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West Coast Railway Preferred Tranz Scenic Buyer

26 June 2001

West Coast Railway Preferred Tranz Scenic Buyer

Tranz Rail has signed a non-binding Term Sheet with West Coast Railway as the preferred purchaser of Tranz Scenic, Tranz Rail’s long distance passenger operation.

Tranz Rail was now negotiating exclusively with West Coast Railway to finalise remaining details, Tranz Rail Managing Director Michael Beard said today.

Mr Beard said the proposed sale was in line with Tranz Rail’s strategic plan, outlined last October, to focus on freight services and sell passenger services to specialists with the expertise to develop them.

"West Coast Railway is a respected and successful rail operator, with plans to develop the business. Tranz Scenic will benefit from being run by a specialist operator which is committed to making the business a star performer," he said.

Under the proposed sale process, Tranz Scenic assets including 13 operating, mainline locomotives, nine other locomotives, 76 carriages, 3 railcar sets, 16 power or observation vans, brands, selected station buildings around the country and carriage maintenance depots in Christchurch and Otahuhu, would be sold to a new holding company.

All staff currently employed by Tranz Scenic will be offered jobs by the new owner.

West Coast Railway is privately owned and operates passenger train services in Victoria, Australia. Tranz Rail sees the financial benefits of a long-distance passenger service, run by a specialist operator and will, therefore, retain a positive financial investment in the new holding company. Tranz Rail will not play an active role in its management. This continued involvement will ensure effective co-ordination on issues such as track access.

West Coast Railway Managing Director Don Gibson said today that the company looked forward to concluding the transaction and leading Tranz Scenic to a new era of profitable growth.

"This is a good business which has experienced strong growth in tourist traffic or those seeking a ‘rail experience’. The TranzAlpine service is a case in point – it has grown by more than 30 per cent in the past five years," he said.

West Coast Railway Director Gary McDonald said the company was excited about Tranz Scenic’s potential. "We want Tranz Scenic to grow from strength to strength, to build tourist services and develop new services that meet the market.

"The demand on scenic tourism routes is growing – and that is where we plan to concentrate our efforts," he said.

The Tranz Scenic services that will be purchased are the Northerner and Overlander between Auckland and Wellington, the TranzCoastal service between Picton and Christchurch and the TranzAlpine, which runs over the Southern Alps between Christchurch and Greymouth. West Coast Railway will also acquire the Capital Connection, a long-distance commuter service between Wellington and Palmerston North.

Mr Beard said some existing Tranz Scenic services will not be purchased by the consortium because of low and declining passenger numbers.

However, West Coast Railway intends to explore every option to continue to provide transport alternatives on these marginal routes. West Coast Railway plans to talk to staff, unions, Government and local communities over the next two months to examine potential options.

"Tranz Rail has tested the market thoroughly through this sale process and all potential bidders have indicated their view that a number of existing services are not viable," Mr Beard said.

Mr Beard said the Geyserland Express between Auckland and Rotorua, and the Kaimai Express between Auckland and Tauranga, had both experienced severe decline in patronage and were no longer viable.

From 1996 to 2000 average maximum passenger numbers on the Geyserland Express fell 24 per cent to 33 passengers per trip. In the same period Kaimai Express patronage fell 19.5 per cent to a maximum average of 30 passengers per trip.

Mr Beard said the services were a casualty of changes in the way New Zealanders travelled. "The rail system needs to be responsive to the needs of passengers, and that passenger demand has changed.

"Services that were in demand and profitable in the past, when cars and roads were less efficient, are now less competitive in terms of time and no longer heavily patronised. For example, it is difficult to encourage people to take a four-hour trip across the Kaimai Ranges, when you can drive in two and a half hours," Mr Beard said.

Accordingly, it is expected that these services will cease operation after the Tranz Scenic sale transaction is completed in two to three months.

Passengers on these routes will still be able to travel part of the way by train. They will be able to catch the Overlander train to Hamilton and connect with coach services through to either Tauranga or Rotorua.

Mr Gibson said West Coast Railway was already talking to a local coach company to provide these feeder services.

Similarly, the recently launched Waikato Connection between Auckland and Hamilton was not providing an adequate return to justify the financial investment. These passengers will be able to catch the Overlander or Northerner.

Mr Beard said the Southerner and Bay Express had also experienced similar declining patronage over the past five years, and were not presently viable.

However, now that West Coast Railway had been appointed the preferred purchaser, it wanted to begin talks with a range of parties to explore every avenue to continue to offer rail services in these regions.

Mr Gibson said that he was very keen to talk to central Government, local councils, staff and unions to establish what options may be available that would allow them to continue to run passenger train services through these regions.

Mr Beard said that Tranz Rail intended to cease running these services if, at the time of settlement, West Coast Railway advised that it could not operate viable alternatives in these areas.

It is expected that the final details of the transaction will be completed in two to three months.

ENDS

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