Back to basics at Tranz Rail

By RICHARD BRADDELL

Tranz Rail plans to reduce staff numbers from 4000 to 600 over the next two years in a massive restructuring aimed at focusing the business on freight, distribution and its interisland services.

But the company expects few redundancies as 3400 jobs will "move outside the company" to operators who will take over non-core activities such as engineering, track maintenance and communications.

Although the company also plans to sell its long-distance Tranz Scenic passenger business, it will retain the interisland ferries to link its North and South Island rail networks.

It has also identified the unprofitable Napier-Gisborne and Rotorua branch lines for closure if alternative arrangements cannot be negotiated with regional councils.

Discussions with regional authorities in Auckland for the leasing of the commuter track corridors are expected to be emulated in Wellington.

As a first step, Tranz Rail yesterday put its Tranz Link Refrigerated business on the market.

The restructuring is the company's first major undertaking since its managing director, Michael Beard, took office in May.

Mr Beard said the leasing of commuter lines to local operators recognised the huge capital demands, perhaps $1 billion in Auckland alone, given the types of services wanted.

Auckland's plans for using rail corridors for bus lanes and light rail made it more appropriate for that business to be handed over to another operator, he said.

Wellington's well-developed network was demanding large amounts of capital for upgrades to the Johnsonville line and extensions beyond Kapiti.

The restructuring is aimed at addressed fundamental problems with Tranz Rail's business that have resulted in poor returns to shareholders, poor asset utilisation and a lack of flexibility, as well as widespread criticism of the company's safety record.

Once a $9 stock, Tranz Rail shares were at $3.85 yesterday.

"We are not just a transport company.

"Through our two heavy engineering workshops we are a mechanical engineering company, through the maintenance of our track we are a civil engineering company, through the operation of our shipping operations we run a shipping line and through our signalling and communications activities we are a telecommunications company."

Asked if the restructuring now being undertaken was in effect a mea culpa on the part of Tranz Rail, he said the company had done everything it could to capture efficiencies possible under the traditional integrated railway company model, but few businesses, be they in rail, telecommunications or other companies, could sustain that level of complexity.

"Tranz Rail is a horizontally and vertically integrated operation.

"This means we do almost everything needed to run a passenger and freight business under one roof.

"Trying to be everything to everybody takes a lot of resources in terms of management time, people and capital expenditure."

Tranz Rail was bought from the Government for $400 million in 1993, and $900 million in capital expenditure has been pumped into operations since.

The company expects to deal with its poor safety record - five fatalities last year prompted a ministerial inquiry - by eliminating dangerous shunting yard activities.

"Unitised" trains will not require shunting because they will retain the same rolling stock from journey to journey.

The railfreight operation will concentrate on bulk items such as logs, milk and fuel, with other items being containerised. It will have 400 employees.

A distribution division will handle less than unit size loads. It will have a staff of 200. Details of the interisland operation have yet to be finalised.

Tranz Rail also warned yesterday that its first quarter results would be hit by fuel costs which have doubled since the same quarter last year. The result would also by affected by some restructuring costs.

Trade in Tranz Rail shares was stopped for the day yesterday when the Stock Exchange mistakenly released part of a media release from the company ahead of the scheduled 3.30 pm release time.