Arguments in favor of closing or selling VIA Rail

Investment managers and investors should often ask themselves: If I didn’t already own this stock, would I buy it today?

By any standard, Via Rail, a federal crown corporation, is not a good investment, even under unrealistic assumptions. The federal government should rigorously scrutinize this designated charitable “business” and then direct it to one of two fates: sale or liquidation.

Via Rail’s chronic cash-consuming state offers no economic value to a potential buyer, although there are always some contrarians with the confidence, and perhaps the ability, to transform a seemingly hopeless asset. into something valuable. For example, a number of struggling airlines have been bought and sold. But Via Rail, as structured and priced, has little appeal to potential free enterprise buyers.

Federal government operating and capital funding for Via has been massive: $548 million in 2019 (before the impact of COVID-19) and $597 million in 2021, for example. Unfortunately, we should expect this massive financial support to continue.

The government should hire management consulting firms and investment banks to review and assess Via Rail. Employing a variety of scenarios, including modeling fundamental changes in Via’s direction, routes, and staffing levels, a hired external consultant should look for opportunities for Via to move toward future cash flow positive.

Any truly independent review by experts would likely conclude that Via Rail needs additional investment and radical modernization – if not just to survive but to thrive.

The subsidy per passenger for the Via Corridor route (Quebec to Windsor) was $180 in 2021. In 2019, before COVID-19, the subsidy per passenger was only $80. The subsidy for each passenger taking Via’s spectacular Jasper-Prince Rupert route in 2019 was $483. In 2021, during COVID, this grant reached $1,474.

Increased ridership alone would not eliminate subsidies.

Absent imaginative, sweeping and, perhaps, ruthless restructuring and reorientation, conventional investor valuation measures (such as company value versus earnings) are unlikely to company value versus earnings before interest, taxes, depreciation and amortization, price versus earnings, price per operating cash flow, price to free cash flow ratio, or even price to value ratio net of inventory) would generate visible potential value, even for the most optimistic potential buyers.

Yet stranger things have happened, with seemingly unattractive assets snapped up by an industry-savvy strategic acquirer.

Taxpayers will never know unless the federal government puts Via Rail up for sale (either in its current state, blemishes and all, or after producing a credible restructuring plan).

The federal government should move to put Via Rail, a truly underperforming asset, on the road to sale or liquidation. Using the cost of federal debt, Via Rail’s present value is approximately negative $16 billion.

There must be a better use of taxpayers’ money than keeping Via Rail, a chronically bad investment.

Ian Madsen is a senior policy analyst at the Frontier Center for Public Policy and author of the forthcoming book Sell Them or Shut Them Down: 111 Reasons Governments Should Divest State-Owned Enterprises. © Troy Media

About Joel Simmons

Check Also

Elon Musk hints at crypto plans in first Twitter meeting

Key points to remember Elon Musk held a meeting with Twitter employees today to discuss …