The country's top trainspotter reveals tips for rail's long-term survival

Friday 12th May 2000

Francis Small

I guess I went through three or four different incarnations ...

in a steady-state situation you would atrophy

Corporate survivor Francis Small bows out after a landmark career, writes RAY LILLEY

The original rail man reaches the end of the executive line today, a 40-year journey from public servant to private sector operator unmatched in New Zealand.

Dr Francis Small survived in senior management roles in Tranz Rail as it moved through its reconstruction from a public service labour camp to corporatisation in 1982, to state-owned enterprise in 1990, privatised company in 1993, and its public float.

His retirement as managing director is a landmark. He is perhaps the sole survivor still in top office from the public sector re-engineering upheavals triggered in the early 1980s. He is one of few who entered a company at ground level aged 17 and rose to chief executive.

Although Dr Small will not say it, he is probably more responsible than any other single individual for "saving rail" as a major transport mode in this country.

Now a thriving, competitive integrated transport group with 4200 staff, the old Railways Department had 23,000 staff in the late 1970s when it began its 20-plus year odyssey of change.

How did he survive?

"In my case I guess I went through three or four different incarnations, three or four different aspects of the business ... In a steady-state situation you'd atrophy, and there have been some examples around of that happening." He doesn't expand.

"But the 40-year syndrome has gone. That went in the late 1980s and I suppose if we hadn't gone through these changes in blocks I would have gone too. So it was bloody interesting."

It meant proving to the new board each time that he had the drive and shared the board's vision for taking the next steps with the business: "I would do it all again."

As Dr Small leaves office, transport and other utility stocks are returning to favour in markets such as the US.

"Bill Gates just bought 7% of Wisconsin Central," Dr Small said.

He smiled as he savoured the thought of the technology whiz buying something as down and dirty as rail stock. Wisconsin Central is a 23% shareholder in Tranz Rail.

For a civil servant steeped in the "rail culture" - his father was a lifelong rail man before him - Dr Small displayed his personal response to change in rail when he nominated the day Tranz Rail was floated on the New York Stock Exchange as the high point of its reinvention.

He stood in the Goldman Sachs trading room in Manhattan when the stock came on to the floor, for him the most defining development for modern rail.

"It was a pretty exciting moment - a bit like launching a rocket."

He wanted to talk about the market, and about change being facilitated by the "culture of rail" which had allowed change from a rail operator to a total freight provider with a smorgasbord of services.

The "dam-burst" changes of the late 1980s and early 1990s taught bitter lessons to Tranz Rail, which realised permanent, evolutionary change was the only way to prevent another pent-up demand for restructuring.

The 1994 Cook Strait ferry row did not see war actually break out between company and union but "we got to five minutes to midnight at a couple of stages."

Now, annual ferry negotiations are not played out at school holiday time through the media. Holidaying passengers and tourists are not held hostage.

Tranz Rail staff remain highly unionised, with 80% members of unions and party to collective agreements.

Opening the books to union scrutiny is already established practice, with independent third-party accountants coming in on behalf of union groups. Dr Small said many of the changes proposed by Labour's Employment Relations Bill are already common practice at Tranz Rail.

"We're not throwing up our hands in abject horror but we'll be making some suggestions for changes in what [the government] is proposing."

Tranz Rail would insist on talking directly to its staff, just as staff took a direct interest in what the business is doing - a central part of railways culture for decades.That tradition even saw Little Red Books of information produced for staff nationwide when major- change projects were planned and implemented.

Castigated last year by analysts for its high capital expenditure on maintenance and upgrade projects, Tranz Rail has adopted a $50 million a year limit on that spending for a couple of years to help lift its profitability.

Railway systems worldwide have voracious capital needs and have to find inventive, creative ways to lower their capital expenditure needs and remain competitive.

That approach could see Tranz Rail invest in new fast catamaran ferries to replace its conventional passenger and freight ferries on the Cook Strait run. The Incat-style vessels would enable five round trips a day to the new Clifford Bay terminal - instead of the current two round trips.

"It will be an interesting debate ... whether we replace Arahanga with an Arahanga look-alike, or whether fast ferry technology ... can perform the same [freight] tasks as Arahanga."

Dr Small would like the company to be further down the e-commerce track, but said successor Michael Beard had special skills in the area, and would extend business-to-business initiatives with vigour.

Market analysts had climbed a steep learning curve in the past few years, as transport groups have listed here. His frustration was with analysts looking quarter by quarter at a long-run cyclical business so, when the cycle was in down-turn, "there's not much we can do about it" if people did not milk cows or cut down trees.

But he believed a better understanding was emerging among market watchers.

As a stockholder and executive he remains disappointed with company performance.

After three good quarterly results that did not happen by accident, and with all the analysts reporting favourable buy recommendations, he said he was bemused by the low price of the stock.

"It's not that Tranz Rail has been singled out. Transportation stocks have been out of favour," after being the dotcom stocks of the early 1990s. "Wisconsin Central was at $US42 then but is now at $US14. They've taken rather a bigger hit than we have."

Changes and opportunities are seen in the whole dotcom revolution, with products like meat moving to fresh supply - changing processing, transportation and ware- housing systems along the supply chain.

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