Staff Report #1
February 26, 2025
To All Commissioners
Re: 2026 Bus Replacement and Expansion Programs
Recommendation
That the Commission:
i) APPROVE the purchase of the 2026 replacement bus requirements (15 – 40’ buses & 2 – 60’ buses) at a total cost of $16,731,075, exclusive of applicable taxes;
ii) APPROVE the purchase of the 2026 expansion bus requirements (12 – 40’ buses) at a total cost of $11,122,308, exclusive of applicable taxes; and
iii) DIRECT administration to issue the requisite purchase order for the 29 buses.
Background
In April 2024, the Commission accepted the bid submission from New Flyer Industries Canada, ULC for the supply of 40’ and 60’ buses for the period of 2024 through 2027. At the time of the award, the Commission also directed administration to proceed with the purchase of both 2024 and 2025 replacement buses (30 – 40’ buses and 4 – 60’ buses in total) given the quoted delivery times in the proposal were 16 months from date of order. These buses are scheduled to be delivered between March and September of 2025.
Prior to the expiry of the previous contract, the North-American bus manufacturing sector had experienced pressures resulting from external program and policy decisions as well as the global pandemic. More recently, additional and potentially more impactful pressures have risen to the forefront. Each of these external pressures is discussed in greater detail below.
Global Pandemic
The bus manufacturing sector in North America, like many other sectors, was significantly impacted by the global pandemic, primarily as the result of material supply chain and labour issues. Early on in the pandemic, productions were impacted by public health mandates, in many cases resulting in plant shutdowns for extended periods of time. In addition, the pandemic-related employee non-attendance resulted in difficulties maintaining production schedules. As time progressed, public health measures were loosened and employee attendance improved, however supply chain issues for the component parts required to build a bus began to materialize. These issues resulted in significant price escalations in many cases, and a significant production delays specific to the micro-chip shortage, resulting in buses being parked until such time as the chips could be installed.
These issues placed significant pressure on the financial sustainability of bus manufactures as the full cost of building these buses had been expended with the exception of the required missing components, but contracts were structured to provide payment upon delivery. This financial pressure was compounded when municipalities placed their capital projects on hold during the pandemic as they directed all efforts at maintaining operations albeit at much lower levels of service. This resulted in a dip in the order forecasts, further impacting productivity going forward.
Federal Zero Emission Transit Fund (ZETF)
In August 2021, the Canadian Federal government announced the Zero Emission Transit Fund (ZETF), which included $2.75 billion in funding over five years to support public transit and school bus operators’ plans for electrification by supporting the purchase of zero-emission buses (ZEBs) and build supporting infrastructure. The funding program was application-based, requiring municipalities to submit a business case including the full costing of the program as well as a feasibility study specific to the transit system identifying the cost/benefit analysis of a full fleet transition to zero-emission technology.
The announcement of this funding program prompted many municipalities to re-visit their plans to begin fleet transition given the funding shortfalls between the cost of a diesel bus and a zero-emission bus would be covered under this program. As a result, bus manufactures in Canada experienced growth in orders for zero-emission buses and a corresponding decline in diesel bus orders, which, while anticipated, occurred at a more rapid rate than previously expected.
Climate Emergency Response Plans
Notwithstanding the ongoing global pandemic, jurisdictions across North America continued to move forward with the establishment of Climate Emergency Response Plans in an effort to curb their local carbon footprints. Given that public transit buses make up a significant portion of many municipal fleets, coupled with the announcement of the Zero Emission Transit Fund in Canada (and similar funding at the State level in the USA), many jurisdictions established target dates for full fleet transitions, and in some cases, committed to the exclusion of diesel bus purchases going forward. These plans resulted in even more disruptions to production forecasts, which had not anticipated the shift away from diesel buses to occur so quickly.
Gap in Federal Funding
Supply chain disruptions and extended timelines associated with Federal funding application approvals resulted in delays with respect to the actual procurement of buses in many jurisdictions. In addition, significant infrastructure is required to be in place prior to the utilization of battery electric buses, often requiring facility retrofits. While some transit systems, who were further along the fleet transition continuum have agreements in place, many are still waiting approval or are at the expression of interest stage of the process for the ZETF program.
