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Why do I keep getting flashbacks to 1993 when the last order hiatus began?
Feast and famine has characterised the traction and rolling stock business for as long as I can remember. When I joined English electric Traction in 1962 the Modernisation Plan boom was at its height. When I left the industry four years later we had just closed Robert Stephensons & Hawthornes at Darlington and demand was tailing off.
Returning in 1976 the feast part of the cycle was in full swing but was about to tip over. A decade on, and it was back to boom again. And while I had intended to make this month's column a table and chart free zones after last month's excesses, I thought readers would appreciate this modest graphical representation of the ups and downs of the traction and rolling stock market.
You will note that the chart gets a bit ‘busy' in the 1980s with double the bars. This is where British Rail statistics, covering traction and rolling stock overlap with the Department for Transport statistics which are for rolling stock only. Hence the difference in 1988/89 when Class 60s were being built. There is clearly an anomaly in the figures for 1993/94 – probably because the man responsible for these statistics was privatising himself.
An important thing to remember when studying this chart is that investment only registers when the trains enter service and hard cash changes hands. Thus investment lags the economic cycle and is generally out of phase by about 180 degrees. For example, at the depths of the early 1990s recession, investment, in the form of deliveries, was at an all time high.
Extrapolating the graph forward to 2005/06 shows how the double whammy of that recession with privatisation superimposed is giving the train builders a headache ten years later. Remember that the Government aborted Intercity 250 in 1992 putting back West Coast fleet replacement by 10 years.
Similarly, Chris Green 's plan to build 400 Networker vehicles a year ‘forever', which would have seen BR meeting its Commitment to the Hidden Inquiry to phase out slam door stock south of the Thames by the end of 1999, was also aborted. Worse, the Office of Passenger Rail Franchising (OPRAF) and the HSE appeared to overlook Hidden and Mk 1 stock was considered adequate for the first seven year franchises. Finally, Virgin and OPRAF had a rush of blood to the head and decided to totally re-equip Cross Country.
So when the HSE finally woke up and imposed a deadline for Mk 1 withdrawal, we had three mega-contracts to be delivered in four years. Thus the projected investment reveals some unprecednetned peaks before falling off the edge of a cliff, rather than sliding down a slippery slope. And in a sane world, those three peaks would have filled in the hole between 1997 and 2000.
What this means for the manufacturers and their sub-contractors is that they are having to work balls out to meet the schedules implied by the two peaks still to come, after which their factories are going to be pretty empty until the London Underground PPP replacement builds start rolling out in 2008. Mind you, I doubt if the peaks will be quite so dramatic as my chart implies.
Much will depend on progress with the Southern Region power upgrade and the final scope. I would not be surprised if substantial quantitative of Desiros and Electrostars were put back into 2005/06. The chart already assumes that the Class 450/2 ‘growth build' is delayed in this way.
At Derby , Bombardier is already negotiating to slide back at least the growth build component of its South Central Electrostar orders into 2005. The company is scheduled to build 47 new trains for the Victoria Line and 190 trains for the sub-surface lines under the PPP. A prototype of each design will be built in 2006 and subjected to two years testing before series production starts in 2008. Deliveries will run from 2009 to early 2012.
This equates to around 500 vehicles a year – five trains a month - to two designs. This will need a substantial workforce. Derby currently employs around 1,800 and is currently recruiting another 200 short term contract workers to handle the Eurostar peaks.
Bombardier had been hoping to get the Trans-Pennine Express diesel multiple units, but backed the losing franchise bidder. When Siemens was announced as preferred bidder, there was a wonderfully retro ‘save Britain 's only train builder' political campaign of the sort BREL used to run in the bad old days.
Tony Booth, General Manager at Derby threatened that if the order went to Siemens, the Group would ‘review Bombardier's industrial footprint in the UK '. On the other hand Bombardier's President and CEO Paul Tellier said in Canada on 27 August that the company had no plans to close the Derby plant which would probably get work from the Group's busy factories on the continent.
That seemed pretty unequivocal until the same M. Tellier was quoted as saying on 7 October that Bombardier would be closing several of its European railway equipment plants more quickly than expected. Which could mean transfer of work around the remaining sites – which could include Derby .
Meanwhile, Derby faces a similar situation to Metro-Cammell at Birmingham in the 1980s, with a solid workload suddenly disappearing and the prospect of two or three years of starvation rations until substantial orders come into the factory. Then, Met-Camm slimmed down to the core teams of engineers, designers, project managers and production engineers and foremen.
Whether Derby could sit out a couple of lean years in today's world of multinational train builders remains to be seen. Whether the Government/SRA could, or would want to, or could afford to, do anything about it is equally uncertain.
This brings us to Alstom and the demise of its UK factories which contains several awful warnings.
Irrespective of the travails of its French parent and the vagaries of the UK market, the end of train building at Washwood Heath was a clear cut case of suicide. The root cause, in my view, went back to 15 February 1989 when 13 senior managers and engineers handed in their notices simultaneously.
Effectively they were the team which had been responsible for the highly successful Class 156 project, Having toughed out the lean years they were looking forward to moving up the company and then found that people from outside, who they did not rate, were being brought in over their heads. So they went off, set up a train building company from scratch - Hunslet TPL - which then won the order for the Class 323 before being wiped out by the 1064 day hiatus.
Hunslet also recruited the best specialists from Metro Cammell. Since it is people that make things happen, I trace the mysterious post privatisation onset of incompetence at Washwood Heath to this loss of managerial expertise and accumulated knowledge. Plus the retirement of Managing Director Brian Ronan just as the privatisation orders were hitting the shop floor.
