METRO Magazine recently visited with Soubry at New Flyer’s St. Cloud, Minn. plant to discuss what has been a busy year for the company, beginning with the $115 million investment from Brazil-based Marcopolo S.A. in January, and most recently, the acquisition of both Orion Parts and North American Bus Industries (NABI) as well as the introduction of a new mid-sized bus through a joint venture with Alexander Dennis.
As we approach your five-year anniversary as President/CEO, discuss some of your initial goals and how you have been able to accomplish them.
We have been trying to find a way to make sure we all feel like we are working together in alignment. That was the single biggest issue, so investing in everything beyond just the product was a really big part of gaining the confidence of the workforce.
If you walk around [the facility here in St. Cloud], I am sure you will find unhappy employees, but we are trying to take a perspective that it is a team sport. Nobody can do it themselves, and we have got to find a way to work with each other and rely on each other, transparently. Metric on the boards on the shop floor is not for me to walk around and look at whether we are above or below the target, it is for the team to see how we are doing, what can we do differently and how we might be able to work as a squad to get the job done. Four and a half, five years later, have we accomplished everything we want to? Absolutely not. But, we have come a long way in terms of common views: the definition of success. We have made progress in the transformation of the culture here at New Flyer. We have also made progress on the capital structure and are able to look our customers in the eye and say ‘we have been here since 1930, and we are going to be here for another 100 years.’
We are dead serious about making sure we have longevity, profitability and sustainability, because the buses we sell, whether it’s for 12-year or 20-year duty cycles, they are going to rely on us to be around for product, parts and training support for a long time. Those are the things that we feel most gratified about. We survived the economic realities of funding cuts and challenges with our customers. We were lucky enough to have a backlog at the time that allowed us to be able to weather the storm. We have been absolutely affected from both profitability and some of the operational issues, but boy, we are in a much better position than we were five years ago, in terms of the health of the overall business.
What do you think is New Flyer’s biggest challenge?
The single biggest issue for us is surety of schedule. We just came out of a very difficult economic time — customers were not sure if they would have the funding, they were parking buses, they were unsure if they were going to replace their fleets. Now, we are seeing a rather high amount of bid activity, which is good. We are seeing contract activity as an industry, but we know our business is cyclical so we can’t get too excited because it does go up and down. But, what the last couple of years have done has forced us to take on smaller size contracts; contracts with shorter production windows or pre-production windows that are forcing us to make engineering choices faster, to supply stuff faster and so forth. That compression of cycle is what causes anxiety in the workforce as far as in efficiency. It is not a matter of not being able to source the material or to get the people in training, it is ensuring that our business is robust enough to be able to respond and react to those kinds of things.
Regardless of Orion going away or NABI being bought, there is still a lot of competition, so there is a really high competitive intensity, and there is pressure on New Flyer and all of us to find ways to improve cost, weight and noise — the three bad words in the industry. We are really continuing to work as a company to find a way to improve our competitiveness. It would be simple for people to say we should just start offshoring, but A, that’s not practical, and B, we must live inside the Buy America rules. We are talking about taxpayer dollars, and we have to ensure a proper economic return for those investments. We are going to continue to work on being as competitive as hell. I don’t care how big or small we are, we have to find that price/value equation where we can make money and customers are happy with the product.
Discuss the impact of the Marcopolo investment.
Marcopolo is an impressive company. It is a company that is publically traded, but also controlled by the founder, Paulo Bellini, and his family. We started talking to Marcopolo at the end of 2011, early 2012, and basically, we mutually spent a year getting to know each other. Marcopolo had been doing stuff in Latin America, Asia, Russia and Mexico, and there was a clearly defined strategy to get into North America. We were interested in teaming with them in some way, shape or form because of all the things they bring — they understand different types of buses and operating environments and have tremendous experience in sourcing, design, and R&D. The single biggest issue for us was making sure the culture was consistent. If we were going to sell a portion of our business and get in bed with somebody like that, we needed to think the same way, treat people the same way, talk the same way strategically, and it was really fun to get to know the people there.
Finally, Marcopolo decided its strategy was to make a 20% investment, and we quite liked that. We had the benefit of the backing of a very large strategic that knows buses and their technical complexities. We had the benefit of teaming with somebody that was coming to North America. We had the benefit of teaming with somebody that had a product portfolio we could look through that might make sense in our company. They have also been really good to us in terms of letting our teams go down and look at how they do things, such as sourcing and engineering, or what their R&D methods are. So, when a customer looks at New Flyer, or now, NABI, and sees that we have a company like Marcopolo behind us and a corporate structure that is very well received by the marketplace, it really shows we have some stability as a business.
In the chain of events following, we had the benefit of using the first tranche of Marcopolo’s investment to acquire Orion’s parts business. Selfishly, we wanted to increase the size of our parts and aftermarket businesses, but we also had customers asking us if we were going to take this on. The logic was most of the Orion customers also operated New Flyer buses and they felt like they were exposed as to who would provide spare parts support. We worked closely with and convinced Daimler that their customers are looking at us and we were not going to let them down. As a result, the whole issue of coming together, looking ahead and synchronizing cross-reference databases to be better buyers of parts, better planners of parts, and therefore, be more price and cost effective for customers, was exciting.