In early 2024, the Canadian Federal government announced that all approved funding under the ZETF must be fully expended by December 31, 2025. Given current delivery schedules for ZEBs, this date is resulting in concerns for many that the funding will be lost, leaving significant funding gaps to be addressed should the fleet transition plans continue.
The Federal government has pointed to the upcoming Permanent Transit Fund (PTF), which is scheduled to begin in 2026 as a source of funding that can be utilized going forward in part to cover the costs associated with fleet transition. While this funding source is welcome news, the funding gap for jurisdictions who are just now looking to begin their fleet transition means that orders for these new buses may have to be delayed until 2026 once funding allocations have been confirmed. The details with respect to the PTF program indicate that a significant portion of the funding will be dedicated to regional transit plans with direct ties to affordable housing and the role transit can play in helping alleviate these issues. Addressing this issue, which in many cases will require growth in transit services will place a significant strain on the available funding that will also be looked toward to help address the incremental costs of fleet transition.
Bus manufacturers are being forced to make decisions with respect to future product offerings while a number of external events have the potential to significantly impact demand going forward.
2027 EPA Standards for Internal Combustion Engines
The US Environmental Protection Agency (EPA) creates standards that are followed by bus manufacturers in North America given their customer base covers both countries. Each time the EPA standards for diesel engines are updated, engine manufacturers must adapt their technologies to ensure compliance. Engines for the two bus manufacturers supplying Canada are provided by Cummins Inc, who have confirmed they will have a 2027 EPA-complaint engine (X-10 Transit) available to North American bus manufacturers sometime in 2026, for install in buses going forward. This engine will be capable of operating on diesel, hydrogen or natural gas. While this is welcome news, bus manufacturers have been faced with the decision of whether to invest the required engineering hours to integrate this new engine into their chassis noting the forecasted decline of diesel bus orders going forward. This further complicates the landscape for transit providers noting that at some point in the future diesel will no longer be an option that is available and many smaller transit systems are not equipped to begin the transition to zero-emission technology given resource issues.
US Election
The policy direction under the Trump presidency has resulted in significant incremental challenges to the North American Bus Manufacturing sector, the costs of which will be ultimately incurred by transit systems looking to maintain and/or expand their fleets. The threat of wide-spread tariffs on Canadian goods, the introduction of tariffs on Canadian steel and aluminum, and the resulting retaliatory tariffs imposed by the Canadian government have the potential to significantly increase the purchase price of transit buses. Additionally, the potential tariff war has had a detrimental effect on the Canadian dollar, which further increases the cost of a bus.
In addition, mandates requiring the purchase of green fleets in the United States have been lifted, and this coupled with increased costs, are resulting in many transit systems re-visiting their fleet transition plans and considering a return to diesel buses. This shift has the potential to further extend delivery times for buses as manufacturers have only recently ramped up to deliver a higher percentage of zero-emission buses and now may potentially be required to shift production back to diesel.
Ongoing Supply Chain Issues
Supply chain for component parts of buses continues to be precarious post-pandemic, resulting in extended delivery times for buses and placing increased financial pressure on bus manufacturers who have outlaid the money to build a bus only to have it sitting on a lot waiting for a component part before it can be delivered and paid for.
Canadian Federal Election
With a federal election on the horizon in Canada, questions relating to the manner in which tariff threats from the USA will be responded to as well as whether the Canadian Permanent Transit Fund will remain intact are resulting in further uncertainties. Should any retaliatory tariffs implemented by the Canadian government include the bus manufacturing sector, the increased costs of buses will be borne by the municipality. While existing Provincial and Federal funding programs can be utilized for bus purchases, many programs are restrictive in the manner in which they can be adjusted to compensate for costs exceeding those which were budgeted at time of funding application. Similar to large infrastructure projects that were approved pre-pandemic and now on hold due to lack of funding to address the inflationary costs, bus purchases (both replacement and expansion) will need to be revisited.
