Proposal for the BSM PTA to fund the purchase of two buses

5 November 2012

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This document supports the request for the PTA to approve spending up to PHP 3.3mn on bus purchase

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Work steps Result • Discussed at PTA committee meetings on 4 June, 3 Sept

and 1 Oct • Agreement in principal to buy the bus, subject to funding

constraints (at the end of school year 2011-2012, the PTA had PHP3.3 mn available)

• Assessed usage levels required to justify buying bus, rather than renting from a bus service

• Purchase makes financial sense when two conditions are met:

o Bus is used more than ≈ 160 days per year o On each use, bus is at least 50% full

• Simon Mann has confirmed that the school will meet this level of usage within a few months after buses delivered

• Sourced price quotes for a range of buses and sizes • Obtained (through BSM operations) quotes from 5 manufacturers for 19 different models ranging from 11 to 35 seats

• Assessed ability of different bus sizes to meet BSM needs • Reviewed with Head of School; Head of School obtained

input from key school managers

• BSM prefers two 15 seater buses over one 30 seater

• Analysed in detail the two leading contenders in the 15 seat category

• We prefer Toyota HiAce commuter; BSM agrees, on condition that that 3 point belts are fitted to the buses

• Formally request PTA committee to approve expenditure of up to PHP 3.3 mn to be spent in one of two ways:

o Purchase of two Toyota HiAce commuter buses (if Toyota can fit 3 point belts to the seats)

o Partial funding of one 30 seat bus (BSM will provide the additional PHP 0.3 to 0.6mn)

• BSM to buy buses • Not yet started

Decision for today’s meeting

We now have price quotes for 19 models from 5 different manufacturers

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Source: Dealer quotes, supplied to BSM operations Notes 1: Prices are ‘sticker prices’ and are before any negotiation

Commentary • For buses in range 11 to 15 seats,

manufacturers tend to sell two levels of specification:

o Hi spec (e.g. electric windows, two tone paints, leather seats, etc), aimed at the consumer market

o Basic spec, aimed at commercial buyers

• Smaller buses have lower purchase costs per seat (although operating costs may be higher); for example, to transport 30 passengers, BSM can choose between:

o 34 seater Mitsubish Rosa costing PHP 3.9mn

o Two 15 seaters Toyota Hi-Ace at PHP 1.3mn each (or 2.6mn for two)

In part, this is achieved by using smaller seats

• The Nissan Urvan range has a single body size, but increases seating capacity by reducing the size and leg room of each seat; for the highest capacity, it uses bench seating

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0 5 10 15 20 25 30 35 40

Co

st P

HP

mn

Number of seats

Toyota Hi-Ace

Toyota coaster

Hyndai Starex

Nissan Urvan

JAC

Mitsubishi Rosa

Since our last PTA meeting, we have made 3 main decisions

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Key decisions

Size of bus? Broadly the decision is between two main options: • Two buses of 15 seats with a total purchase price of PHP 2.2 to

2.6mn • One 34 seat bus at PHP 3.9mn BSM prefers two 15 seater buses

Can school commit to sufficient usage levels to justify purchase?

• For ownership to be cheaper than rental, the school needs to undertake that minimum usage targets will be met o Bus should be used more than ≈ 160 days per year o On each use, bus should be at least 50% full

(The appendix gives analysis supporting these usage hurdles)

Manufacturer and model • Leading contenders are Nissan and Toyota

The following slides give more detail on each of these

Bus size…

Two 15 seater buses offer more flexibility than a 30 seater, and would be cheaper to buy1

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15 seats 30 to 35 seats 49 seats

Ability to access BSM destinations

• Able to pass down the small roads leading to many CAS destinations

• Bus too large to access roads leading to many CAS destinations around Manila

Ease of maintenance

• Can be maintained by Toyota garage one block from BSM (for Hi Ace)

• Can be maintained by Toyota garage one block from BSM (for coaster)

• Bus distributor does not offer maintenance – suitable only for bus companies with their own mechanics

Ease of driving

• Although BSM has two staff with appropriate license, they may be out of practise with vehicles of this size, since both transferred to BSM (from bus companies) some years ago

Passenger comfort

• Seats stop at adult shoulder level – no headrest

• Seats have integrated headrest - better for longer distance;

• 7 seats are ‘jump seats’

• Larger and more robust seats

Seat belts • Available with lap belts –

3 point belts may not be possible

• 3 point belts possibly more feasible, but not yet confirmed ??

• Seats can likely be supplied with integrated 3 point belts – at additional cost

Fit with needs

• Good for CAS / ASA / sports teams

• Need two buses for a full class

• Good for transporting a full class

• Good for longer distances

• Not quite large enough for a full year group

Purchase price (PHP mn)

1.1 to 1.3 (or 2.2 to 2.6 for two)

3.8 to 3.9

??

