APPENDIX 11
Memorandum submitted by Dennis
TransBus International FORMATION
OF TRANSBUS
TransBus is a new company being formed through
the merger of the British based bus and coach businesses of Mayflower
Corporation plc (Alexander and Dennis) and Henlys Group plc (Plaxton).
The new company will be 70 per cent owned by Mayflower and 30
per cent owned by Henlys. TransBus strategy is to grow revenues
and profits through the supply of bodies, chassis and complete
buses to meet customer requirements.
RATIONALE FOR
THE JOINT
VENTURE
The rationale for the joint venture is to enable
TransBus to compete with the large European bus and coach manufacturers,
such as Evobus (Mercedes), IrisBus (Renault and Iveco) and Volvo.
Both Mayflower and Henlys are also keen to protect this vital
sector of the UK automotive industry, a sector now unquestionably
under threat. The merger partners between them employ 3,500 people
in the UK and support another 6,500 jobs indirectly. Volvo by
comparison recently terminated assembly operations in the UK and
moved manufacture to Poland.
The last three years have witnessed a period
of intense consolidation activity in the European bus and coach
sector. The largest players are the subsidiaries of the global
Automotive OEMs with access to substantial financial and engineering
resources. Through a series of mergers, joint ventures and alliances
they are seeking to dominate the European market. The top four
bus and coach manufacturers' share of the market in Europe has
increased to 70 per cent with MAN's recently announced acquisition
of Neoplan. The benefits of such activity include economies of
scale and scope in manufacturing and product development, service
and after-market support and breadth of product range.
Source: Autobus magazine (Italy) July
2000
While the UK players have a reputation for developing
innovative products their ability to exploit a deregulating European
market is under threat. They are increasingly unable to match
the range of products offered by their major competitors and demanded
by bus and coach operators, or to invest in innovative environmentally
friendly technologies for their products.
TransBus will not use its presence in the body
and chassis businesses to reduce choice, for example by refusing
to provide bus and coach bodies or chassis for use with other
manufacturers' bodies and chassis. Indeed since acquiring Dennis
in 1998 Mayflower has expanded chassis sales to third parties
and continued to body other suppliers' chassis. TransBus generates
one-half of its body sales revenues (around £110 million
per annum) from sales of bodies on third party chassis.
By combining their businesses to form TransBus,
Henlys and Mayflower will be better placed to manufacture the
bus and coach body and chassis combinations necessary to compete
effectively in Europe. This includes: separate bus and coach bodies;
separate bus and coach chassis; and integrated buses and coaches.
This enlarged range is vital to secure TransBus' future and to
expand into new markets in Europe, which neither Henlys nor Mayflower
is able to exploit individually. Key areas of integration will
involve product development, design and engineering purchasing,
finance, parts and customer service.
THE CURRENT
UK MARKET—AN
OPEN AND
COMPETITIVE ENVIRONMENT
Continental European bus and coach manufacturers
face very low barriers to enter the UK market. At present, 15
manufacturers supply the market, of which 12 are foreign owned.
Many of these already have considerable sales in the UK and are
well placed to build on their market knowledge and extensive sales
networks for commercial vehicles and trucks.
Demand for buses and coaches in the UK after
a period of strong growth is now expected to decline across all
sectors. The top five operators have now achieved average ages
in line with government targets and ridership growth is stagnant.
They—and all other major UK operators—have therefore
indicated their intention to reduce spend on vehicle replacement
levels. The current peak of orders in the double deck sector,
which reflects the requirement of London operators to upgrade
their fleets, is expected to be complete by mid 2001. If Henlys
and Mayflower continue to operate as a separate entities, without
the synergies of this merger, the prognosis for both businesses
is grim in terms of competitiveness, investment and jobs.
With 90 per cent of coach chassis and 71 per
cent of coach bodies supplied to the UK by foreign manufacturers
in 1999, there is already significant penetration by European
manufacturers in the home market. Recent supply of integrated
Citaro buses by Evobus to First Group has added to earlier supplies
of coaches for National Express. There have been recent announcements
of technical co-operation in the UK involving Optare and IrisBus,
and Wrights with Scania, Volvo and DAF.
