Another white knight for MCI?

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This article was published 21/09/2010 (5477 days ago), so information in it may no longer be current.

A year after it emerged from bankruptcy protection with a restructured balance sheet and a new owner, Motor Coach Industries has another new owner whose expertise is in turning around troubled companies.

MCI’s latest proprietor is KPS Capital Partners LP of New York, the same private equity firm that rescued New Flyer Industries in 2002 and sold it two years later, generating a 750 per cent return on its investment.

No details were disclosed about the MCI deal on Monday when it was announced. Neither KPS nor MCI officials agreed to be interviewed.

MCI, whose parent company is based in the Chicago area, has its main production in Winnipeg and a U.S. assembly plant in Pembina, N.D.

Monday’s announcement said the company has 1,500 employees, but it has been scaling back production and employment in Winnipeg for the last few years.

Its unionized workforce in Winnipeg numbers less than 600, compared with about 1,800 in the late ’90s, according to Glen Tomchuck, head of the International Association of Machinists and Aerospace Workers local representing MCI workers.

Still, MCI coaches continue to dominate the highways of Canada and the U.S., with the company responsible for more than 50 per cent of the market.

The problem is, that market has been shrinking for some time.

Quarterly sales in Canada and the U.S. have been gearing down at a double digit pace for at least a couple of years.

According to Larry Plachno, a bus tour and charter industry expert and editor and publisher of National Bus Trader of western Illinois, highway coach sales in Canada and the United States during the first quarter of this year were almost 40 per cent less than the first quarter of 2009, and second quarter sales were down 20 per cent.

That was preceded by a 2009 sales year that was the worst in 10 years.

But Plachno said KPS knows the transportation industry and must know something about future developments that encouraged it to do the deal.

“The bus industry has plenty of ups and downs and is probably not a good fit for an owner that wants to see a solid black bottom line every quarter,” he said.

Franklin Mutual Advisors became MCI’s owners in April 2009 when it converted about $200 million in debt into equity. But Plachno said it was not the best owner for a cyclical business like MCI’s.

KPS helped turn New Flyer around by installing new management and taking a lot of costs out of operations and dramatically improving efficiencies.

But some industry observers said it’s likely MCI management has “taken every dime it could out of its costs” over the last few years.

The company restructured in 2003 with the help of generous government support, including a $9.5 million loan from the province.

Two years ago that loan principal was at $6.4 million and a provincial official said MCI has continued to be current with its loan payments.

In its own material, KPS says it targets businesses burdened with insufficient liquidity; excessive debt; operating in default of obligations to creditors; or lacking capital for investment, modernization, or growth, in order to eliminate, reduce or restructure the company’s liabilities.

Victor Parra, executive director of the Washington-based United Motorcoach Association said things are beginning to pick up in the industry.

“We’re feeling better about the industry,” Parra said. “The situation is not great, but it’s better than last summer. But we are not back to pre-2008 levels.”

martin.cash@freepress.mb.ca