Overall

= least attractive = most attractive Notes 1) Although the operating costs of running two 15 seater buses are likely higher than for a single 30 seater

BSM’s preferred

option

Usage levels…

The bus purchase can be justified if BSM increases activity programs to ensure it is fully used

The current activity schedule requires transport on just 3 days per week1

Activities on current schedule requiring transport

Max #

Mon Holy family in Pembo 10

Chosen children’s village 15

Tue CAS 10

Thu House Messy Bessy 20

Life project for youth 5

CAS 10

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Notes 1) In part, these transport needs are met with the existing school bus – an 11 seater Mitsubishi 2) These activities are primarily focused at senior school 3) Excludes class trips (which are irregular), and transport to sporting fixtures

Justifying purchase of additional bus(es) will require meeting some demanding usage hurdles

Conditions to justify bus purchase

• For ownership to be cheaper than rental, the school needs to achieve demanding minimum usage levels: o Bus should be used more than ≈ 160 days per year o On each use, bus should be at least 50% full

(see appendix for supporting details) • There may be other considerations in favour of purchase,

for example: o The bus company is repeatedly unable to meet the

safety standards mandated by BSM (e.g. seatbelts throughout)

o To ensure vigorous uptake of the CAS program, the school wants to introduce a hidden subsidy, and charge parents only for the operating costs

Manufacturer…

If the choice is a 15 seater, we prefer the Toyota Hi-Ace commuter

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Key: = advantage ? = no clear winner

Note 1) Based on analysis of 13 (Toyota) to 18 (Nissan) prices for used vans, with model year 2000 to 2006 (new HiAce commuters were not available from 2006 to 2010); number shows difference between new and used prices, divided by number of years in service ; the new Toyota price (PHP 1.3mn) is about 20% higher than the Nisssan (1.1mn), but the Toyota appears to last longer, and enjoys higher resale values

Source: ANCAP (Australasian New Car Assessment Program), published by Australian and NZ governments; Interviews with fleet managers in Manila; other published sources

Comparison of 15 seaters

Nissan Urvan Shuttle, 15 seat configuration

Toyota MC Hi-Ace commuter, 15 seat

Comfort • OK for short trips around Metro Manila, but uncomfortable for anything longer (e.g. to Subic)

• Reputation for the best air-conditioning

• Seats more comfortable (based on bus inspections)

• Reputation for having quieter ride

Safety • Safety score 1 out of 5 by NZ government • Lap belts only

• Safety score of 3 out of 5 by NZ government • Probably lap belts only

Ease of maintenance • Reputation for having more maintenance problems -- BSM previously owned a Nissan bus, and eventually disposed of it after 6 years

• Needs to be driven to garage the night before coding day, since Nissan garage in coded area

• Reputation for being more robust • Can be driven to Toyota garage (one block

from school) on day bus is coded (coding does not apply in the fort)

Capital cost of machine - PHP ,000’s per year of life1

• 85 to 90 • 85 to 90

Overall • “I have both 2009 Urvan and 2010 Commuter fleets; most of our clients requests my Commuter's more due to it's comfort and power, particularly it's torque. On the operator side, I get more mileage for every liter of diesel due to it's common-rail design and long-lasting under chassis parts.” source:

http://www.motorcyclephilippines.com/forums/showthread.php?t=267062

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In addition to the key decisions, we have made several minor decisions impacting the purchase

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Decision Rationale

Lease vs buy • Buy bus rather than lease long term • If you have the money (which the PTA does), then it’s cheaper to buy rather than lease

Specification level

• If decision to buy minibus, choose commercial specification rather than consumer

• Engine and chassis is identical between consumer and commercial models

• However, premium for consumer level spec adds 20% to 30% to cost, and also tends to result in a smaller number of larger seats

Seat covers • Choose leatherette over fabric • Much easier to clean • Does not retain smell (unlike fabric) • If fabric covers required, removable covers can be added later

Safety belts • Choose 3 point belt in preference to lap belts, if available

• Greater safety

Coding • Choose coding on Fridays • Buses will be ‘coded’ – unless BSM resorts to ‘unofficial’ channels

• We can chose which day the bus is coded • Friday is the day with the least usage

Signage on bus • Bus will have no signs identifying it • Security reasons

Proposed next steps

Proposed next steps

• Obtain PTA committee approval (on Mon 5 November) to

spend the funds

• Negotiate with vendors

• Buy bus

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Appendix

Bus usage levels required to justify purchase over rental

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At first glance, bus companies have a cost advantage, since they can ‘sweat’ their assets more efficiently

Costs of running a bus Typical cost breakdown

Bus company School

Cost of equipment

Capital cost of bus (i.e. depreciation / interest/ leasing costs)

20% to 30% • Buses generally used 6 to 12 hours/ day, 315 days/ year (bus companies are not subject to coding)

