Those numbers, as well as BIXI management's confrontational tone when dealing with the city has and angered some and raised questions about the system's financial viability. While Montrealer's have been getting a blow-by-blow coverage, the Globe and Mail yesterday published a great overview of the situation. In response, BIXI chairman Roger Plamondon sent out an e-mail to all BIXI users seeking to clarify what is going on. I've reposted it in full below.
In a nutshell: BIXI is loosing money at home, but making money on the systems it sells to other cities. Montreal has agreed to the new financing package to help BIXI firmly establish itself on the international market. If all goes well, profits from sales will allow BIXI to repay the city, and continue to subsidize the system in Montreal.
Of the various bike-share systems that are out there, I don't think there is any argument that technically BIXI is the best. It's bikes, docking stations, and data management system are all more sophisticated than their competition. (Although as I've said before - if you have to choose - basic cycling infrastructure is more important than even the best bike-share system).
But the complicated financial arrangements between BIXI, the City, and Sationnement Montreal (which involves a baroque series of loans and repayments that I have only seen clearly explained near the end of this article from La Press), delays on the part of the provincial government, and a seeming combativeness and lack of transparency on the part of BIXI management have led to the current storm.
Plamondon's letter this morning was a welcome change, and provided clarification on many issues that have been poorly explained by the media so far.
Beyond BIXI, this story raises bigger and more interesting questions about the role of cities in fostering innovation and creativity. Should cities help finance the development and roll-out of cutting edge new technologies that help provide services to urban areas? Or is that something that should be left entirely to the private sector?
Just as BIXI changes the way people use public transit, by facilitating the mixing and matching of different modes of transit, new technologies will change the face of urban energy, communications, water, and waste systems. When municipalities see the need or the potential for something new and innovative, should they look to the market to provide it, or should they step in themselves and provide something new to the market?
BIXI. Establishing the facts.
Letter to members and BIXI users
In the past days, much has been said about BIXI that does not correspond to the reality. Therefore it seems essential to restore the facts, particularly now that the plan proposed by the City was finally well-received by the Ministry of Municipal Affairs after more than five months of delay and waiting. The following serves as a clarification regarding some of the allegations which have been circulating in the media.
- “BIXI is a financial disaster and is not profitable”: FALSE. BIXI experienced a liquidity problem which was the direct result of a five-month wait for the approval by the Municipal Affairs Minister of its agreement with the City of Montreal. BIXI is a company which experienced rapid growth and realized, after only 2 years, volumes of some $50 million. BIXI also posted results that were 40% greater than the projected budget, thanks in large part to the successful expansion of its system internationally. BIXI does not have a profitability problem nor is BIXI a financial disaster in any way.
- “The Montreal operation of BIXI is not profitable”: TRUE. From the beginning, the business plan projected that the Montreal operation of the system would not derive profits in the first years of operation. The plan also indicated that operational costs would be covered once BIXI reached 50,000 members and with the involvement of sponsorship. Proud of the 30,000 members at the end of 2010, we have currently exceeded the level of 40,000 members after only one month of operation in our new 2011 season.
- “Montreal is absorbing the BIXI debt”: FALSE. The City gives no money to BIXI. Montreal advanced a loan to BIXI. The initial loan to BIXI in the amount of $37 million is repayable with interest. This loan was accorded to cover conceptualization costs of the system, the patents, the manufacturing and delivery of the components (bikes and stations), the operation losses of the first years as well as the start up costs. This loan is presently owed to Stationnement de Montréal.
- “The city is giving $108 million to BIXI”: FALSE. Let us take the time to properly understand the numbers that make up the whole.
It consists of a revolving line of credit of $6 million, as is standard for all businesses; a letter of credit facility up to $5 million for deposit guarantees for all public offerings which is a standard practice with the guarantees rescinded after the process.
A factoring facility up to $60 million offered by the Bank to finance accounts receivable which allows for the necessary liquidity to pay our suppliers while waiting for the cities with whom we do business to effect the payment of our invoices. This facility can only be used when a contract is signed by a city in good and due form.
- “Montrealers are financing the export of the BIXI system to other markets”: FALSE. It is, in fact, the contrary. Montrealers fully benefit from the export of the BIXI system to other markets. Last year, it is the successes of the sales of BIXI ($8.5 million) on the international scale that covered the operational deficit of Montreal ($7 million). In this way, we were able to achieve a surplus of $1.5 million and offer a quality system to Montrealers.
- “We have a luxurious bike costing $7,400 compared to Barcelona with a bike costing $75”: FALSE. BIXI does not cost $7,000, no more than it costs $3,500, heard on television. The Barcelona bike does not cost $75. The Barcelona bike costs more than 600 €, basically the same cost of our bike. How could we sell with such success on three continents if the bike costs so much? The Montreal bike is likely the most solid and best conceived bike in the world. Its reliability is greater than the bikes currently used in other cities.
- “BIXI employs 450 people”: FALSE. BIXI employs 50 people and has created more than 400 employees at different suppliers everywhere in the region for the manufacturing of the diverse components of the system.
By Roger Plamondon, Chairman of the Board of Directors, Public Bike System Company