Union fears layoffs in Tranz Rail review

By DANIEL RIORDAN

Redundancies may be in the air when Tranz Rail chief executive Michael Beard meets union leaders this afternoon ahead of the board meeting on Wednesday.

The head of a union representing 3100 Tranz Rail workers suspects that redundancies may be discussed at both meetings, as the company's strategic review continues.

Wayne Butson, national secretary of the Rail & Maritime Transport Union, fears the worst: "There's usually only one form of news that comes from these meetings, and it's not good news."

Tranz Rail employs about 4000 staff, who are represented by four unions. Mr Butson's is by far the largest.

Dave Morgan, president of the Seamen's Union, which represents many of Tranz Rail's ferry workers, is also meeting Mr Beard.

He said he was going with an open mind, and did not want to comment on what might happen.

However, Tranz Rail spokesman Fred Cockram said today's meeting promised no fireworks as far as he knew, and he believed it was merely part of Mr Beard's efforts to keep in regular contact with union officials.

Mr Beard, who took over in May, is continuing his policy of not commenting to reporters until he has been in the job for three months.

While the financial community has welcomed Tranz Rail's blank canvas approach to how it does business, believing the company does far too much of its work in-house, unions are understandably concerned.

Tranz Rail has made it clear that all aspects of its operations are under review. Top of the expectation list is the potential for outsourcing many of its services, including its interisland service, urban passenger services, track maintenance and terminal operations and warehousing.

In the United States, home of major shareholder Wisconsin Central, such outsourcing is routine.

The biggest opportunity for improving financial performance, according to a report by JB Were analyst Doug Smaill, is by outsourcing the interisland ferry service.

The use of chartered ships, for example, although reducing short-term profit, would remove the company's "biggest capex [capital expenditure] hole."

He says this could save the company more than 50c a share.

An alternative way to maintain the 3900km of track network would be to create an internal subsidiary that initially bids competitively with outside contractors. After an establishment phase, the subsidiary could be disposed of to create a similar model to Telecom's network maintenance subsidiary ConnecTel, says Mr Smaill.

Outsourcing warehousing could also release $20 million in capital.

Another possibility is selling or subcontracting the Wellington urban rail system, just as the company is trying to do in Auckland by selling the rail corridor lease there to the Auckland Regional Council.

Mr Smaill considers it unlikely that the company will lease out its freight-only lines, such as the Kinleith line servicing Carter Holt Harvey, or abandon "loss-making" lines altogether.

He says it is more likely it will seek to keep the network intact, but sell off pieces to short line operators based on the US pattern.

The company may face opposition from politicians as well as unions to plans that would see the national rail network owned or operated by different players.

Some indication of Tranz Rail's progress with its review is given in a memo Mr Beard sent to all staff a week ago.

He said the company had done a lot of work identifying its more profitable lines of business and was going to focus on two things.

"The first is concentrating our efforts and resources on those customers and business lines that give us the best returns. The second is to work on the areas that don't give us acceptable returns.

"In some cases, that might mean walking away from particular traffic or customers. That will be a last resort.

"Before doing that we will try to find ways to make the business profitable."

He concluded: "There will not be a day when I walk out of my office to announce a full list of changes and actions that we're going to take. Those things will be developed from the key business drivers.

"Some we will have under way in a few weeks; others might take some months to develop."