CUSTOMER CONSOLIDATION
The consolidation of bus operators in the UK
is well known. The larger operators are now internationally active
in rail, air and road transport. Their size gives them the purchasing
power to attract new entrants. Stagecoach have already indicated
their intention to source vehicles from the former eastern bloc
countries (see attached photograph). The merger will not undermine
this control of the procurement process. Operators will continue
to require competitive supply of chassis and bodies separately
or complete buses as they wish. They have the financial muscle,
the overall business strength and a range of sourcing options
to maintain competition in the areas where TransBus will have
the highest market share.
THE FUTURE
The greater scale of TransBus, in comparison
to either Henlys or Mayflower on their own, will give the company
the opportunity to mount a strong challenge to its major European
rivals—to build a successful, forward-looking business focused
on long-term growth. The parties are committed to preserving and
building upon this a last remaining successful sector of the UK
vehicles industry, which achieves export sales in excess of £100
million. However their future as independents is in serious jeopardy.
The combined workforce of Henlys and Mayflower
is 3,500 with significant centres of excellence in Scotland, Northern
Ireland, Yorkshire and Surrey. The bulk of these jobs should be
secure, in the short term if the merger goes ahead.
However their long-term future is dependent
on the creation of TransBus. Without the synergies and marketing
benefits offered by the merger both companies will struggle to
maintain their competitive edge against the big players in Europe.
In fact the current decline in the UK market represents a greater
threat to job security. The creation of TransBus will provide
the opportunity to minimise the impact of reduced demand and to
grow the business by maximising opportunities in export markets.
This is particularly the case in Europe where deregulation of
the transport sector successfully introduced in the UK is now
accelerating. This explains why many key customers support the
merger as they are looking to TransBus to support them in this
process.
On a wider front, there can be little doubt
that in the short term the entire bus and coach sector in the
UK faces a period of uncertainty on the jobs front. If there are
any job losses as a result of this or the merger they will be
addressed in a planned way and in full co-operation with employeee
representatives. The existing employment and pension rights of
Henlys and Mayflower staff will be protected during the integration
process. It should be emphasised however that the objective of
TransBus is, in the first instance, to protect the UK bus and
coach manufacturing sector, and thereafter to grow the business.
Trade union reaction to the planned merger has
been one of realism. Representatives are aware of the threats
facing the sector in the UK. They are also anxious about what
the future may hold for their members. John Rowse, National Secretary
of the Transport and General Workers Union wrote to Mayflower,
"On face value, we would welcome such a development (the
merger) as strengthening the United Kingdom coach and bus manufacturing
industry, however, I would appreciate an opportunity to discuss
these issues with you."
Henlys and Mayflower are supplied by over 600
mostly UK based businesses, supporting around 6,500 jobs. Many
are SMEs largely dependent on Henlys and Mayflower. The formation
of TransBus will reduce the growing uncertainty amongst these
suppliers, by creating a new company with stronger, long-term
prospects for growth.
With the industry on the verge of the crucial
autumn tendering process for next year's contracts, it is all
the more important that the regulatory process is brought to a
swift conclusion, before irrecoverable harm is caused to the businesses
by uncertainty.
SUMMARY
The future of an independent and thriving British
based bus and coach manufacturing sector is dependent on the success
of this proposed merger. The UK market is open and competitive
with low barriers to entry to the global automotive OEMs who represent
the bulk of the competition. The customer base enjoys real purchasing
power and can look after itself. The parties believe therefore
that this is an area where a referral would be inappropriate and
unnecessary.
20 October 2000
EUROPEAN BUS MAJORS—GLOBAL OEM OWNERSHIP
& MARKET SHARES IN KEY MARKETS
| Manufacturer | Home Markets
| Germany | UK
| France | Italy
| Benelux | Scandinavia
| Spain |
| EvoBus | Germany
| 56 | 4
| 20 | 16
| 15 | 7
| 20 |
| IrisBus | France/Italy
| 2 | 1
| 57 | 47
| |
| 25 |
| Volvo | Scandinavia
| 2 | 18
| 3 | 5
| 11 | 48
| 13 |
| VW/Scania | Scandinavia
| 1 | 7
| 6 | 6
| 3 | 29
| 19 |
| MAN/Neoplan | Germany
| 34 | 6
| 8 | 8
| 3 | 5
| 16 |
| TransBus | UK
| | 44
| |
| 2 |
| 1 |
| Total Major Suppliers |
| 95 | 80
| 94 | 82
| 33 | 89
| 90 |
Source: Autobus.
| 