Then of course, the NABI situation was a unique one. We had literally spent more than three years trying to acquire NABI. We felt the combination of NABI’s products, customers, manufacturing, locations and parts business with what New Flyer had only added stability for the long term. Again, you had customers who had NABI fleets worrying about the long-term viability of that business, and we think we bring stability to it. We also think they bring a competitive angle to New Flyer. NABI can price at different points; go after different types of competitions; and has stainless steel capability and some design expertise, which New Flyer didn’t have previously. We really think it will be a good marriage.[PAGEBREAK]
What’s the thinking for keeping the NABI name?
Well, the due diligence process was delicate because we were direct competitors, so for us to be able to come out of the blocks with a plan was difficult. Our view was NABI has contracts, customers, bus designs and slots sold well into the future, so there is no need or urgency to go and change the buses, names or any of that stuff.
NABI has 7,500 buses on the road with customers who have bought and operated that brand for years, but who knows what will go in the future. We think they have a great management team. Jim Marcotuli, who was brought in by Cerberus and was at NABI a little over four years, did a wonderful job bringing shell and structure capability to the U.S., investing in the facility, and getting it profitable in both its bus and parts businesses. We are not in any rush to have to go and hurry things up, and will take the time to study what the customers think, how the products perform and so forth. Who knows, we may be here 20 years from now with the NABI name still continuing.
How will the purchase of NABI benefit New Flyer in the marketplace?
In our space, every customer’s competition is different. Yes, they all play by the Federal Transit Administration’s rules of funding, bus life and all those things, but the process of selection and the types of RFPs are different. Our view is, we can look at every individual competition and see where we can be successful and add value to the customer. There will be cases where New Flyer will bid. There will be cases where NABI will bid. There may be cases where we put in multiple proposals at different value offerings or different price points to not only try and improve our chances to win, but also, give our customers a choice of how they want to solve their issues. So far, the feedback has been very positive from the customers.
In May, New Flyer made news with the unveiling of the MiDi™ bus. What prompted its development?
Around the same time we began working on the next generation of our heavy-duty transit bus, now called the Xcelsior, eventually rolling it out in 2008, we received a lot of feedback from the industry about a gap at the low end of the heavy-duty space and the high end of the cutaway space. There just wasn’t a reliable medium-duty product.
New Flyer then spent several hundred thousands of dollars doing preliminary work on the design of our own medium-duty bus. As part of that process, we decided to look around the world and see if there was a bus in that class or category that we could use as a jumping-off point to collaborate with another manufacturer. At that time, we came across Alexander Dennis’ E200 bus. It was narrower, lighter and just a different product than what we were building, and of course, they had already delivered 16,000 of that class of bus. We spent probably about eight months with Alexander Dennis trying to see if we could put together an economic or technological sharing relationship, and ultimately, we embarked on a joint venture.
We see the MiDi™ bus as one we can sell to both private and public customers. We see it able to be used in environments such as community shuttles, light transit service, airports and those kinds of things. We have eight prototypes now built that are all in some level or version of testing. The first chassis begins welding in October for the first real line entry of the bus in December. We by no means think this will replace the heavy-duty bus, but there is a niche there we believe has been underserved.
Taking on the MiDi™ has also allowed New Flyer to learn how to collaborate, how to work inside a joint venture, and again, learn best practices across yet another company from another country that has buses all over the world. Alexander Dennis is a real world-class company. I am really impressed with the way they do engineering. They have been a very good company to collaborate with, and it has been eye opening to see how they do business. This collaboration, I think, will make us a better company and also make Alexander Dennis a better company. I also think we have a winner in terms of a product that will satisfy a real niche that isn’t satisfied today.[PAGEBREAK]
What has the response been like from the industry so far?
We were lucky at the [APTA Bus & Paratransit] show in [May], because we had the MiDi™ sitting in the middle of a whole bunch of heavy-duty transit buses, and immediately, you saw a size difference. Alexander Dennis is savvy and smart about the utilization of space. So far, feedback has been fantastic. Again, this is not going to replace the heavy-duty bus, but it will create a niche. The Canadian market has been very responsive. We are in the process of Altoona and other testing, so we haven’t been able to sell it to a U.S. customer yet, but we will have that completed by the end of the year; we are on schedule.
Yes, it is early, but we are bullish this bus is going to be able to take off for us. As I mentioned, we start building that bus here in St. Cloud at the end of the year on a dedicated line. We have the benefit of being able to draw expertise on assembly from seasoned workers. We also have all the leadership and supervision we need to help us get the MiDi™ bus started. We are going to start slow. We are going to make sure it is done right. We are still in the process of finalizing all the sourcing, in terms of making sure we meet Buy America compliance, and also, maintaining a price point that is attractive.
When do you see the first MiDi™ hitting the streets?
