Loans help expand Bixi business to more cities worldwide: Bixi

There's been a lot of negative press the last while about the Public Bicycle System Company and the recent deal with the City of Montreal. It wasn't just rant radio outlets like Newstalk 1010 (which invited a rant radio host from Montreal to rant about the deal) but even the CBC was calling it a "bailout". The Montreal Gazette had a hate-on for Bixi and attempted to make it seem like a huge scandal. La Presse was a bit more sympathetic. Many forgot that the large car companies - GM and Chrysler - needed government intervention into the "free market" to keep them from failing. Those billions of dollars could have been used profitably for any number of uses that actually benefit society, environmentally and socially. People also forget that our society subsidizes cars with billions for highways, healthcare costs and environmental costs while providing next to no money for cycling, pedestrians or transit.

At any rate, Bixi maintains that the deal is one of improving the "liquidity" of Bixi rather than somehow bailing out a company that might be failing. In many businesses such as Bixi one must pay the suppliers before they get the money from their clients. Bixi is making deals with cities around the world - and now it appears as if they may be getting the 10,000 bike contract with NYC - which means that Bixi needs to pay suppliers to build thousands of bikes and stations while the cities get their budgets and money in order. Roger Plamondon, Chairman of PBSC, explained it in a letter to clear the air:

BIXI. Establishing the facts.
Letter to members and BIXI users
In the past days, much has been said about BIXI that does not correspond to the reality. Therefore it seems essential to restore the facts, particularly now that the plan proposed by the City was finally well-received by the Ministry of Municipal Affairs after more than five months of delay and waiting. The following serves as a clarification regarding some of the allegations which have been circulating in the media.

  • “BIXI is a financial disaster and is not profitable”: FALSE. BIXI experienced a liquidity problem which was the direct result of a five-month wait for the approval by the Municipal Affairs Minister of its agreement with the City of Montreal. BIXI is a company which experienced rapid growth and realized, after only 2 years, volumes of some $50 million. BIXI also posted results that were 40% greater than the projected budget, thanks in large part to the successful expansion of its system internationally. BIXI does not have a profitability problem nor is BIXI a financial disaster in any way.
  • “The Montreal operation of BIXI is not profitable”: TRUE. From the beginning, the business plan projected that the Montreal operation of the system would not derive profits in the first years of operation. The plan also indicated that operational costs would be covered once BIXI reached 50,000 members and with the involvement of sponsorship. Proud of the 30,000 members at the end of 2010, we have currently exceeded the level of 40,000 members after only one month of operation in our new 2011 season.
  • “Montreal is absorbing the BIXI debt”: FALSE. The City gives no money to BIXI. Montreal advanced a loan to BIXI. The initial loan to BIXI in the amount of $37 million is repayable with interest. This loan was accorded to cover conceptualization costs of the system, the patents, the manufacturing and delivery of the components (bikes and stations), the operation losses of the first years as well as the start up costs. This loan is presently owed to Stationnement de Montréal.
  • “The city is giving $108 million to BIXI”: FALSE. Let us take the time to properly understand the numbers that make up the whole.
    • $37 million : this amount is a loan to BIXI repayable with interest. The remaining $71 million, guaranteed by the City of Montreal, is comprised of a financing package negotiated with the National Bank subsequent to a tender notice.
    • It consists of a revolving line of credit of $6 million, as is standard for all businesses; a letter of credit facility up to $5 million for deposit guarantees for all public offerings which is a standard practice with the guarantees rescinded after the process.
    • A factoring facility up to $60 million offered by the Bank to finance accounts receivable which allows for the necessary liquidity to pay our suppliers while waiting for the cities with whom we do business to effect the payment of our invoices. This facility can only be used when a contract is signed by a city in good and due form.
  • “Montrealers are financing the export of the BIXI system to other markets”: FALSE. It is, in fact, the contrary. Montrealers fully benefit from the export of the BIXI system to other markets. Last year, it is the successes of the sales of BIXI ($8.5 million) on the international scale that covered the operational deficit of Montreal ($7 million). In this way, we were able to achieve a surplus of $1.5 million and offer a quality system to Montrealers.
  • “We have a luxurious bike costing $7,400 compared to Barcelona with a bike costing $75”: FALSE. BIXI does not cost $7,000, no more than it costs $3,500, heard on television. The Barcelona bike does not cost $75. The Barcelona bike costs more than 600 €, basically the same cost of our bike. How could we sell with such success on three continents if the bike costs so much? The Montreal bike is likely the most solid and best conceived bike in the world. Its reliability is greater than the bikes currently used in other cities.
  • “BIXI employs 450 people”: FALSE. . BIXI employs 50 people and has created more than 400 employees at different suppliers everywhere in the region for the manufacturing of the diverse components of the system.
  • Our business plan is clear. It has been presented publically. We remain in line with the business plan and once again count on respecting these objectives again this year. The plan outlines clearly that the system will cost nothing to Montrealers. This is our commitment.

By Roger Plamondon, Chairman of the Board of Directors, Public Bike System Company

Comments

I'll be clearing up the BIXI discourse around the dinner table for weeks to come now. The media did a real poop job of covering this.

If they land the NYC contract, watch out! BIXI is a great idea.

As Herb correctly points out, car drivers get massive subsidies while Bixi gets nothing. Time to bring to an end the car driver's gravy train.

Kevin Loce

For Montrealers this deal represents the worst of all worlds as it is all risk with no reward. Failure to meet the project objectives will be carried by the guarantor, i.e, tax payers; profits will go to BIXI.

If there is no risk then banks would be jumping all over each other to lend money to BIXI as this is not the case I can only assume that the potential for failure is not zero.

One mans opinion