Rail Woes A Captive of its Own Company

The crisis at Bombardier reflects the problems of the entire train industry but some of the company's own mistakes are exacerbating the problem, according to Handelsblatt’s train expert.
Bombardier has the blues.

Economics Minister Sigmar Gabriel hasn’t been able to help – and who's to blame him? Even Bombardier doesn't seem to know how it is going to restructure.

But at least after he met with Laurent Troger, the chief executive of the train producer, the minister realized one thing: The Canadian corporation has a long hard road ahead. In Germany alone, 2,500 jobs are on the line; the future of entire production sites is at stake.

Restructuring a railway technology industry leader poses a huge challenge. Bombardier's problems go beyond outdated production structures, which are widespread across the industry. The Canadian train manufacturer also has serious homemade problems: Money is scarce.

While in Germany, 250 InterCity Express trains are a big deal, that's where annual production would begin in China.

Now, the company's customers and competitors like Alstom and Siemens are watching how Bombardier manages this crisis with great concern. On the one hand, Bombardier is getting involved in many joint projects, such as the new ICE4 high-speed trains. On the other, Bombardier is a trusted and established supplier to numerous railway companies. It's no coincidence that Bombardier Transportation - the rail division - has its head office in Berlin. The company wanted to be close to its major customers in Europe. And now, of course, Bombardier's every move is being closely watched. Where is its recovery plan leading?

The company is under pressure to act because of growing competition from eastern Europe and China. That's a new situation: National railway markets, compartmentalized in the past, are becoming more global. It's no longer a taboo to buy trains in China.

Many railroad equipment manufacturers in the West are not ready for this. Their production patterns haven't changed for decades. Nearly every train is built individually and even trains of very similar model ranges sometimes cannot be coupled because engineers have since come up with a nice new construction detail. To put it another way: The advantages of series production, invented 100 years ago or so, are only just beginning to arrive in this industry - unfortunately just when competition is expanding.

New rivals are either accessing this labor-intensive industry with the help of lower labor costs – above all, eastern European companies – or, in the case of the Chinese, they concentrate on mass production. While here in Germany 250 InterCity Express trains are a big deal, that's where annual production would begin in China.

So far, so good: these are problems that affect the whole industry, not just Bombardier.

But for Bombardier, that is only half the story. Over the past few years, the company has overreached itself. Billion-dollar orders from South Africa, Germany and Switzerland were a good thing when it came to corporate presentations to analysts. But they proved hard work for the organization, created out of hasty acquisitions by the Beaudoin founding family.

Within three decades, takeovers in numerous countries enabled the Canadians to become the biggest railway equipment supplier in the Western world. However, the company is still a patchwork of differing corporate cultures and units.

Germany really is no longer the ideal location for welding and sheet metal bending.

In Germany alone, Bombardier first bought the successor to the former East German state-owned carriage construction company, then the AEG-Daimler locomotive factories, and after that, ABB Henschel's production facilities.

For years, one restructuring project followed another and coupled with ongoing changes in management, this became a stop and go process. Now, all that's emerged is 5,000 job cuts in the transport sector. But where exactly? Plus, this is a second wave of cuts, just six months after the first, giving the impression that this hasn't been well thought through.

There's another, existential problem that isn't the fault of Bombardier's current boss Mr. Troger nor his predecessors, though he will have to resolve it. The Canadian parent company is chronically short of money after squandering huge sums on aircraft construction, frittering away $6 billion between 2011 and 2015.

Funds are so short that the railway subsidiary is even ignoring promising calls for bids because it can't secure the millions needed for advance financing.

Hasty emergency responses won't fix Bombardier Transportation's problems. The company needs to wholly reorient itself around its strengths. It could make far better use of its international production network - Germany really is no longer the ideal location for welding and sheet metal bending. But there are no resources to make such changes as long as the railroad company’s capacity to act is limited by shortages at its parent company.

Bombardier has no alternative but to separate its train construction from its aircraft activities and give the rail division complete independence.


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