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Loss is New Flyer's gain

Orion's closing will open doors for bus makers

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The smallest player was culled from the weak North American urban bus market this week, and New Flyer Industries may be best positioned to capitalize on its departure.

Orion transit bus, a division of Daimler Buses, announced it's closing its production facilities in Mississauga, Ont., and upstate New York.

With market share anywhere from below eight to 10 per cent, according to sources, Orion was the smallest of North America's five transit-bus makers.

Analysts say because of ongoing fiscal challenges for municipalities across North America -- meaning they can't afford to buy new buses -- there was too much production capacity in the market.

At least two analysts view the impact as positive for New Flyer, although the Winnipeg company's CEO, Paul Soubry, preferred to play down the impact.

"Even with Orion exiting, New Flyer and the rest of the industry have capacity in manufacturing operations," Soubry said in an email exchange. "All of us could likely expand volume without major disruption. I don't anticipate a short-term impact on our volume at this time."

In a research note, Trevor Johnson, an analyst with National Bank Financial, said New Flyer may be a likely alternative for some of Orion's customers, who will now have to find a new bus supplier. "Orion had good relations with Toronto and New York City, two of North America's largest transit authorities and markets New Flyer knows well," he said.

Soubry agreed. He said even though New Flyer has not been able to land a sale with the Toronto Transit Authority for 10 years, it does have a contract with Metrolinx, the public transit network that links the communities around Toronto.

As well, he said, only New Flyer and Nova Bus are able to meet Ontario's Canadian-content requirements.

New Flyer is the largest bus maker on the continent, with close to 40 per cent of the market share. Nova Bus, owned by Volvo with two factories in Quebec and one in New York state, has about 16 per cent of the market. Gillig of Hayward, Calif., has about 30 per cent of the North American market.

In a statement from Daimler's headquarters in Stuttgart, Germany, the company said it expects the North American transit-bus market will remain depressed over the next several years.

Over the last two years, total bus production in North America has fallen by close to 20 per cent and there is little expectation it will improve before next year.

In the meantime, smaller players such as Orion and Alabama-based NABI (North American Bus Industries Inc.) have been aggressively bidding on contracts, driving down prices.

Jason Granger, an analyst with BMO Capital Markets, said Orion's exit from the market will likely mean some relief from the price declines.

"The reduced industry capacity should ease some of the pricing pressures experienced by the industry," Granger said. "We estimate that industry pricing over the past nine to 12 months has declined up to 15 per cent."

Meanwhile, the industry is watching and waiting for some uptick in demand.

Johnson said there were a lot of buses purchased in 2000 and the natural cycle of 12 years before buses need to be replaced could mean there will be more orders this year.

"Will it be enough to get the industry out of the funk it's in? Probably not, because it is a North American-wide fiscal economic hit," he said."


Daimler and MCI

Daimler Buses has closed its North American production division, Orion, but has made a deal with Motor Coach Industries to distribute its German-made Serta line of luxury coaches.

Daimler and MCI are also working on a deal for Daimler to become a minority owner of MCI, which analysts say will be about 10 per cent. That arrangement is to be completed by the end of May.

MCI, which makes its intercity coaches in Winnipeg and Pembina, N.D., is owned by the private equity firm KPS Capital Partners Ltd. and has its corporate headquarters in the Chicago area.

Hartmut Schick, head of Daimler Buses, said in a statement, "A strategic relationship with MCI will carry forward Setra's proud tradition in North America and also take it to the next level -- through increased local presence and enhanced customer services for Serta."

Although New Flyer was unsuccessful in breaking into the European market, Trevor Johnson, an analyst with National Bank Financial, said there are greater profit margins in the more expensive motor coach business.

He said that's why Daimler can ship its high-end Serta buses to North America from its German factory.

Republished from the Winnipeg Free Press print edition April 28, 2012 B4

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