The first MiDi™ customer delivery will be in the first quarter of next year, and the launch customer will be a Canadian operator.
Tell me about the rest of your product line and any updates or changes you’ve rolled out.
The response to Xcelsior and its evolution of our Low Floor product has really gone well, with the acceptance by customers beyond our expectations. From a product standpoint, our focus has been to try and offer many propulsion options. Every city, the politics and the definition of green is different. Every route is different. The duty cycle and service is different. Therefore, our view is we need to have a very solid, right-priced clean diesel engine option. We think the hybrid market will continue to stay in a certain segment and the pressure on fuel efficiency will have many operators still looking at that option. The issue is you have to put a hybrid on the right route for the math to work. We think natural gas will continue to have prominence. The fuel costs are very compelling, so we think that will continue to generate much interest. For 2013, more than one-half of our production will be natural gas.
The all-electric is clearly, we believe, where the industry is ultimately going to go. There are still a lot of unknowns — the battery weight, size and packaging; the charging strategies; the range anxiety and passenger trade-offs — there are just no standards yet in our industry. Our view has been to team with customers where they want to do R&D-type projects on electric. We have one operating on a prototype basis now out of our New Flyer facility. We have two going to Chicago, which are heavily battery-centric and will have overnight charging strategies. We have four going into Winnipeg in early 2014 that will use on-route charging. We are looking at multiple charging strategies, everything from catenary systems to induction charging. And, we believe by 2020, we are going to see that a good portion of the transit fleet in the U.S. will be electric. We believe as the leader of the heavy-duty transit bus space, we have to be propulsion agnostic, so we will continue to invest in electrification.[PAGEBREAK]
Looking at the electric bus, is it more of a benefit to custom build per customer or is the goal to move to a standard?
Hopefully, the electric bus world will get to a configured approach as opposed to pure customization, but flat cities with cheap hydroelectric in warm climates are very different than hilly cities, or cities like New York where there’s a combination of long runs and short, stubby routes. It would be naïve for us to think one size is going to fit all. What we would like to try and do to make the engineering efficient and the reliability high is to begin pre-thinking levels of configuration that make sense. Again, I think we will also get into a scenario where the bus operator, the bus manufacturer and the propulsion provider are going to have to re-think the economic model, whether you buy the batteries or the batteries are paid for on a per use basis, for example. The pressure from transit agencies for lower capital costs and optimized operating and maintenance costs may eventually lead to transfer of risk for the provider to ensure everything delivers as it should. I think that is all good use of taxpayer dollars. You can buy a cheap bus and pay through the nose downstream, or you can try and ensure when you buy a bus it has service, maintenance, operations, reliability, engineering, and some level of commitment and guarantees all bundled into it. When that happens, it is a different discussion, and a basic low-price RFP doesn’t allow you to really sell that.
In 2011 you celebrated your 4,000th CNG bus delivery. How important was that milestone for New Flyer?
We are up to 5,500 now. We gambled about a year-an-a-half ago on investing in a brand new fueling station here in St. Cloud and have upgraded all our facilities on CNG, which has paid off. Maybe it was part good planning and the rest good luck. CNG is the type of fuel where it is hard to dip your toe in the water. By that I mean, if you are a diesel operator and you want to try hybrids, you don’t have to change your buildings, your maintenance or train people differently. CNG is the kind of fuel where it is hard for an operator to just try it, because of all the necessary operating and maintenance issues; you need sniffers, scrubbers, special insurance, explosion proofing, training and fueling stations. For those operators that truly made a commitment to CNG, it is going to be here for a long time. Of course, the industry itself and the nation’s ability to generate its own fuels is a very compelling political argument, but there is also an economic argument. We think we are going to continue to see a lot of interest in CNG, which is why it was important to us years ago to design a system and own and control the integration.
With the numerous changes over the past year, what do you think your company’s biggest strength is?
I am very proud, from a team perspective, that the alignment of all the different parts of our company truly understands the end game. We have to satisfy our employees. We have to put products out there that customers will want to buy. We have to provide an appropriate return to our shareholders. It really is about the long-term sustainability of our business balance and so forth.
We have learned a lot about the economic engine and where we can pull levers to cut costs, improve performance and manage our supply chain. We have done some vertical integration, in some cases, to try and not only reduce the cost of the vehicle, but control the quality. As I said before, we have to find a way to get our cost down and our competitiveness up. We can be proud of our products and market share, but our customers will continue to tell us we have to be cost effective and give them a world class product with all the trimmings.
What are some forward-thinking predictions you have for New Flyer?
We continue to believe we want to be a diversified, full service-type bus manufacturer. When I say full service, I am not implying running maintenance garages, but we want to be a business that is a viable, profitable supplier and vendor of choice for our customers throughout the value chain, even as the economy or buying cycles fluctuate. We really felt the impact of 2008/2009’s recession, so we want to have a long perspective. We want to continue to lead the space. And, by lead I mean in share and position, as well as in innovation and technology, and most importantly, in delivering value.