Bixi company struggles with deficit
Montreal's Bixi bicycles are not proving profitable, and the company that is organizing the bike share network is in financial deficit.
Bixi bicycles are made available to the public at low cost by the city-controlled Public Bike System Company, known in French as the Société de vélos en libre-service, or SVLS.
PBSC is counting on international sales to recover the sums it invested in the Montreal shared-bike network.
In 2011, the PBSC needed more money to continue its expansion.
"Montrealers and the self-serve bicycle system benefit of the fact that we export bicycles outside of the country," PBSC president Roger Plamondon said at the time. "It is urgent that we have the financial leverage to continue our operations."
The company was granted $108 million in financial aid from Montreal city council.
In 2012, PBSC expected revenue of $91 million and profits nearing $11 million. According to Radio-Canada, revenues are more likely to reach $49.6 million and the profits are projected to tank, with the company losing $2.8 million.
According to the company's president, the provincial government opposed the sale of Bixi systems outside of Quebec, stating that it did not want Montreal to fund the commercial endeavours of Bixi in foreign countries.
The company's falling out with Montreal-based technology enterprise 8D, which provided PBSC with its technologies, is another element that could have impacted the company's bottom line. 8D created the office technology, payment terminals, bike docks, solar energy control and the overall bike sharing system for PBSC.
PBSC decided to develop its own technology in June 2011 and hired American tech developers Personica on a $2.3-million contract. Personica used a company located in India for a part of the programming.
Delays in New York City
PBSC's international expansion has been driven in part by its American partner, Alta Bicycle Share, which has upped its efforts to sell Bixi bicycles in large markets like Chicago and San Francisco.
Alta Bicycle Share has already sold New York City on a large system of 10,000 Bixi bikes — but New York was unaware that PBSC had to change all of its technologies.
Bixis were intended to roll around the Big Apple in July, but Personica was running late on the project.
New York City Mayor Michael Bloomberg announced the project would not be launched until the system worked properly. After signing the deal with Bixi last fall, New York Transport Commissioner Janette Sadik-Khan said she only found out in the spring that PBSC's technology would have to be completely redevelopped.
Plamondon maintains that the New York City administration had all of the information required when it signed the contract with the Montreal company.
As it stands, the Bixi system is being compliance-tested in New York, where it will be known as Citi Bike. The project is expected to launch in March 2013.
PBSC will have to wait to receive a part of the revenues from its contract with New York.
PBSC has had to ask some of its suppliers to hold off on getting paid since the Montreal company lacked liquid assets to pay its bills.
"I recognize the co-operation and participation of all of our suppliers who recognized that we had to respond to an acute need," Plamondon said.
Plamondon said he also takes a part of the blame for the technology let-down.
"Mea culpa, because we shouldn't have found ourselves in this situation and [we should have] taken measures to assure we were able to deliver," he said.
Plamondon said PBSC continues to pay back its $37-million loan to Montreal, but adds that the uncertainty of the company's future makes potential clients harder to come by.
The company is currently attempting to sell some of its assets outside of Montreal.
"In the current context, where every decision becomes a political debate... we are 100 times better off saying, look, we'll stop this adventure. Sell the company," Plamondon said.
Unavailable $60 million
Bixi's $108-million financial plan included:
- A $37-million loan from Montreal at a two per cent interest rate. PBSC would reimburse the city $3 million a year.
- $6 million in working capital from National Bank, repayable on demand, and a $5 million line of credit to be used toward letters of credit. The bank would also advance PBSC $60 million against its future revenues.
PBSC hit another financial hurdle in recent months. So-called factoring capacity that PBSC was expecting to get from the National Bank was not accessible for the project launching in New York. Factoring allows a company to assign some of its accounts receivable to a lender in exchange for cash up-front.
The $60 million in factoring was part of the $108-million financial plan guaranteed by the City of Montreal in 2011.
According to PBSC, the National Bank was reluctant to provide the financing because the company's history with its New York client was so short.
"It was a surprise, because during negotiations for the financial package with National Bank, the $60 million in factoring was destined to be used on the New York contract if we had won it," said Michel Philibert, communications director for PBSC.
Members in Montreal
In an August report, PBSC said it had 49,227 Bixi members in Montreal.
The company has often said it needed 50,000 members in order to remain financially afloat.
Philibert confirmed, however, that the number of users has declined over the last month.
"The Bixi membership is not fixed and varies all season long. Currently, our membership holds about 42,000 users," he wrote.
He said the PBSC always sees a decline of 15 to 20 per cent at the end of July during the membership renewal season.
"We then work to gain back what we lost through campaigns, such as the ones we did with the STM, Groupon and an early-bird membership toward the end of the season."