Aug 7, 2004
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Bus Ride Magazine - August 2004
Bus Ride Magazine - August 2004
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Letter From Europe — by Doug Jack [More articles]
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Future brighter for Mayflower survivors

In August 2000 the Mayflower Corporation and Henlys Group announced plans to merge their British bus and coach manufacturing interests but to keep their respective North American businesses out of the merger.

The Mayflower Corporation owned the Dennis chassis factory in Guildford, southwest of London, and the Alexander bodyworks. The corporation took 70 percent of the new joint venture and had management control, although Henlys had two representatives on the five-man board.

The new company was operational early in 2001. To the dismay of many the old brands of Alexander, Dennis and Plaxton were replaced by TransBus International. It was increasingly viewed as an integrated manufacturer and was steadily moving in that direction, with the major exception of the Scarborough coach factory. Most of its coach bodies were built on Volvo chassis, the market leader in large coaches in the United Kingdom.

The new company settled down, helped by substantial renewal purchases for the fleets of contractors to Transport for London and good levels of fleet renewal in other parts of the country and in Dublin. New integrated models appeared, including the Enviro 200 and 300 midibuses, and the Enviro 500 double-decker for export markets. TransBus International claimed to be the most profitable bus manufacturer in Europe in 2001 and 2002.

By the latter half of 2003 some alarm bells were starting to ring. Henlys issued two or three profit warnings, mainly due to restructuring and new model development at Blue Bird. On a more positive note, NovaBus had closed its operations in the United States.

TransBus International started missing warning signs. The important Hong Kong market was slowing down, and Volvo, previously an important partner, introduced Wrights, the Northern Irish bodybuilder, to Kowloon Motor Bus, the most important customer.

At the start of 2004 Mayflower issued two profit warnings in two months because of difficulties at TransBus International. The Financial Times said Mayflower was worth nearly $1.3 billion in 1999, but its value had fallen in March to little more than $70 million. The newspaper also said that the company had estimated debts of $540 million.

The executive directors at Mayflower were ousted, and a specialist in company restructuring took over as chief executive. It was too late. At the end of March most of the subsidiaries of the Mayflower were put into administration, roughly equivalent to Chapter 11 bankruptcy in the United States. Henlys gave a warning that it might have to write off up to $125 million as a result of the collapse of TransBus International.

Officials wanted one buyer
The administrator's broad task was to try to keep the companies going while he found purchasers for the business. However, he made life difficult for management by withdrawing warranties from vehicles previously sold and by refusing to offer warranties on new vehicles ready for delivery.

The management team at the Plaxton coach factory and dealership quickly put an offer together but were thwarted by the administrator's wish to sell TransBus International as a whole. He failed to recognize that building and trading in coaches, mainly on competitive chassis, was quite a different business from making city buses.

Prospective purchasers came from as far afield as America and China, but eventually the bids were whittled down. Two of the leading bidders were interested only in the Alexander and Dennis bus operations. Therefore the administrator had a change of mind and accepted the management's offer for the Plaxton coach business, presumably on the grounds that he would realize more money by selling that operation separately.

The Plaxton team was led by Brian Davidson and is believed to have paid around $19 million. After securing the company, they immediately reverted to using the old and respected Plaxton name and enjoyed strong support from a loyal customer base. Within days of the buy-out they were able to confirm some existing orders and announce new ones. The company has a lean and efficient organization building luxury coaches and an order book stretching several months ahead.

Plaxton builds in steel, and stainless steel for exposed parts of the underframe. The bus structures are strong, meeting European regulations on roll-over as well as seat and seat belt anchorage, yet they are among the lightest on the European market. This is becoming an increasingly important factor, particularly when carrying inbound tourists who tend to bring large amounts of baggage.

After some tough negotiations, a Scottish consortium secured the Dennis chassis and Alexander body building operations. They also recognized the strength of the previous brands, calling themselves Alexander Dennis.

The new investors were Noble Grossart, an Edinburgh merchant bank, David Murray, Brian Souter and his sister Ann Gloag. David Murray is a Scottish entrepreneur and owner of Murray International Holdings and Murray Metals, both suppliers to Alexander Dennis.

Brian Souter is chief executive of Stagecoach, whose subsidiaries include Coach USA, but he stresses that the investment is in a private and personal capacity. A Stagecoach spokesman said: "Like David Murray, Brian and Ann's primary objective is to secure a healthy bus manufacturing base to serve UK and overseas markets. Their aim is to protect the jobs at the company and in the supplier network."

The business press quoted a price of around $160 million, but the price paid to the administrator was nearer $70 million, with the balance being an injection of working capital. Bill Cameron, a highly-respected former managing director of Alexander, returned as chairman, heading a strong management team.

A few customers expressed concern about buying vehicles from a company that is partly owned by one of their main competitors, but most are pleased to see at least one major supplier in British ownership. It must also be a relief to Cummins, which has been the exclusive engine supplier to Alexander Dennis and its predecessors, even though the administration will have hurt it financially.

Already several customers have confirmed previous orders. Coach USA will take 20 open top, 40-foot, tri-axle, double deck buses for sightseeing operations. The city of Las Vegas is buying 30 fully enclosed and air conditioned double-deckers for operation on a high profile route, and there are believed to be options for up to 50 more. Alexander Dennis is in negotiations with other transit authorities in North America and hopes to secure further orders for delivery next year.

As with Plaxton, the first priority for the Alexander Dennis management was to restore supplier and customer confidence and to reinstate warranties. The directors of Alexander Dennis immediately started a major review of the business and said there would be a period of consolidation. A short, low-floor transit bus, smaller than anything currently built, was in development at the time of administration and is likely to be revived.

Henlys Group remains deep in trouble. At the beginning of May, the company appointed David James, probably the best-known British company doctor, as chairman. On 11 June he announced that a restructuring of Henlys would leave the shares with little or no value, and that the company's problems were caused by over paying for the Blue Bird business in 1999.

Henlys said that it hoped to preserve the group's principal North American operations. Those companies have recently seen a resurgence of orders. Even so, despite the very strong order book, servicing debt was unlikely to leave any value for a sale to a private equity bidder.

There is a further complication that Volvo gave Henlys a $240 million loan to assist in the purchase of Blue Bird. Henlys and Volvo jointly own PrZvost and NovaBus, and Volvo owns nearly 10 percent of Henlys - now a seemingly worthless investment. Volvo makes detailed quarterly financial reports under Swedish accountancy and stock exchange rules, and might be obliged to comment on the situation in it report at the end of the second quarter.

Although it will take a few weeks, the future looks brighter for Alexander Dennis and Plaxton.

Doug Jack is with Transport Resources International in the United Kingdom.

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