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Changes urged at Tranz Rail

01 Aug 2002

HAVING been ejected three years ago from his position as Chairman of Tranz Rail - along with other outposts of the former Wisconsin Central empire - Ed Burkhardt told New Zealand's Business Herald that the present board 'ought to be forced out' after Tranz Rail shares plummetted on July 5. 'If it takes a shareholder revolt to do it, well that's the way it works', he added.

Wisconsin, now owned by Canadian National, and former partner Fay Richwhite sold their shares in New Zealand's national rail operator last February, ending an involvement that began when Burkhardt bought Tranz Rail in 1993 and put in a Wisconsin team to introduce American operating and business methods.

Since Burkhardt's departure, the board chaired by Wisconsin's Robert Wheeler has pursued a policy of fragmenting the company and selling off the passenger business. Long-distance operator Tranz Scenic and Auckland commuter services were sold in the year ended June 30 2002, raising NZ$64m, while disposal of the electrified Wellington commuter network is proceeding. Loco, wagon and infrastructure maintenance has been outsourced, along with communications and forklift operations.

The immediate cause of last month's share slide was an announcement that operating profit for the year just ended would be in the range of NZ$24m to NZ$26m, some NZ$10m less than investors who bought into the company last February had been led to expect. On May 9 Tranz Rail had announced a cumulative net profit of NZ$46m during the nine months to March 31, but this included the passenger sales from which income has now been lost.

Adding to investors' worries was a report by Australian consultants Halliburton KBR, which accused Tranz Rail of under-reporting derailments, broken rails and track buckles to its safety regulator, the Land Transport Safety Authority. One immediate outcome was the imposition by LTSA of a blanket 40 km/h speed limit during warm weather after it learned that only 29 out of 89 heat buckles had been notified, despite some of those not reported having caused derailments.

Tranz Rail Managing Director Michael Beard pointed out in May that injury accidents had been reduced by 39% during the past year, and the railway is a paragon of virtue compared to the toll of death and injury inflicted by New Zealand's truckers - which has yet to prompt LTSA to impose speed restrictions. But ominously, Tranz Rail's freight business is now shrinking where it had been expanding.

Perhaps Tranz Rail's former owners saw what was coming. In Burkhardt's words, 'after provoking the management change and adopting the policies that have led to ruination, they managed to get out before the numbers became apparent.'