Debts, losses and disaster - Arriva’s financials finally published

The national public transport company that took over the Arriva Malta operations, Malta Public Transport Services Ltd, absorbed €7.9 million in total debts when it took over Arriva Malta for a nominal €1.

The 245-page share transfer agreement between Arriva and Malta Public Transport Services was laid on the table in Parliament yesterday evening by Transport Minister Joe Mizzi.

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The file shows that apart from racking up €7.9 million in debts, Arriva's liabilities totalled over €70 million.

The €7.9 million in credit was extended by various Arriva Group subsidiaries. But the losses incurred by the company saw Arriva Malta borrowing lines of credit totalling €10 million from parent company Deutsche Bahn in 2011, then €12 million in 2012, and finally €29.7 million in February 2013 - a total of €52 million.

Last week, MaltaToday revealed that the Finance Ministry allocated €1 million in the form of a government shareholding for the set-up of the Malta Public Transport Services Ltd. The budgetary vote was allocated at the end of 2013, but beyond the initial €1 million, the government has made no further allocations.

The public transport service was nationalised in the beginning of 2014 after Arriva transferred its assets to government.

The original subsidy agreed between the previous government and Arriva in 2011 was set at around €6 million per year for the duration of the 10-year contract, however subsidies topped €10 million in 2012.

Moreover, the accounts show that Arriva was forecasting an operating loss of €4.3 million for 2013 but the company actually registered a loss of €18.7 million as of November 2013.

The financial statements tabled in the House of Representatives, submitted on 2 January 2014 by PricewaterhouseCoopers, paint a dismal picture of the state of the public transport operator.

Arriva actually expected to see revenue streams stabilise in 2014, with revenue growing annually by 8.2% in 2015 and 2016, and fuel costs decreasing. But by 2012, it had already amassed €75.6 million in contract losses.

Arriva Malta was granted the concession agreement for the operation of Malta's public transport system in November 2010. On 3 July 2011, the company officially commenced operations.

But during this period, the company face a number of organisational issues which impacted both its operational controls and financial reporting, with the transition to the new bus network demanding the recruitment of some 1,000 staff and over 300 buses. The company entered into a €35 million loan agreement with DB Logistics to purchased 264 buses.

Apart from wildcat strikes on the first day of operations, various changes were made by Transport Malta to the originally awarded bus route system. This led to a new quantification of the size of the bus network and supporting resources.

In 2011, Arriva raked in €14 million in sales but the losses amounted to €15.8 million, leading to parent company Deutsche Bahn extending a €40 million overdraft facility. Of the €14 million in revenue, only €4 million were ticket sales.

Ticket sales increased massively to €21 million in 2012, showing increased bus patronage, bringing revenue up to €31 million with the public concession. The group increased the company's share capital through a cash injection of €20 million, but despite this investment the business continued to trade unprofitably and there was a substantial loss in 2012. This caused the directors to impair the company's fixed asset value by €23.5 million and post a €75.7 million contract loss provision.

Before these exceptional items, the company incurred a loss of €21.6 million, and as at 31 December 2012, the company had net current liabilities of €32 million and net total liabilities of €116 million.

In 2013, patronage actually rose by 10% thanks to improvements in quality and performance, but when four bendy buses were damaged by fire in August 2013, Transport Malta ordered the withdrawal of Arriva's 75 bendy buses, resulting in higher costs to subcontract the Unscheduled Bus Service to provide third-party buses. The decision affected 25% of Arriva's fleet, leading to the sub-contraction of 64 coaches.

Eventually this led to the government entering into an agreement with the Deutsche Bahn AG Group to transfer the entire company to Transport Malta and a new national company.