The financial struggles of Laidlaw Inc., headquartered in Burlington, Ontario, have been well chronicled in the financial pages. Disastrous investments in U.S. waste-management and ambulance services sectors have resulted in huge losses, in the billions, and have forced the company to enter into a complicated and precarious debt restructuring plan. Amid all the tumult surrounding its parent company, Laidlaw Education Services continues to press ahead with its school bus operation, the largest in North America. The question, though, is how the parent’s financial tremors are affecting the school bus division, its most profitable enterprise. To answer this question, SBF Editor Steve Hirano interviewed Robert Hach, president of Laidlaw Education Services, based in Naperville, Ill.

SBF: There’s a perception in the industry that Laidlaw Education Services is being hurt by the larger problems at Laidlaw Inc. How have you been responding to this perception?

Robert Hach: Financially, Laidlaw Education Services is a separate subsidiary from Laidlaw Inc. Therefore, we are somewhat independent. That is, the transactions that go on at [Laidlaw] Inc. don’t impact our subsidiary directly. Our cash flow and our condition are very positive. We’ve been able to get through our best start-up in years, and we’re running very, very well. Kids are going to school every day; the buses are running, and I think that is the best testimony we can give our customers that we’re financially stable.

SBF: So there hasn’t been any trickle down or ripple effect on the operational levels?

Hach: No, and as of this morning [Jan. 4], we closed a secure bridge loan facility for $100 million dollars. That’s a revolving credit facility specifically for Education Services and the ambulance group. Besides the revolving credit, there’s another $50 million of a subfacility that we can go to if we have to. At Education Services, we have really no need for this, but it adds security for the future. I think it helps Education Services to answer questions from a customer standpoint, that we do have backing here as we move forward through any further announcements at Inc. or more restructuring at Inc.

SBF: How has the negative publicity surrounding Laidlaw Inc. affected your relationship with local school boards? Has there been a lot of inquiry about the stability of the company?

Hach: I have to tell you, there really has not been. As you know, this is a very local business, and most of the contracts are for three to five years. In our case, most of our business is not up for renewal. So 70 to 75 percent of our business is in place and structured. As some of these blips from Inc. have hit the papers, naturally we’ve communicated with our customers and let them know that we are in financially sound shape. But certainly our competitors, especially the new ones from Britain, have been utilizing any newspaper blip that they can to try to influence a decision that a school board may be making on a renewal or a new bid or a new conversion. Obviously, we have to step up our communications to those particular customers to ensure them that we are financially sound. We’ve provided letters of credit and other information to our customers just to let them know that we are sound.

SBF: Has the negative publicity affected your ability to recruit drivers, supervisors or mechanics?

Hach: No, we have not experienced any problems, other than the current problem that everyone is having recruiting drivers. In each community we structure our wages to be competitive or better than the competition, and we’ve been able to do a good job. As I said earlier, we’ve had one of our best start-ups. So in spite of bigger issues at Inc., I believe that the impact on drivers and local managers has not been very damaging. We have not lost any major managers throughout the company. On the driver side, our people have done an outstanding job of recruiting this year, considering the shortages that are out there in the industry. We have done our best to shield our division from Inc.’s problems, but as I told you, these issues pop up every couple of months, and we are trying to be very proactive in communicating the impact of that to all of our internal people and, most importantly, to our customers.

SBF: Have Laidlaw Inc.’s problems impacted your business in terms of cash available for buying new equipment?

Hach: We’ve made some adjustments in our capital spending. We’ve looked at our fleet and what we can hold or not hold. So we have made some minor adjustments, but overall we have our standards for how we replace equipment, and we’ve been holding to them. We have also worked with some of our vendors on some different financing arrangements than we’ve had in the past. But, for the most part, we are still spending the capital that we need to maintain our fleet and upgrade and still provide new vehicles where we need to.

SBF: Right now you’re Laidlaw Inc.’s best performing unit. What would you say is the long-term outlook for Laidlaw Education Services?

Hach: In conference calls, we have been referred to as the “crown jewel.” I believe, as we go through this restructuring, that Education Services is in a great position. We’re a strong company. Frankly, I think we are much too large for our British competitors to take a shot at us. I don’t have a crystal ball, but I think we can stand on our own and be very successful.

SBF: When you say “I think we are too large for our British competitors to take a shot at us,” are you talking about a possible buyout or are you talking about them overtaking you in terms of marketshare?

Hach: Certainly they cannot overtake us in marketshare. As you know, we have over 40,000 vehicles on the street. The next closest competitor is now First Group, which was formerly Ryder, and they’re at around 11,000. Our marketshare is dominant and will continue to be dominant.

SBF: We’ve had one of the greatest economic runs in the country’s history, and very little of this expansion seems to have trickled down to pupil transportation on a local level. Would you agree?

Hach: Absolutely. We’ve just had an election, so it will be interesting to see how much money they pass on to education. I know both candidates talked about it, but, to be honest, I am not extremely optimistic about major funding going into the transportation sector. Based on our preliminary look at some of the early bids, we’ve not seen any major changes in the perception of our customers. And, in talking to school districts about what’s available for transportation, they are looking to save every nickel they can. The only good news that I can tell you is that both public and private districts have accepted that the driver shortage is real and that it is going to be here for a while. We have seen some softening on the wage side in our proposals as we try to get some money passed through to the driver rank so we can recruit more and hire better. But, other than that, our customers are still trying to save their transportation dollars for their districts, and they’re looking for the best proposals they can get. Because of our size, they look to us to bring them some cost advantages.

SBF: Are there any new opportunities that you’re exploring?

Hach: Besides our current base of business, we’ve acquired a company that specializes in school safety auditing that is in its infancy, and is starting to grow. We are looking at growth opportunities there. Also, we’ve finalized an agreement with epylon.com, an E-procurement provider for schools throughout the United States. And we also have a partnership with eSASA, another E-company, that helps us dispose of our aged fleet. We are doing some new things to stay on the cutting edge of transportation. We’ve been a leader of that in the past, and we want to continue to be a leader.