Incumbent transport players trounced by foreign firm in LTA’s first bus package

Here’s what analysts have to say.

The Land Transport Authority (LTA) revealed Friday that London-based Tower Transit Group Limited  won the first bus package under the Government Contracting Model, beating incumbent transport operators SMRT and ComfortDelGro.

Tower Transit submitted the third-lowest bid in the tender and will get an estimated total fee of $556 million over the five-year contract period.

Under the contract, Tower Transit will operate 26 bus services from the Bukit Batok, Clementi and Jurong East bus interchanges; and terminate at Bedok, Boon Lay, Marina Centre, Shenton Way and Toa Payoh bus interchanges.

LTA reiterated that Tower Transit was awarded the contract because it had the highest combined total score for quality and price based on the regulator's two-envelope evaluation process.

Analysts noted that although both SMRT and CDG failed to win the tender, the GCM’s net impact to the transport sector remains positive.

“As LTA had stated right from the start that the evaluation process will be based on both quality and price factors, the incumbents not winning the package did not come as a surprise to us. Previously, we reiterated our view that even if the incumbents lost all three bus packages released or to be released for competitive tenders, or that SMRT wins the low bid put in, the net impact from this transition to the new bus government contracting model (GCM) remains positive,” stated OCBC analyst Eugene Chua.

Chua added that the incumbents are likely to benefit from the nine bus packages, with operations expected to turn profitable on positive margin. 

RHB analyst Shekwar Jaiswal noted that the Tower Transit's win will most likely serve as a benchmark for subsequent tenders and would enable bus operators to generate nominal profit from Singapore bus operations.

“We view this as positive for Singapore Land Transport industry over the long term as the incumbent bus operators, which will operate 9 bus parcels (out of the total 12 under the contracting model), would be able to generate profits as compared to current losses. However, the earliest positive impact on earnings or balance would only be visible in 2017,” Jaiswal stated.