Keolis lost $29.3M in first year of MBTA contract
PHOTO/SAM BONACCI
The company operating commuter trains such as this one in Worcester has lost nearly $30 million in the first year of the contract.
The international company that runs commuter rail trains in and out of Boston racked up $29.3 million in losses over the first year of its long-term contract, requiring its French parent company to subsidize its Massachusetts operations.
According to state Transportation Secretary Stephanie Pollack, Keolis Commuter Services likely failed to fully account for the cost of providing service to the region.
In an interview with the News Service, Pollack attributed the net losses that Keolis reported in its first year of operation to costs the company didn't factor into its bid.
"My understanding is the primary reason is that Keolis failed to understand the full extent of the costs associated with meeting their contractual obligations," Pollack told the News Service. She said, "My sense is that it has been a more costly endeavor than Keolis assumed going into it."
Keolis won the contract in January 2014 with a bid that would pay the company $2.69 billion for the first eight years with an option to extend an additional four years for a total cost not to exceed $4.26 billion. The company beat out the incumbent commuter rail operator, which proposed a contract $184 million more expensive for the first eight years and potentially $254 million pricier over 12 years.
The former system operator, Massachusetts Bay Commuter Railroad, claimed the T, under the oversight of Gov. Deval Patrick at the time, prized price above all else while MBCR would have provided the best value.
The general manager of Keolis Commuter Services, a joint venture of Keolis Rail Services America and the French national railway known as SNCF, declined to say what steps Keolis might take to start making a profit on the contract that began July 2014.
"I'm not here to talk about the financial statement," General Manager Gerald Francis told the News Service at a recent hearing on MBTA fare hikes and commuter rail schedule changes in Lynn. Francis, who took over as general manager months after Keolis won the contract, said, "We're here to operate and maintain the system."
The commuter rail offers diesel rail service to more than 130 stations and over 664 miles of track, providing 33.5 million trips in the first year of the Keolis contract, according to MBTA data.
As Keolis has racked up losses, its backers have stepped in to fill the void, according to Pollack.
"The parent company has been willing to infuse resources into Keolis Commuter Services to ensure that they're meeting their contractual requirements in Boston and improving their on-time performance," Pollack said.
Pollack said she believes SNCF is assisting Keolis with covering its contract losses to date. Francis declined to answer whether the riders of the French national railway are aware of the subsidy for commuter rail in Boston.
The parent company of Keolis North America is a transportation giant in its own right, boasting more than 3 billion passengers in 2014 and about 60,000 employees, the majority of them in France.
The company's venture moving commuters around eastern Massachusetts represents its biggest railroad business in the United States.
"I don't believe that in the long-term Keolis wants to lose money on this contract, but they have made it clear that it is important for them to succeed in their first North American operating contract in order to expand on the continent," Pollack told the News Service.
In a statement, Keolis spokesman Mac Daniel said "fixing the system's problems has taken longer and proved far more costly than anyone could have predicted," and said the company is "exploring at a range of strategies and approaches that will enable us to operate more efficiently, while continuing to provide our passengers with an outstanding commuter rail experience over the life of the contract.
"SNCF is our largest shareholder and are providing financial resources that are enabling us to make the investments and improvements that will bring the contract to profitability over time," Daniel said.
The MBTA has worked with Keolis, reinvesting fines for subpar service into cleaning trains and collecting fares. Fare collection is the responsibility of Keolis though fare revenues go into MBTA coffers.
Asked whether the T's "fixed-cost" contract with Keolis would be adjusted to make it more favorable for the private vendor, Pollack said any contract changes would need to improve service.
"For the MBTA and for [the Department of Transportation] the first issue is making sure Keolis is performing for our customers, and if there's going to be a conversation about changing the contractual relationship, that conversation needs to start from a position of Keolis is doing what we need them to do in terms of performance," Pollack said. She said, "My general sense is a lot of things have been working better but not everything is fixed and we will probably need another performance improvement plan to bring us to the end of Keolis's second year under the contract to be completely sure that they're performing up to the contractual obligations."
The second year of the contract ends this June.
Jim O'Leary, the chairman of the Massachusetts Bay Commuter Railroad, said the contract essentially mandated a 4 percent profit for the vendor and he faulted Keolis for its assessment of the cost of running the trains in Boston.
"I think any bidders, particularly on a contract as large as this, have an obligation to do their own due diligence," O'Leary told the News Service. He said, "The French national railroad, I guess, as long as they want to continue to subsidize the commuter rail service in Boston, they'll continue through the term of the contract."
Asserting that the vendors were "supposed to be able to stand on your own two feet," and questioning how long Keolis's parent company would be willing to shore up its losses, O'Leary said the hypothetical adjusting of the contract to make it more favorable to Keolis "undercuts the integrity of the process."
MBCR, a partnership of Veolia Transportation, Bombardier and O'Leary's company Alternate Concepts, took over the service from Amtrak in 2003. The corporation exists now only in accordance with its old contract with the T, according to a spokesman.
Asked if he would be interested in bidding on Boston's commuter rail contract at some future time, O'Leary said, "That's the business we're in."
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