Canadian Gov moves to buy Ambassador Bridge from Moroun

The government of Canada has initiated talks to purchase the Ambassador Bridge, the major trucking route between Canada and the US . The Windsor Star reports Canadian Prime Minister Steven Harper instructed his cabinet to "explore" purchase of the bridge from the Detroit International Bridge Company/Canadian Transit Company, a privately held company owned by Detroit businessman Matty Moroun, an 81 year old who made a fortune in trucking and bought the toll bridge in 1979.

The bridge is privately owned under charters issued in perpetuity the 1920s by the state of Michigan and the government of Canada. Unlike toll concessions in which title remains with governments and the term of toll operations is limited to a specified 30, 50, 75 or 99 years, a charter allows title of the assets to stay with the investors and the right to operate is "in perpetuity."

A spokesman for the prime minister is quoted today: "The government of Canada has had discussions with the owner of the Ambassador Bridge. We will not comment on the details of those discussions. The government remains committed to the building of a new bridge between Windsor and Detroit as additional capacity is needed along this corridor to support the anticipated growth in border traffic. The Government of Canada will continue to work closely with the state of Michigan and U.S. government."

Moroun and his associates have talked occasionally about a willingness to sell the bridge on and off over five years now.

His bridge company president Dan Stamper is quoted today: "No good can come out of everybody standing flat-footed. It's time we sit down and have logical discussions on how we can treat each other fairly. We are open to having discussions with anybody. But we are going to be treated fairly. We are not interested in rolling over."

Reports are that previously Moroun has said he'd sell for $3b. The Canadian government has in the past valued the bridge at around half that - $1.5b.

2009 a bad year

Last year according to data compiled by the Public Border Operators Association the bridge carried about 6.5m vehicles comprising 4.2m cars and 2.3m trucks.  The company doesn't report toll revenues.

Cars pay $4 so they bring in about $17m/yr.

Truck tolls are more complicated being a combination of total weight and axle count but they average $4/axle and assuming the average axle count is 4.2 the average truck toll is $17 each for revenue of $39m.

Total toll revenue last year computes to $56m. Operating costs are possibly $10m.

There are revenues also from an active duty free store and fuel station.

Cash flow from the tolls, store and station is probably about $50m to $60m/year.

The 80 year old bridge is in poor to fair condition.

To our way of thinking the Canadian government's valuation of $1.5b looks high for an old facility generating only around say $55m, or 3.7%/yr.

Traffic of course is very depressed. Every year since 2006 has seen a substantial decline and 2009 it was down a third on three years ago (see table nearby)

Detroit-Windsor Tunnel and Blue Water Bridge, the competing crossings have seen similar declines - related to the horrible economic state of car manufacture and the economy generally. Any valuation of the bridge has to be based on a view as to how far traffic will come back and how soon.

The Ambassador Bridge could carry twice the present traffic at which it could generate a far higher return.

There is also a question of whether the Detroit River International Crossing bridge 2.5km (1.5mi) downriver will be built and on what terms. If it is subsidized by taxpayers it would be only fair to offer Moroun's company some compensation for the effect of subsidies in drawing traffic away from the Ambassador Bridge.

Buccaneer being brought to law

But Moroun is in deep trouble legally and enjoys almost zero public and political goodwill.

In buccaneer fashion he has in recent years flagrantly disregarded contractual commitments, squatted on others property and built without permits, all the while making the preposterous claim that his company is a "federal instrumentality."

Belatedly Moroun is being subjected to the rule of law, as shown by the court case he lost just last week to the state of Michigan. He is now under a judge's order to demolish many millions of dollars of illegal works and to build ramps and bridging costing millions more that he contracted with the state, but has attempted to welsh on.

His game is nearly up, it would seem.

TOLLROADSnews 2010-02-08