In addition to the potential tariff impacts, the status of the Canadian Permanent Transit Fund will be in question until a governing party has been elected and program intentions are announced. This uncertainty will result in procurements being placed on hold pending confirmation of funding.
Should no alternate source of funding be available for bus procurements going forward, municipalities will be faced with funding the incremental costs, or adjusting purchase quantities down to keep capital spending within budget. In the case of some federal funding programs, given the restrictive guidelines which do not allow for consideration of inflationary impacts post project approval, projects may be cancelled due to funding shortfalls.
Impacts on the Canadian Transit Sector
The culmination of the aforementioned impacts on the bus manufacturing sector has resulted in significant concern for transit providers in Canada with respect to availability, options and pricing of transit buses going forward. The Canadian Urban Transit Association (CUTA) undertook to meet with the three primary players in bus manufacturing in Canada (New Flyer Inc., Nova Bus and Cummins Inc.) in an effort to gain a better understanding of their plans going forward and share this information with transit systems. On April 11, 2024, CUTA held a session in which representatives from each of the aforementioned parties provided commentary with respect to their future plans, in summary:
- Cummins Inc. indicated their plans to have an X-10 transit diesel engine available some time in 2026 which will meet 2027 EPA standards for diesel engines. They are also working on new CNG and Hybrid engines which are scheduled to be available in 2027;
- New Flyer Inc. and Nova Bus indicated their plans to have the following options available going forward:
| Bus Platform | New Flyer Availability | Nova Bus Availability |
| Diesel 40’ and 60’ | · Currently with L9 engine· Post 2026 with X10 engine | · Currently with L9 engine for orders already submitted.· Production on diesel buses will cease December 2025. |
| CNG 40’ and 60’ | · Currently with L9N engine· Post 2026 with X10 engine to be determined based on demand assessment | · Production on CNG buses will cease December 2026. |
| Hybrid 40’ | · Currently L9 with B6.9 electric motor· Going forward to be determined based on demand assessment | · Phased out at the end of 2024· New option may be available in 2027 based on demand assessment |
| Hybrid 60’ | · Currently not available· No options for new engine | · Currently not available |
In summary, the information in the table indicates that there is only one manufacturer in Canada that will supply diesel buses going forward. New Flyer has indicated they plan to have a diesel bus available until at least 2030, noting demand for the product will drive decisions going forward. This situation is not ideal as all pressure for diesel buses (which will be again upgraded to become cleaner in 2026) will be placed on one supplier, who will also be balancing this demand with demand for other platforms within their portfolio. Further pressure is also anticipated given the decision by Nova Bus to withdraw from the US market in 2025. As indicated earlier, both New Flyer and Nova Bus had traditionally participated in the North American bus market, providing product to transit systems in both countries.
In January 2025, CUTA launched a Bus Manufacturing Task Force made up of representatives from transit systems and bus manufacturers, noting London Transit administration is a member. This task force was formed to develop recommendations intended to alleviate some of the pressures facing the sector including consideration of:
- flexibility in funding and procurement programs;
- levels of customization for bus orders; and
- capacity of the manufacturing sector to meet demand
The Committee will use the recommendations produced by the American Public Transit Association (APTA) task force as a starting point (see Enclosure I), giving consideration to the differing funding situation in Canada which requires transit systems to rely on three levels of government to fund most projects. It is anticipated the initial recommendations from the CUTA task force will be presented at the Spring Summit in May 2025.
2026 Bus Replacement and Expansion Order
In light of the extended delivery times being experienced in the sector, administration reached out to New Flyer for pricing and delivery estimates for the 2026 replacement and expansion bus requirements. The prices quoted (exclusive of applicable taxes) are set out in the table below.
| Bus Model | Price |
| 40’ Diesel Bus | $926,859 |
| 60’ Diesel Bus | $1,414,095 |
The prices represent an approximate 8% increase over 2024 pricing for both the 40’ and 60’ buses. It is however noted in the quotation that New Flyer has committed to recalculate the foreign exchange at the time of line entry of the buses, and reduce the bus prices should the exchange be more favourable at that time.
