company was stripped of the marquee East Coast train franchise in November and contracts to run two London commuter routes will end next year.
‘Great Opportunity’
“There’s a great opportunity for us to widen the U.S. market,” Chief Operating Officer Ray O’Toole said today on a conference call with journalists. “It’s a good business to be in. Revenues are stable and you win contracts even in poor economic times, because children still have to get to school.”
National Express is targeting earnings equal to 12 percent of sales at the U.S. business within two years, Finance Director Jeremy Maiden said. That’s double the current margin.
Go-Ahead’s St. Louis contract, which runs for three years, is its first foray into the U.S. market after establishing a joint venture with Chicago-based Cook-Illinois in November. As well as bidding for local-authority work, the Newcastle upon Tyne, England-based company might also seek to buy established U.S. bus operators, Swift said in the interview.
British companies have benefited from their experience in a transport market whose liberalization began under former Prime Minister Margaret Thatcher, the finance chief said, adding that 40-year-old Cook-Illinois probably joined forces because “they realize the business is increasingly being Anglicized.”
Local Focus
While Cook-Illinois is the largest family owned school-bus company in the U.S., ranking fifth in the country according to its Web site, its business has been limited to the Chicago area.
“When you are a family business you tend to focus on your own backyard,” Swift said. “They wanted to expand and needed someone who knew how to do that.”
FirstGroup Plc’s $3.6 billion purchase of Naperville, Illinois-based Laidlaw boosted a North American bus business established with the takeover of Ryder System Inc.’s Ryder Transportation Services unit for $940 million in 1999.
The U.S. school-bus unit, First Student Inc, last year generated 42 percent of group operating profit from a quarter of total revenue. The division carries 4 million children to school every day in more than 40 U.S. states and eight Canadian provinces on 60,000 buses, according to its Web site.
Greyhound Owner
The Laidlaw deal also gave FirstGroup another U.S. transportation icon in Greyhound Lines, the country’s largest inter-city bus company, founded in 1914.
National Express operates yellow buses in 29 states from to Connecticut to California, as well as in Ontario and Nova Scotia. It and FirstGroup are the only operators with a nationwide presence across the U.S., finance chief Maiden said.
Go-Ahead said today that its net loss narrowed to 700,000 pounds ($1.1 million) in the six months ended Jan. 2 from 18.4 million pounds a year earlier. Sales fell 4.5 percent to 1.1 billion pounds, according to a statement.
National Express reported a 53.5 million-pound annual loss versus a 118.8 million-pound profit after taking a 64.8 million-pound charge for exiting the East Coast contract. Revenue declined 2 percent to 2.71 billion pounds.
--Editors: Chris Jasper, Kenneth Wong.
To contact the reporter on this story: Steve Rothwell in London at srothwell@bloomberg.net
To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net
