Mass Transit Momentum

Written by Brian Hicks
Posted October 5, 2005

Dear Wealth Daily reader:

Nine years ago there were two mass transit bus lines that ran from the quiet tree-lined suburbs of Harford County, MD to the bustling downtown business district of Baltimore city. Having lived in Harford County at one time, I often took this bus to work. It wasn't always convenient…but it was usually half-empty and quite inexpensive.

This, however, is no longer the case.

Over the last nine years, the population of Harford County has grown dramatically. And now there are 4 bus lines running a total of 18 arrivals and departures per day, to and from Baltimore city.

Much like the rest of the country, mass transit ridership in Harford County, as well as most counties in Maryland has risen to record highs.

Last week, the American Public Transportation Association (APTA) reported that ridership of mass transit in the U.S., especially in a number of metropolitan areas has substantially increased.

And according to APTA research, if Americans used public transportation at the same rate as Europeans (approximately 10% of total daily travel needs) the U.S. would reduce its need for imported oil by more than 40% (at the current level of domestic production).

Of course, I'm not naïve enough to believe that a significant number of Americans are going to instantly give up their morning commute from the comfort of their own cars. Even with rising gas costs thrown into the equation.

Though some of the recent figures the APTA has posted fare quite well for the mass transit industry. Which in turn, provide increased opportunities for alternate-fueled bus technology.

That's where we come in!

You see, while it would seem logical to equate high gas prices with increased mass transit ridership, many transit systems were actually seeing increases well before gas prices spiked this summer.

In fact, in the second quarter, 2005, national transit patronage grew 2.1% compared to the same period in 2004.

And take a look at some of these recent reports from local mass transit administrations:
Eden Prairie, MN - Year-to-date, the Southwest Metro Transit is up roughly 6% over 2004.
Miami, FL - The Miami-Dade Transit Department has seen a 25.6% ridership increase over the last three years.
Dover, DE - Between January and June of 2005, DART First State transit system saw a 4.6% increase in ridership from the same time span last year.
Nashville, TN - The Nashville Metropolitan Transit Authority has reported a 23% increase in ridership over this time last year.
Tulsa, OK - Ridership on city buses has increased by 36% over the past year, and traffic on its website has nearly doubled.
Newark, NJ - Mass transit ridership increased 21.1% in the second quarter of 2005.
New Orleans, LA (pre-hurricane) - Ridership increased 26.9% in the second quarter of 2005.
Phoenix, AZ - The Valley Metro system's Bus Rapid Transit ridership has increased by 23% over the past year.
Charlotte, NC - For the seventh straight year, the Charlotte Area Transit System continued to break records - ending the 2005 fiscal year with an 8.2% increase from fiscal year, 2004.
Los Angeles, CA - Metro-Link ridership is up by 7.6% since this time last year.
Orlando, FL - Ridership for the LYNX system is expected to exceed 24.5 million this year. That's an increase of 1.1 million over the previous year.

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Decrease the diesel - increase the profits!
There's no denying that high diesel costs have slowed potential revenue growth from these latest increases in mass transit ridership.

For the fiscal year, 2003, mass transit buses in the U.S. consumed 535,963,000 gallons of diesel.

At today's prices, ($2.91 per gallon), that equates to $1,559,652,330!

Just one year ago, the cost for the same diesel consumption was $519,884,110 cheaper!

That's more than a half a billion dollars the U.S. mass transit system is out because of higher diesel costs.

And don't forget, there are a lot more buses operating today than three years ago. Once the 2005 data is crunched, that diesel consumption figure will certainly be higher.

So it's no surprise that many states, especially over the past 8 to 10 months, have been looking into converting their conventional diesel fleets to more energy-efficient fleets.

One possible alternative that we've discussed in the past is the hybrid-electric bus.

Now the jury is still out on hybrid-electric fuel efficiency, as the numbers have fluctuated quite a bit from a 30% reduction in fuel costs to a 55% reduction in fuel costs compared to most existing conventional diesel buses.

But even at a 30% reduction - based on 2003 statistics, you're still looking at a cost savings of $160,788,900 right off the bat.

