• Firm’s mother company had to step in

• ‘Significant’ impact of bendy ban

Arriva only managed to operate with financial support and loans from its mother company, according to an auditor’s report.

The report depicts the stark reality faced by Arriva not too long after it took over the running of the public transport service in 2011.

“The company has serious financial difficulties and has only managed to continue operations by virtue of financial support and credit lines made available to it by Arriva Group,” the auditors said.

The report forms part of a voluminous file that was laid in Parliament yesterday by Transport Minister Joe Mizzi detailing the share transfer agreement between Arriva and Malta Public Transport Services, a State company.

The documents cover the agreement signed on January 2 for the nationalisation of the bus service. They include Arriva’s annual reports and financial statements until 2012 and the management accounts until November 2013.

The agreement in its entirety was tabled in response to a parliamentary question by Labour MP Anthony Agius Decelis.

The figures confirm the bleak financial state Arriva was in just two-and-a-half years into its 10-year exclusive contract to run the bus service.

With liabilities hitting €70 million and a reported loss of some €20 million in 2012, the auditors said the situation was made worse when Arriva was forced to withdraw 75 bendy buses after three of them burst into flames last August.

Each carrying almost 150 passengers, the bendy buses made up 25 per cent of the fleet and business suffered “a significant increase in net costs” as Arriva subcontracted 64 coaches to fill in the gaps, the auditors said.

Management accounts drawn up in November 2013 showed no improvement in the company’s fortunes.

While the company was budgeting for €32.7 million in operating costs, actual figures showed these to have surpassed the €44 million mark by November.

A significant variance of more than €4 million is listed as ‘other’ under indirect costs, which Arriva had originally budgeted at €338,000.

Arriva mother company cancelled loans of €69m

This meant that Arriva’s target to achieve an operating loss of €4.3 million last year went completely off-mark as actual income and expenditure was pointing towards an operating loss of €18.7 million.

But the accounts also show that far from relieving the State of substantial subsidies, the Arriva bus service actually cost public coffers as much as the old bus service cost in its last year of operation.

The accounts show that in 2011 – Arriva started operations in July – the company received €9.8 million in subsidies.

The original subsidy agreed to when Arriva won the 10-year contract had to be in the region of €6 million per year for the duration of the contract.

But any changes in routes that increased mileage covered had to be compensated for by the government and the first big change happened in December 2011 after a summer of discontent.

Far from relieving the State of substantial subsidies, the service cost as much as the old one did in its last year

However, subsidies continued going up to almost €10 million in 2012, the first full year of operations. Arriva was budgeting for a subsidy of €9.3 million in 2013 but by November the company had only received €6.3 million.

In 2012 Arriva made €21.5 million in ticket sales and was expecting this to increase to €23.7 million in 2013.

But accounts show that actual sales recorded by Arriva until last November totalled €21.2 million.

The government takeover by mutual consent staved off Arriva’s eventual liquidation that would have been a messy affair.

The government paid €1 for the company’s shares and absorbed between €9 million and €10 million in trade debts. In the negotiations between the government and Arriva, the mother company Deutsche Bahn agreed to cancel intercompany loans amounting to €69 million.

The agreement also stipulates that the State company is obliged to change or remove any reference to Arriva from employee uniforms a month after taking over the service.

The State company is also obliged to modify the external appearance of the vehicles to distance them from the Arriva brand within a year so as not to create confusion in people’s minds.

Arriva undertook to provide general management and operational support for a period not exceeding three months. This will be provided by three Arriva employees but support shall be on “an advisory level” and the staff will not have managerial responsibility.

Arriva will also provide support on IT and software for three months that will be given for free if done remotely through Arriva’s operational centre.

Arriva in euros

*Arriva started operating on July 2011.

**Figures are based on actual payments listed in management accounts drawn up in November.

ksansone@timesofmalta.com