Las Vegas Monorail has few profitable options

Despite bleak financial picture, CEO still
hopes to expand line to airport

January 29, 2010 -The Las Vegas Monorail will never generate enough revenue to pay off its debts, according to the company’s own financial estimates. And without financial relief, looming bills to replace trains and other equipment cast doubt on the transit system’s ability to continue operating beyond 2019.

Based on this dim outlook — from monorail management and analysts, contained in the company’s bankruptcy filings — the system likely faces one of three fates:

• It could continue to operate as an independent nonprofit company, after its debt is reduced through bankruptcy. Bondholders, who are owed $649 million plus interest, will certainly fight any effort to reduce their investment.

• It could become a government-controlled transit line, with taxpayers footing the bill for about $1.1 billion in debt obligations. Ambac Assurance Corp., which insured the monorail’s bonds, is trying to convert the company’s Chapter 11 bankruptcy into a Chapter 9 filing, which is reserved for government agencies. At a Feb. 17 hearing, the monorail company will argue that it’s not a government agency.

• It could shut down if its reorganization plans fall through.

Curtis Myles, the monorail company CEO, said the company’s aim is to expand the rail line once its finances are in order.

“We have long expressed the importance of expanding our system to the airport and other points within the resort corridor,” he said in a written statement. “It is necessary that the company first ... address its current capital structure before moving forward with those plans.”

The monorail opened in July 2004 and has never made enough money to fully pay its debts.

Still, a case can be made that the resort corridor benefits from a mass transit line, even if it’s only 3.9 miles long with seven stations.

During the four-day Consumer Electronics Show at the Las Vegas Convention Center, the system carried nearly 135,000 passengers — the equivalent of 45,000 three-passenger taxi trips or more than 2,450 55-passenger bus trips.

The monorail recently carried its 40 millionth rider.

But it has seen business decline during the recession. Ridership fell to 6 million in 2009 from 7.9 million in 2007. The system, which charges $5 for a one-way ride, collected $27 million in fare revenue in 2009, down from $29.7 million in 2008 and $30.3 million in 2007. Advertising revenue has also declined.

Last year, the system generated less than $5 million in net cash flow, woefully short of $34 million needed to service its debt.

Projections by the monorail company and analysts show revenue could grow to about $47 million by 2019. But after operating expenses, the company would be left with $19 million — far short of the $52 million in bond payments due that year.

In court papers, Myles said the cost of repairing and replacing trains, control systems, escalators and other equipment will rise sharply about every 10 years, requiring the accumulation of cash reserves “and leaving little available for debt service.”

Without cash reserves to replace equipment, the system will be forced to shut down as early as 2019, Myles said.

Still, the company has pressed forward with plans for an expansion to McCarran International Airport even though some analysts predict it would do little to improve the monorail’s finances.

“The proposed expansion is expected to dramatically increase ridership and revenues, and further serve the debtor’s goal of reducing congestion along the Las Vegas Strip,” Myles said in the bankruptcy filing. “However, none of this is possible unless immediate action is taken to restructure the (company’s) debt.”

Brian Gordon, a principal with the firm Applied Analysis, which studied the monorail’s finances last year, said that based on the high cost of an airport expansion and the projected ridership it would attract, an airport link wouldn’t substantially change the company’s financial outlook.

The Las Vegas Monorail is shown Monday, June 22, 2009. The Las Vegas Monorail Company filed for Chapter 11 bankruptcy protection Wednesday, Jan. 13, 2010 but will continue to operate, company officials said. Photos by Tiffany Brown