A question investment managers and individual investors often (or should) ask themselves: “If I didn’t already own this stock, would I buy it today?” By any criteria, Via Rail, a Crown corporation owned by the federal government, does not seem to be a good investment – even under very unrealistically favourable assumptions. The federal government should rigorously examine this charitably-designated ‘enterprise’, then aim it towards one of two fates: sale or liquidation.
Via ‘s chronically cash-burning condition offers no value to any potential buyer, but, there are always contrarians having the confidence, and perhaps the capability, to turn a seemingly hopeless asset into something valuable. (For example, there are a number of ailing airlines that have been bought and sold.). Via Rail, as structured and priced now, has little allure to a free enterprise acquirer.
Operating and capital funding support from federal taxpayers for Via have been massive: $548 million in 2019 (before the impact of Covid-19), and $597 million in 2021, and projected to stay in that range.
Management consulting firms or investment banking firms should be hired by Ottawa to review and value Via Rail. By employing a variety of scenarios, including modelling fundamental changes in Via’s orientation, routes, and staff levels, an engaged consultant should seek out opportunities for Via to achieve positive cash flow. Any truly independent review would likely conclude that Via requires additional investment and radical modernization; that is, if the firm is to not merely survive, but thrive.
A few examples as to Via’s pricing for its transportation services follow. The subsidy per passenger for Via’s ‘Corridor’ (Quebec-Windsor) route was $180 in 2021. Before that, in 2019, and before COVID-19, the subsidy per rider for that route was only $80. The subsidy needed for each rider taking Via’s spectacular Jasper-Prince Rupert route in 2019, again before Covid-19, was $483. However, in 2021, during COVID-19, the subsidy hit $1,474 for that route; higher ridership would not eliminate the subsidy.
In the absence of a combination of imaginative, radical, and, likely, ruthless restructuring and reorientation of Via Rail, it seems unlikely that, using conventional valuation metrics (such as Enterprise Value to Revenue; Enterprise Value to Earnings Before Interest, Taxes, Depreciation and Amortization; Price to Earnings; Price to Operating Cash Flow; Price to Free Cash Flow; or, even Price to Net Asset Value), that there would be much visible potential value to even the most optimistic of possible buyers.
Yet, stranger things have happened than a seemingly unappealing asset being snapped up by a strategic industry-savvy acquirer. We will never know unless an effort is made to put the firm up for sale, either largely in its current state, imperfections and all, or after a credible restructuring plan is embarked on.
The federal government should embark on setting Via Rail, an underperforming asset, on either a sale or liquidation track. The present value of the future negative cash flows of Via, using today’s rough cost of debt of the government, is about negative $16 billion. There are a lot of other better uses for the debt taxpayers are incurring in this chronically mal-performing investment.
Ian Madsen is the Senior Policy Analyst at the Frontier Centre for Public Policy and author of the forthcoming ‘’Sell Them or Shut Them Down: 111 Reasons Governments Should Divest State-Owned Enterprises’