New Flyer Industries Inc.

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New Flyer Industries Inc.

711 Kernaghan Avenue
Winnipeg, Manitoba R2C 3T4
Canada
Telephone: (204) 224-1251
Fax: (204) 224-4214
Web site: http://www.newflyer.com

Public Company
Incorporated: 1930 as Western Auto and Truck Body Works
Employees: 1831
Sales: CAD $614.1 million ($526.88 million) (2005)
Stock Exchanges: Toronto
Ticker Symbol: UFL.UN
NAIC: 336100 Motor Vehicle Manufacturing

New Flyer Industries Inc. is the largest bus manufacturer in North America. The publicly traded Canadian company produces buses used by urban transit operations as well as Bus Rapid Transit (BRT) systems. New Flyer also offers shuttles used in such places as airports, car rental facilities, universities, and park and ride operations. Over the years New Flyer has been responsible for a number of bus innovations, including the introduction of low-floor technology to the North American market, articulated buses, advanced electronics, and buses capable of using alternative fuels. In addition to its headquarters and manufacturing plant located in Winnipeg, Manitoba, New Flyer operates plants in St. Cloud and Crookston, Minnesota.

ORIGINS DATE TO 1930

New Flyer was founded in 1930 in Winnipeg by John Coval as Western Auto and Truck Body Works. Coval and his five employees built both truck and bus bodies. It wasn't until 1937 that the company began manufacturing complete buses. The first three buses, capable of carrying 32 passengers, were sold to the Grey Goose Bus Lines, Ltd. In 1941 the company displayed its innovative spirit by introducing the first front-engine intercity bus, the 28-passenger "Western Flyer." In 1943 the company introduced what it called the "Bruck," a combination truck and bus. Essentially, the last rows of the bus were replaced by a storage compartment accessible from the outside by a rear door. World War II intervened and Western focused on producing truck bodies for the military until the war ended in 1945, at which point it introduced a 32-passenger Western Flyer. It was also in 1945 that Western Auto and Truck Body Works took the name of its signature product, becoming Western Flyer Coach Ltd.

During the postwar years, Western Flyer eased out of the truck body business to focus all of its attention on bus manufacturing, especially custom-built highway coaches. In 1946 Western Flyer produced a pair of sightseeing buses for Salt Lake City, Utah, believed to be the first time a Canadian bus maker had made a sale in the United States. The company introduced 40-passenger buses in 1949: the C-40, intended for city use, and the T-40, intended for transit companies. The vehicles also found a military market, as the Canadian Department of National Defense and the United States Air Force bought more than 350 of them over the next 20 years.

A major development in the 1950s was the introduction of the "Canuck" model in 1953, Western Flyer's first rear-engine bus. It could accommodate 33 passengers. Two years later the company unveiled its first two-level coach ("deck-and-a-half "), the T36-40 2L, which featured transparent roof panels. During the 1950s, the company also introduced new Canuck models: in 1955, the Canuck P-37, a newly styled and more technically advanced bus, capable of carrying 37 passengers; and in 1958, the P-41 Canuck, a diesel-powered bus that could accommodate 41 passengers.

Western Flyer continued to grow in the early 1960s. To meet demand, it opened a new plant in Winnipeg, which was also a preliminary step for the company's move into transit bus manufacturing. In the meantime, the company introduced the Canuck 500 in 1964, and the Canuck 600, a stretched version of the 500, in 1967. In that same year, Western Flyer introduced the D700, the company's first transit bus. The intercity market was by now dominated by General Motors, forcing Western Flyer and other small companies out of the market. In 1968 the last Canuck 600 rolled off the company's assembly line, and instead of coaches the company began to concentrate on transit city buses. In addition to the D700, Western Flyer also tried to serve this market with the introduction of an electric trolley coach, the 700E, a bus that was powered by overhead trolley power lines but relied on tires rather than tracks. The vehicles were then sold to the Toronto Transit Commission as part of a 150-bus and trolley bus order in 1968.

