Bus Company Keeps Its Eyes On the Road

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Every weekday morning, 40,000 school buses operated by Laidlaw Education Services traverse communities across the United States and Canada, carrying 2.3 million children—more than three times as many pupils as its nearest competitor.

Officials at the operation's headquarters in Naperville, Ill., would rather focus on numbers like those than on the discouraging revenue figures of its parent holding company, Laidlaw Inc.

The Burlington, Ontario-based company expanded rapidly over the past decade—perhaps too rapidly—into such businesses as ambulance service, waste hauling, and intercity bus transport.

Laidlaw is now in default on interest payments for some $3.3 billion of debt. The school bus division and Greyhound Lines Inc., the intercity passenger-bus fleet that the company acquired last year, are profitable, but Laidlaw's forays into medical transport and waste processing were financially disastrous.

The company recently hired a new vice chairman to lead a restructuring plan, and last month it reached agreement with its bondholders to support a financial plan that provides for an infusion of as much as $350 million in cash.

But so far, Laidlaw Education Services hasn't suffered from its parent company's problems, says the division's president, Robert E. Hach.

Laidlaw Education Services

Headquarters: Naperville, Ill.
Owned by: Laidlaw Inc., the Burlington, Ontario-based holding company that also owns the Greyhound Lines Inc. passenger-bus service, as well as management services for ambulances and emergency rooms.
1999 Revenues: 1.4 billion.
Principal Business: No. 1 private contractor in school transportation in North America. It owns 40,000 school buses serving 2.3 million children.

"We're alive and doing very well," Mr. Hach said. "Our services generate sufficient cash flow to fund our operations."

He acknowledged that Laidlaw's difficulties have generated some concerned calls from school districts.

"But Education Services is a separate subsidiary of Laidlaw," he stressed. "The children are getting to school every day. We're adamant about that."

Laidlaw Education Services had revenues of $1.4 billion in fiscal 1999, and expects about the same this year, Mr. Hach said.

For the nine months ending May 31, the parent company had revenues of $2.3 billion and net income of $57.9 million. Those figures exclude results from Laidlaw's partial ownership of Safety-Kleen Corp., a waste-hauling and -treatment company whose accounting scandal last year added to Laidlaw's woes.

The company's fiscal year ended Aug. 31, but it has not yet announced its year-end financial results.

One-Third Privatized

In the school transportation business, roughly two-thirds of buses are still run by school districts, while one-third are operated by private contractors, Mr. Hach said.

Laidlaw, which was founded in 1959 as a trucking company in Ontario, entered the school bus business in Canada in 1979 and in the United States in 1984 when it bought the Eastern transportation operations of ARA Services, now Aramark Inc.

From 1984 to 1994, Laidlaw acquired more than 100 school bus companies in North America and became the No. 1 private company in the field. It has continued acquiring smaller companies since then, and now contracts with some 1,200 school boards and districts in 36 states and five Canadian provinces.

The No. 2 company is First Student Inc. of St. Louis, which is part of First Group Inc. of Britain. It serves 740,000 students with a fleet of 12,000 buses, according to School Bus Fleet magazine.

Safety is the paramount concern in the school bus business. Laidlaw promotes such safety innovations as two-way radios on all buses, crossing arms to prevent children from walking close to the front of the bus in the driver's blind spot, and electronic reminders, such as a buzzer that goes off at the end of a route requiring the driver to walk to the back of the bus to check for sleeping children.

"We recently acquired a business that specializes in school safety auditing and training," Mr. Hach said.

Another concern in the current healthy economy is finding enough drivers.

"Unemployment is at a 30-year low, so it is certainly an issue for us," Mr. Hach said. "In our business, it is a nonstop effort."

Savings in Florida

A school district's decision to privatize its bus fleet usually causes concern for its staff of drivers, who often learn that while their pay may remain steady, their list of benefits won't be as generous with a private company as it was in the public sector.

The Martin County, Fla., district was one of the first in the state to privatize its bus service when it hired Laidlaw last year. Some district drivers were concerned about losing their participation in the state retirement system, said Leighton O'Connor, the executive director of operational services for the 16,500-student district in central Florida.

The district's contract with Laidlaw allowed drivers with four or more years' experience to stay with the state retirement system, even though they would become Laidlaw employees. Those with less than four years' experience could not stay in the system.

Overall, the district is happy with the private company, which saved it about $712,000 in its first year.

"We were having a hard time recruiting drivers," Mr. O'Connor said. "Laidlaw has a 15 percent bench of drivers who are able to fill in on empty routes."

He has heard that the parent company has had cash flow problems, but "it has not impacted on us."

While financial analysts have speculated that Laidlaw may face bankruptcy in the future and would have to sell off its divisions, no one has suggested the Education Services division is in danger of closing down.

"We believe we have the financial resources to more than support our business, today and in the future," Mr. Hach said.

Funding for the Business Page is provided in part by the Ford Foundation.

Vol. 20, Issue 13, Page 8

Published in Print: November 29, 2000, as Bus Company Keeps Its Eyes On the Road
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