From 1996 onwards there was a series of managing directors at the plant, all of whom came from solid manufacturing backgrounds, all of whom seemed to know what they were doing, all of whom were devoted Informed Sources readers, all of whom had big ideas. And yet they didn't seem to be able to make things happen, partly because they had no railway industry experience and partly because the managerial engine room had been weakened.
For example, compare and contrast the class 156 with the Class 458 Junipers for SWT. A back check by BR on the 156 contract in 1991 showed that maintenance cost and u5tilisation levels assumptions in the original investment appraisal had been bettered by 40% and 43% respectively. Of a real increase in revenue of 37% following the introduction of the new trains, 6% was attributed to the quality.
Juniper, however, despite getting a DC safety case years before any other builder was late on delivery, needed endless modifications and was unreliable. It defeats me how an organisation the size of Alstom could not supply 120 vehicles, get them all into service and keep them working when the UK company's commercial future depended on the trains' success. Once the Class 458 flopped, Siemens had a walkover.
Of course, what really irks, and not just me, is the way Washwood Heath brought down Preston . Which is where we come to the French connection.
Based on direct experience of several industries, not least aviation, Ford's Golden Rule is Never, never, commit to joint ventures with the French. Sadly our political leaders and captains of industry continue to be beguiled by la belle France and go into negotiations thinking that the putative French partners are all good chaps like us and with a bit of give and take the venture will succeed. Equally sadly, and this is a commendation not a criticism, the French are the masters of national self interest. The result is invariably that the Brits get shafted.
Even so while GEC Alsthom was a joint venture, with some of the late Sir Arnold Weinstock's iron control still applied from this side of La Manche, it sort of worked. Once it became French controlled Alstom in 1998, run from Paris , the British arm was doomed were the UK market to dry up.
It was the successful joint venture between GEC, ACEC and Alsthom to build Eurostar that led to the formation of GEC-Alsthom. The UK traction company at Preston and Trafford Park continued to supply complete traction packages until the concept of ‘Centres of Excellence' was developed. The aim was to rationalise the production facilities within the Franco-British company. For example, all the bogies for new trains in the group would be built by Le Creusot – and we all know where that led to with Juniper, Corradia and Adelante.
But, surprise, surprise, all the centres of excellence seemed to be in France , starting with responsibility for control electronics which left Preston for a French Centre of Excellence in 1993. And in 1994, when the Trafford Park offices closed, responsibility for switchgear also went to a French Centre of Excellence.
Guess what happened in 1995? The Trafford Park factory closed with responsibility for auxiliary equipment transferring to Preston and power electronics, the high added value high tech stuff transferring to – you've guessed it – France .
In 1997 responsibility for traction gearboxes went to the Rugby factory. A year later, when Alstom was floated, traction motors were transferred to France . Inductors, big heavy things that smooth electric current, were now bought in instead of being manufactured in house.
It was not all one-way traffic. In 1999, Preston became the Centre for Excellence for Metros, of which more in a minute. But, in 2001, Alstom starting outsourcing auxiliaries to Belgium and Spain .
So in 15 years of collaboration, or rape and pillage if you prefer, Preston had gone from being a manufacturer of complete traction packages, with substantial export sales, to an empty factory. See what I mean about naïve industrialists?
But what about the Centre of Excellence for Metros? Well, earlier this year it had about 15 schemes on the go and these are npw being transferred to project offices at Charleroi – including the Jubilee Line Extension extra cars, Tarbes in France , Valenciennes and Ridderkerk in Holland .
Meanwhile, back in Paris , Alstom had being screwing up big time. Acquisition of ABB's power turbine business and cruise liner contracts went pear shaped. In the Transport Sector, the Washwood Heath debacle was followed by understated losses on North American train contracts. All this resulted in the suspension of the shares on 4 August 2003 , after the Group had lost 90% of its value in two years.
A rescue operation followed after the British and German banks had failed to respond favourably to a call from France to support the crippled giant. The French argument was that Alstom was not just a French company but a European champion in heavy engineering which could not be allowed to go under. As you can imagine this did not go down well, especially in Germany where Alstom is Siemen's deadly rival.
A rescue deal, including hefty support from the French Government, was agreed, whereupon the European Community's Competition Commissioner Mario Monti bravely said ‘you can't do that there ‘ere'. This resulted in a restructured rescue deal, which saw the French government subscribing to bonds and loans worth Euros 800 million instead of taking a stake in the company. This was accepted by the European Commission competition authorities on 22 September.
But it doesn't end there. Having prevented an irreversible state intervention, the Commission now has six months to complete its formal investigation of this aid package. It is likely that Commission will press for more disposals to fund the rescue.
All this uncertainty has affected Alstom's business. S hortly after the deal was agreed, Alstom said that in addition to weak markets in power generation, its commercial activity has been ‘significantly impacted' by customer concerns over the group's future and by difficulties in obtaining contract bonds. These factors, ‘exacerbated by growing uncertainty generated over the last weeks' over implementation of the rescue plan have reduced order intake. Orders received in the first half of the 2003/04 financial year are expected to be down year on year by around 25%.
What this means, of course, is that if Bombardier can hang on until 2008 there will be one less competitor to deal with in the UK market. Unless of course, Hitachi gets the putative CTRL Domestic Stock contract.
Which is where we come back to the chart. In France Germany, Italy and Switzerland there are reasonably steady flows of orders from the railways which somehow almost always seem to go into national factories. Can you imnagine any other European country with its own manufacturing industry actually encouraging manufactures from Japan and Korea into a dysfunctional market, as the Rolling Stock Companies are currently doing with the encouragement of the SRA?