The following table sets out the impact of the quoted pricing on the 2026 Bus Replacement Program budget.
2026 Bus Replacement Program
| Description | Units | 2026 Budget Amount | Amended Cost | Variance |
| Bus Replacement (40’) | 15 | $ 14,016,000 | $ 14,148,000 | $ 132,000 |
| Bus Replacement (60’) | 2 | 2,855,800 | 2,878,000 | 22,200 |
| Ancillary Equipment | 544,000 | 544,000 | – | |
| 17 | $ 17,415,800 | $ 17,570,000 | $ 154,200 | |
| Funding | ||||
| City of London | $ 13,483,300 | $ 13,483,300 | $ – | |
| Provincial Gas Tax | 1,432,500 | 1,586,700 | 154,200 | |
| Federal Gas Tax – C/L | 2,500,000 | 2,500,000 | – | |
| Total | $ 17,415,800 | $ 17,570,000 | $ 154,200 |
The delivery time provided in the bid document indicates third quarter 2026 (approximately 18 month delivery). These delivery timelines will continue to place pressure on the operating budget as buses scheduled to be retired in 2026 will need to be maintained for an additional year; however, having this knowledge in advance will ensure the Fleet and Facilities department can plan for these extended bus lives.
In addition to the bus replacement requirements for 2026, bus expansion requirements also need to be considered. The table below sets out the bus expansion budget for 2026 and the impacts on same with the quoted pricing.
2026 Bus Expansion Program
| Description | Units | 2026 Budget Amount | Amended Cost | Variance |
| Bus Replacement (40’) | 12 | $ 11,212,800 | $ 11,318,400 | $ 105,600 |
| Ancillary Equipment | 524,300 | 524,300 | – | |
| 12 | $ 11,737,100 | $ 11,842,700 | $ 105,600 | |
| Funding | ||||
| City of London | $ 3,129,900 | $ 3,235,500 | $ 105,600 | |
| ICIP Funding – Provincial | 3,908,500 | 3,908,500 | – | |
| ICIP Funding – Federal | 4,698,700 | 4,698,700 | – | |
| Total | $ 11,737,100 | $ 11,842,700 | $ 105,600 |
Given these extended timelines, the report recommendation calls for an order to be placed for both the 2026 replacement and expansion buses. It should however be noted that given the expected delivery for the expansion buses of Q3 2026, adjustments will be required to the implementation date for the 2026 service improvements which typically take place in September of each year. Recommendations with respect to timelines for the 2026 service plan will be included in the draft plan when it is tabled in late 2025. The funding shortfalls identified in the two tables will be further discussed with civic administration once the pricing has been confirmed at time of line entry (estimated at June 2026), noting it is anticipated the shortfalls can be addressed in the same manner that occurred with the 2024/2025 bus replacement orders.
Rapid Transit Bus Requirements
When considering the extended delivery timelines for bus orders and ancillary equipment (smart card readers, fare boxes, etc.) coupled with the time required to install all the required ancillary equipment on an expansion bus once delivered against the fall 2027 date for the launch of the East Leg of the Rapid Transit service, buses for this service should be ordered no later than May 2025. Final determination with respect to who will be placing the order for the buses required for the Rapid Transit project has not been made, and given the overall project is being led by civic administration, this report has been shared with them for consideration. Rapid transit buses can be purchased under the current contract between London Transit and New Flyer Industries, noting the contract meets funding guideline criteria however pricing will be subject to a formal quotation which will apply the price adjustment formula set out in the contract at the time the quotation is requested. As set out earlier in this report, ongoing price fluctuations are anticipated given the numerous issues impacting the sector.
Enclosure
I – APTA Bus Manufacturing Task Force Recommendations
Recommended by:
Craig Morneau, Director of Fleet and Facilities
Mike Gregor, Director of Finance
Concurred in by:
Kelly S. Paleczny, General Manager