And that doesn't even take into account the cost savings on maintenance.

Maintenance costs on hybrid-electric buses are also about 30% lower than current conventional diesel buses.

I love New York

On June 1, 2000, New York governor, George Pataki and the state legislature announced their plans to transform the New York City transit bus fleet into the cleanest in the world via the Clean Fuel Bus Program; a program funded by the New York State Energy Research and Development Authority (NYSERDA).

Since then, the program has provided more than $28 million to municipalities and local transit agencies to assist with the purchase of 563 hybrid-electric and compressed natural gas (CNG) buses throughout the state.

So far these buses have displaced more than 63.4 million gallons of diesel fuel while reducing nitrogen oxide emissions by more than 3,250 tons and particulate matter emissions by nearly 170 tons. (Studies have shown that these pollutants contribute to smog formation and respiratory ailments.)

And just last year, Governor Pataki announced that the same program would be offering up more than $4.2 million in new grants to five local government and transit agencies for the purchase of clean-fueled hybrid electric and CNG buses.

That funding covered:
Up to $1.4 million for the New York City Department of Transportation to purchase 20 hybrid-electric buses.
Up to $1.15 million for two projects submitted by Broome County Transit to purchase five hybrid-electric buses.
Up to $800,000 for two projects submitted by the Westchester County Department of Transportation to purchase five hybrid-electric buses.
Up to $750,000 for two projects in the city of Syracuse submitted by the Central New York Regional Transportation Authority for the purchase of five hybrid-electric buses.

Of course, with all these grants, someone's got to be making a buck.

And like I said - that's where we come in!

A few months ago, Azure Dynamics (AZD.TO), the hybrid-electric vehicle company I told you about back in August, sold five hybrid-electric, 20-passenger shuttle buses to the Bronx Overall Economic Development Corporation (BOEDC).

The BOEDC receives a good portion of its funding from NYSERDA - which also funds New York's Clean Bus Program.

Following Azure's announcement of its contract with the BOEDC, the company's stock rose about 12%.

But the company's entry into the U.S. mass transit market was worth a lot more than just a quick spike in stock price, as it laid the groundwork for future contracts with New York-based organizations that have received funding through the Clean Fuel Bus Program.

In other words, it was only a matter of time before contract #2 came in from another NYSERDA-funded transit system.

Yesterday morning, Azure Dynamics announced its latest U.S. contract for four new 20-passenger hybrid electric shuttle buses to the United Puerto Rican Organization of Sunset Park (UPROSE).

The organization was able to purchase the vehicles via a grant from the New York Power Authority (NYPA).

And guess who has also contributed funds to the NYPA for hybrid-electric transit buses? That's right, NYSERDA!

Working with the MTA, the NYPA helped New York City Transit buy 10 hybrid-electric transit buses after funding came through from NYSERDA.

It looks like the folks at NYSERDA are good friends to have if you're in the hybrid-electric bus game!

Following Azure's latest U.S. contract for its hybrid-electric shuttle buses, the company's stock rose 13%.

But that's nothing compared to what some Green Chip Stocks subscribers have made since my first recommendation of this stock.

Just in the last month alone, Azure Dynamics has shot up more than 52%!

And it's just the beginning.

Because not only is Azure delivering on hybrid-electric shuttle buses - they're also delivering on a record number of hybrid-electric courier trucks.

You see, back in September, 2003, Azure signed a supply agreement with Purolator Courier, Ltd. for the replacement of up to 2,000 conventional powered vehicles with Azure powered hybrid electric vehicle technology.

Purolator Courier is Canada's largest courier company.

Last month, Purolator executed an order to purchase 115 new hybrid electric vehicles from Azure.

That order represented the first commercial production vehicles to be produced by Azure under the 2003 agreement.

This is only the first phase of fleet replacement for Purolator.

There are still more to come.

Over the next 9 to 12 months, especially after the deliveries of these vehicles commence, I predict this stock will hit new highs.

In fact, by 2006, I expect to see Azure Dynamics trading above $3.00 per share.

Azure closed at $1.60 this afternoon.

Until next time...

Jeff Siegel
Editor, Green Chip Stocks