Bixi bike-share’s insolvency should be object lesson for governments

Your take on the financial collapse Montreal-based bike-sharing company Bixi probably depends on how comfortable you are with government-backed social-engineering schemes.

If you believe government should promote changes in people's behaviour, you're probably unhappy that Bixi – the Public Bike System Co. – is seeking protection from its creditors to deal with a debt of $50 million.

If you think government has no business risking taxpayer dollars to get people to ride bicycles, then you're probably rolling your eyes.

Montreal Mayor Denis Coderre rejected talk Monday of another Bixi bailout. The city is among the company's many creditors.

“If Bixi can be saved, it’s through the Bankruptcy and Insolvency Act," Coderre said, according to CBC News.

Bixi's Montreal assets are said to worth about $11 million but the city is in much deeper than that.

The city council led by then-mayor Gerald Tremblay approved a $108-million bailout for the already troubled company in 2011.

Tremblay told CTV News at the time that Bixi was simply suffering from growing pains.

"It's a growth challenge the company has," Tremblay said. "It started very small, we conceived a product here, we have patents and suddenly the world wanted to buy them. So we had to finance that."

[ Related: Bixi owes $50M, files for bankruptcy protection ]

The financing package included a $37-million loan and $71-million in loan guarantees to help Bixi ramp up bike production to meet supposed soaring demand, allowing the company to pay suppliers so orders from a dozen other cities, including Toronto, New York and London, could be fulfilled.

But the company said in a news release Monday that $5.6 million in withheld payments from clients (unhappy over delays in deliveries of Bixi bikes) led to a liquidity problem.

Bixi interim chief executive Michel Philbert said the company will work with Montreal to ensure the service is viable for the summer tourist season.

But where Bixi's financial problems leave other cities' operations remains unclear.

The Toronto Star reported that two attempts to sell Bixi's international assets had failed.

The Star said the Toronto Parking Authority (TPA) was already proceeding with plans to take over the Bixi's troubled program in the city on April 1.

“They have told us that it will be business as usual, they assured us,” TPA president Lorne Persiko. “We don’t foresee any impact on our financial arrangement or any arrangement.”

The Toronto program was plagued by cost over-runs and the company stopped making payments on a $3.9-million loan from the city.

[ Related: Vancouverites mull $6M bike share approval ]

Vancouver is getting ready to launch its own bike-share operation this year, using Bixi bikes. Mayor Gregor Robertson said the company's insolvency won't affect the program, the Globe and Mail reported.

“Bixi is not the primary partner in Vancouver’s planned bike-share program, and Vancouver has always refused to offer any of the loan guarantees or obligations that have created significant risk to taxpayers in other cities,” Robertson said in a statement.

Vancouver chose Alta Bicycle Share of Portland, Ore., to operate its 1,500-bike program. It also operates Bixi-based bike shares in New York, Washington, D.C., Chicago and other cities.

Alta issued a statement Monday promising its programs would not be affected by Bixi's problems.

The idea of encouraging people to get out of their cars for short trips or for promoting bike-sharing for tourists may be a good one. But the Bixi experience raises the question how much public involvement (and dollars) there should be.

Businessweek's story Tuesday on Bixi's problems suggested it's a red flag that "bodes poorly for urban transportation utopians."

Citigroup (which paid US$41 million ) to put its colours on the New York network's solar-powered docking stations, "can’t be happy that the word 'bankruptcy' is anywhere near the pride and joy of its marketing department," Businessweek said.