Should offshore private equity companies be running our public transport buses?

Foreign-owned companies are responsible for more than three-quarters of the public transport bus trips that run each day in two of our major cities.

Auckland's 10 worst bus routes for weekday cancellations during February were all run by an offshore private equity company.

Ritchies Transport, bought in 2021 by New York-based KKR (Kohlberg Kravis Roberts), ran the worst routes in Auckland, calculated as a percentage of timetabled weekday trips cancelled.

All 10 services were based on Auckland's North Shore. The worst ranked route, the 845, included schools and North Shore Hospital.

Ritchies director of people Sharon Scott told RNZ there's high demand for drivers on Auckland's North Shore and driver shortages coupled with a higher than usual rate of driver illness impacted cancellations. She said the company was trying to recruit more drivers locally and abroad.

Both KKR and Ritchies have experienced bad press in the past.

Ritchies made headlines in 2019 after Immigration New Zealand refused to approve in principle an application to bring 80 overseas drivers to fill vacancies in Auckland. Low hourly wages and unsociable work hours were reasons given by the agency.

KKR has appeared in numerous news stories over the years, including a 2022 Buzzfeed investigation into problems at a chain of residential facilities for people with intellectual disabilities it purchased, where low staffing levels exacerbated by low wages led to care issues.

Scott said she couldn't share pay rates because they varied, but hourly wages for Ritchies drivers were now in line with industry standards.

KKR wasn't the first offshore private equity company to have owned a bus operator in New Zealand. Until 2022, NZ Bus was owned by Next Capital.

Under Next Capital ownership, union negotiations with its Wellington drivers turned sour. NZ Bus turned down an offer from Greater Wellington Regional Council and Waka Kotahi to top driver pay up to the living wage unless it could also change the collective agreement it had with drivers, which included overtime and penal rates.

The situation deteriorated to the point where public relations heavy weights were brought in. Drivers went on strike and the company was later found to have illegally locked them out.

More than 75 percent of Auckland's and Wellington's combined public transport bus trips are run by offshore owned companies.

Kinetic, an Australian company, bought Go Bus in 2020 and NZ Bus from private equity company Next Capital in 2022. Kinetic specialises in public transport and is responsible for 52 percent of weekday trips in Auckland and 33 percent in Wellington. Howick and Eastern in Auckland is owned by a French government investment agency. In Wellington, Mana buses are owned by Transdev, which is also France-based.

Read more from this series:

• Hundreds of services cancelled every day
• Wellington's most-cancelled bus routes
• Auckland's most-cancelled bus routes
• Why bus drivers keep quitting

Offshore ownership, especially by private equity companies, worried First Union's researcher and policy analyst Edward Miller.

"Private equity is even more zero focused on maximising profitability for their fund shareholders. There doesn't seem to be a strong emphasis on quality service delivery, providing decent wages for workers, and making sure that people have a decent service to operate."

First Union opposed KKR's acquisition of Ritchies, with a submission to the Overseas Investment Office, asking for a national interest test to be applied.

The union claimed in approving the sale there "remains a major risk that the acquisition of Ritchies by an owner whose record is one of cost-cutting rather than enhancing public transport services would significantly hinder the delivery of decent wages for drivers and the reduction of road transport emissions."

NZ Bus and Coach Association's former chief executive Ben McFadgen* doesn't see a shift to offshore ownership as unexpected. "It's a natural progression."

He said operators may have started as family run companies which grew their fleet over time. When retirement age rolled around and it was time to sell up, the high price of a company with a fleet of expensive buses and depots could be beyond the reach of local buyers.

"It's nothing, I would say, unusual. It's just the way with Western economics, to be perfectly frank."

The profits to be made from public transport contracts weren't insignificant, he said, but neither were they massive. When government money was funding a public service, "you don't want to have a situation where the operator is making extreme profits. That's not a good look for anyone. They just recognise through sheer volume that they can make a lot of money."

There are no public records for the profits of these privately-owned companies.

When asked if Ritchies' change in ownership had changed Auckland Transport's relationship with the company, RNZ was told things were the same, just with different faces.

Public vs private models

Cancellations can hit companies in the pocket.

Cancelled trips count towards a company's 'reliability' performance target. If more than a small number occur, then abatements are issued. These are set at a level similar to what it costs to run a bus trip, minus the cost of fixed assets, like buses.

Miller said the number of driver complaints from Ritchies has remained roughly the same from before and after KKR's acquisition of the company. "We're going to monitor the situation closely."

Greater Wellington Regional Council transport committee chair Thomas Nash said people were right to have concerns about the motivations of private businesses which take on multi-year contracts to provide public services.

If the contract were in health, or education, "people will be asking pointed questions a lot but for whatever reason, that's the road we've gone down in public transport."

For Wellington, he felt ownership by an offshore company like Kinetic, which specialises in public transport, was preferable to a private equity company which could "strip out the business, maximise profits and then flip them on."

A new operating model, the Sustainable Public Transport Framework, could shake things up by allowing councils to bring bus services in house. There were huge costs involved with switching to public ownership, however, so it could take years to occur, if it happened at all.

Nash thought as a society we should ask how we want public services delivered.

"Do we want to ask private businesses to provide these sorts of things? Or is it maybe better for private business to do other things that are more innovative and productive rather than take this public money for basic public services?"

* McFadgen was chief executive of the Bus and Coach Association when interviewed by RNZ for this story in February. He has since left the organisation.