GOVERNMENT INTERVENTION SAVES COMPANY IN 1971

Despite the change in focus, Western Flyer struggled financially. It was bought by Detroit businessman Thomas J. Ault in 1970 but just a year later required Canadian government intervention to stay business. In 1971 the Manitoba Development Corporation, an entity owned by the Manitoba government, acquired a 74-percent interest in the company, which was subsequently renamed Flyer Industries Ltd. In 1971 the company generated just $3 million in sales, leading to a loss of $500,000. During the rest of the decade, Flyer concentrated on the development and selling of large heavy duty transit buses. The Series 800, available as a diesel bus or trolley coach, was introduced in 1973. The major customer for this model was the San Francisco Municipal Railway.

Flyer fared no better under a new name, however. According to the Globe and Mail, Flyer "became a Government money pit as the province attempted to maintain the much-needed jobs. Intermittent layoffs and complaints from buyers tarnished the company's image. Stuck with a public relations liability, the Government looked for a buyer." Over the course of 15 years of government assistance Flyer lost about CAD $75 million and became saddled with debt. In 1986 the Manitoba government found a buyer in Dutch businessman Jan den Oudsten, whose family owned the Den Oudsten Busworks, the Netherland's largest city-bus maker. The tenth child among 14 siblings and an engineer by training, Den Oudsten, who was in his early 50s, had spent his life in the bus business and was a dominant figure in his family's concern. "At the time," Den Oudsten told the Winnipeg Free Press, "people in Holland was saying I was crazy to come to North America." Den Oudsten paid just CAD $1 million for Flyer, which he promptly renamed New Flyer Industries in 1986. Moreover, the government also agreed to cover CAD $56 million in debts and warranty obligations. For his part, Den Oudsten was required to operate the Winnipeg plant until 1991, after which he was free to close the plant or move.

COMPANY PERSPECTIVES

Since 1930, our commitment to innovation has made us the leader in the heavy-duty bus market in the U.S. and Canada.

Although Den Oudsten Bus Works held no stake in New Flyer, which was owned separately by Jan den Oudsten, it did provide much needed help. New Flyer workers were flown to Holland for five months to study how work was done at Den Oudsten Busworks, where a modified version of Japanese manufacturing technique was in place. Essentially, workers were given more responsibility and were less burdened by management supervision. Not only did the workforce begin to change its attitude, it would also be influenced by the new owner, who became a familiar sight on the shop floor and demonstrated his dedication to turning around the company. On a production level, New Flyer made other changes. The design of its buses was altered; for example, aluminum was replaced with easier to assemble glass-fibre outer panels. As a result, production time was cut, providing New Flyer with a competitive edge in price that helped it win public tender contacts. Den Oudsten also cut costs by eliminating layers of management and by trimming the number of office workers. The ranks in these area were thinned from 110 to 60. The plant employment of 70 soon rose, however, as an increase in business led to the callback of more than 200 workers over the next year and a half. To be close to a major customer, the company also opened an assembly plant in Union City, California, near Oakland. After it proved not to be an efficient operation, nor conveniently located for shipping to new customers, that plant was moved in 1990 to Grand Forks, North Dakota.

After the sale to Den Oudsten, New Flyer soon began establishing itself as a technology leader. In 1988 the company introduced low-floor technology, pioneered by its Dutch cousin company, to North America. These buses rode lower to the ground, making them easier to enter and exit than buses with a standard height floor. This was especially helpful for seniors, people with disabilities, and parents traveling with small children, groups that comprised a large share of bus ridership. A prototype was ready in 1988 and was used to land a major contract with the Port Authority of New York and New Jersey. The first of these buses were delivered in 1989. New Flyer, again with the help of Den Oudsten Bus Works, also began work on articulated buses, which were essentially a pair of buses hinged together in order to negotiate turns. The first 60-foot articulated bus was delivery to San Mateo County in California in 1990. Two years later articulated trolley buses were introduced into the San Francisco Railway system.