• Bus likely to be used for 5 hours/ day; 80 to 160 days/ year (assumes only used during term times; school bus is ‘coded’)

Fuel 20% to 30% • May get negotiated prices on fuel

Spares and maintenance

16% to 30% • Bus company likely to benefit from in house mechanics and/ or better pricing from a garage

Other costs Driver &staff 10% to 15%

Overhead and other

5% to 15% • School runs service at cost

Total 100%

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Key: = advantage ? = no clear winner

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Source: World Bank “Measuring Road Transport performance”, breakdown of bus costs for a low to middle income country Notes 1: Includes insurance and bus company profit

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The financial case for buying a bus rests on the school using it more than ≈ 160 days/ year1 …

High Med Low Commentary

Key assumptions on usage of school bus

After school activities

# of afternoons/ week Per year

4 124

3 93

2 62

• Only used during term time, in weeks when ASAs are run

Weekend transport

Number trips per year 36 27 18 • High estimate assumes bus used every weekend during term time

• 50% of trips outside Metro Manila

Class outings Number trips per year 45 30 15 • Outings during school day, within Metro Manila

Return on investment assumptions2

Total NSP fares for usage shown PHP mn 1.80 1.32 0.84 • Based on NSP rate sheet for 30 seater ‘coaster’

• Recurring costs eliminated through purchasing bus

0.53

0.39

0.25

• Based on World Bank analysis of bus operating costs

• Remaining recurring costs3 1.26

0.93

0.59

• More than 80% of this is fuel and maintenance

Purchase price of bus, PHP mn 4.1 4.1 4.1 • Quote from Mitsubishi for 34 seat bus

Life span of bus, years 10 12 15 • Source: interview with Maidenhead based bus company

Return on investment4 5.1% 2.2% -1.1% • Assumes zero residual value of bus

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Notes 1: This is consistent with Hampshire County Council which recommends buying a bus only if used 4 or more days / week: 2: Analysis shown is based on a 30 seater bus; however, the conclusion is comparable for smaller bus sizes 3: These costs will either be paid out of BSM operating expenses, or recovered from the students using the bus 4: If the Return on Investment is less than rate on bank deposits, BSM would be better off by putting the PHP 4.1 mn in the bank,

and using the interest to subsidize NSP fares 5: Non-profit organizations typically require a minimum RoI in the range 5% to 10%; commercial organizations use a higher hurdle

Purchase justified? 5 Renting is cheaper

… and running the bus at more than 50% capacity for each day of use

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-

2,000

4,000

6,000

8,000

10,000

12,000

Option 1: use NSP full sized

bus

Option 2: use School bus (34 seats) with two

runs

Option 1: use school bus

Option 2: Hire 10 seater van

from NSP

Example costings for 5 hours in Metro Manila, assuming BSM already owns 30 seater bus

Case 1: transporting 45 passengers

It is slightly cheaper to leave the BSM bus at BSM, and hire a 49 seater bus from NSP

Cost PHP

Case 2: transporting 10 passengers

It is significantly cheaper to leave BSM bus at BSM, and hire a 10 seater from NSP

Notes 1: BSM costs show only operating costs (predominantly fuel and maintenance), while the NSP costs are fully loaded (i.e. they include the cost of financing the equipment purchase)

2: Analysis shown is based on a 30 seater bus; however, the conclusion is comparable for smaller bus sizes

In addition to cost considerations, bus companies offer other advantages

Rent Buy

Costs • Cheaper if the bus is used less than ≈160 days/ year

• Cheaper if the bus is used more than ≈160 days/ year

Reliability • In event of breakdown, bus company can supply alternative bus at short notice

• In event of breakdown, school will need to rent bus; bus company might be less inclined to supply

Flexibility to handle varying numbers

• NSP has a fleet of 60 buses of various sizes, making it easier to match size of bus to number of passengers

• Only one bus with ≈34 seats; no possibility to take smaller (and more fuel efficient) vehicle if substantially fewer children

Flexibility to meet unforeseen need

• NSP guarantees to honour any booking made 1 month in advance; where necessary they rent buses from other companies

• Bookings made at shorter notice are accommodated where possible; this is never a problem at weekends, since peak demand is during week

• Bus dedicated for school use, so no danger it will be used for other purposes

• However, can only be used for one activity at a time

Ease of management by school

• Maximizes negotiating power with bus company (and thus helps ensure future flexibility)

• Minimal oversight by school

• School needs to oversee (and pay for) o Maintenance o Fuel o Insurance

Safety • Requires vigilance by school to ensure all seats have seatbelts

• Bus would be new and international specification • Requires vigilance by school to ensure brakes and

suspension are working properly

Potential insurance liability

• In event of an accident causing permanent injury, liability is at arms length from the school

• Low risk that in the event of an accident causing permanent injury, school gets sued for a large amount

14 Key: = advantage ? = no clear winner

School bus – rent vs buy analysis

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