PERIOD OF INNOVATION: 1990–2000

A number of innovations followed in the 1990s, due in large measure to the company's ability to secure a three-year, $15 million loan from a U.S. bank, Congress Financial (with the help of the provincial government), after being turned down by Canadian banks. In 1993 New Flyer became the first bus manufacturer to implement programmable logic controlled (PLG) multiplexing on all of its bus models. It also began investing in alternative fuels. In 1994 it offered the first compressed natural gas-powered buses in North America and worked with Ballard Power Systems to develop the world's first hydrogen fuel cell-powered bus (self-contained fuel cells used hydrogen to produce electricity chemically while producing water as a byproduct). These did not prove to be commercial successes, however. In 1998 the company fared better with the introduction of the first diesel-electric hybrid bus, first delivered to California's Orange County. The wheels were driven by an electric motor while the diesel engine, only half the size of a conventional bus engine, kept the batteries fully charged. As a result, fuel consumption was cut by about 40 percent and the buses created less pollution. During the 1990s, New Flyer also refined some of its technologies, culminating in the 1999 introduction of the Invero, a premium, low-floor bus featuring stylish bodywork, using composite materials and modular construction, and advanced electronic controls. It was lighter than other buses, easier to maintain, and less costly to operate. It was also easier to drive and offered other driver amenities, including a better layout of the instrument panel, easy-to-read and clearly marked gauges, better mirror locations, ergonomic foot pedals, and a highly adjustable seat to alleviate driver fatigue. Passengers were catered to by an improved air conditioning system, large seat-level windows that were easy to open and close, and easy to reach driver-alert pull cords.

Also of note during the 1990s was the expansion of the Winnipeg plant to meet demand for New Flyer buses. The North Dakota final assembly plant was also moved to Crookston, Minnesota, in 1996. Then, in 1999, the facility was expanded and a third plant was opened in St. Cloud, Minnesota. The extra capacity was needed to take on major contracts signed in the late 1990s with Seattle and Los Angeles that pushed the company's backlog of work above the CAD $1 billion mark.

KEY DATES

1930:: Western Auto and Truck Body Works is founded.
1941:: The company introduces the "Western Flyer" bus.
1945:: The company's name is changed to Western Flyer Coach Ltd.
1971:: The government of Manitoba acquires control and renames it Flyer Industries Ltd.
1986:: Jan Den Oudsten acquires the company and renames it New Flyer Industries Inc.
2002:: KPS Special Situations Fund acquires the company.
2004:: The company is sold to Harvest Partners Inc.
2005:: New Flyer Industries Inc. is taken public.

New Flyer entered the new century with great expectations but soon experienced growing pains. In February 2001 the company furloughed a quarter of its workforce in the Winnipeg plant, about 440 people, because, according to management, it was making bodies faster than the assembly plants could use them. All but 100 workers were recalled two months later, but in November 2001, 500 workers were laid off, leading to concern about the health of the company. Rumors also began to circulate about New Flyer being sold or a new partner being brought in. Some of the company's problems could be tied to the terrorist attacks of September 11, 2001 and the United States' subsequent military action in Afghanistan and Iraq. Local American governments, which were New Flyer's primary customers and were dependent on federal transportation grants, grew cautious about committing to new bus purchases, fearful that federal money would be diverted to support the newly launched war on terror.

The rumors proved accurate, and in early 2002 majority control of New Flyer was purchased by New York-based KPS Special Situations Fund for CAD $40 million. KPS then provided a $44 million investment to help grow the business. Jan den Oudsten retained a minority stake in New Flyer but gave up his job as CEO. In his place KPS installed John Marinucci, who had headed a rail car manufacturing company in Hamilton, Ontario. He took over a company suffering from severe cash flow problems. Because of its financial uncertainty, customers were increasingly reluctant to commit to long-term contracts. "Our problems were not so much a result of the market dwindling or any cyclicality of the market," Marinucci told the press in his first media interview after taking over in April 2002. He wasted little time proving his point by implementing a turnaround plan developed with KPS. By the summer of 2003, workers were being recalled, and in October of that year New Flyer added CAD $425 million worth of orders from Seattle and Vancouver to complete a quick return to health.

In December 2003 KPS took steps to realize a major profit on its investment. A preliminary deal was arranged to sell the company to New York private equity firms Harvest Partners Inc. and Lightyear Capital LLC, which beat out a dozen other suitors. The deal was completed in March 2004 and according to Financial Post, KPS "walked away with about 7.5 times its initial investment, or about $300 million. As it was a private deal, neither side provided an exact purchase price."

Harvest indicated that it planned to hold onto New Flyer for about five years. But in August 2005 the new owners cashed in some of their interest when New Flyer engineered an initial public offering of stock, resulting in gross proceeds of CAD $200 million.