Cochrane
20-07-11, 11:12
Right, so it seems the new forum is working for popular and/or internet related topics pretty well. Let's make a new test case: Highly specialized questions that interest few and would have disappeared very quickly in the old General Chat, such as this one.
Background
First a bit of background: The british government is upgrading a railway line called Thameslink, which connects towns suburbs north and south of London with the city and each other. The goal of the upgrade is to serve more towns with more trains, and to provide more space by making the trains (and platforms) longer. The line is run by a private company (First Capital Connect) under a contract with the british Department for Transport, but the DfT handles several key tasks such as rolling stock procurement. And obviously, with the upgrade plan, a lot of new trains are needed. 1,300 cars in total, to be precise.
The bidding process settled on either Bombardier or Siemens. Bombardier is originally canadian, but thanks to a huge buying spree, they own a lot of factories in Europe, including one in Derby, UK, which is mainly used for UK train orders. Siemens is german and has mainly grown by buying german competitors. They build trains for the british market in Krefeld, Germany. Not too long ago, Siemens was named the preferred bidder, so except something really weird happens, they will build the new trains.
Bombardier has announced that they will cut 1,400 jobs in Derby, and have blamed it on this purchase decision. Almost all other train orders for the UK market will be finished by the end of the year, except for a large one for London Underground, which will run to 2013. It is possible and likely that Bombardier will get new orders in the meantime, but train production has very long lead times, so large parts of the Derby plant will have nothing to do pretty soon. Siemens will create new jobs as part of the contract, but only about 600 in the UK manufacturing sector.
The question
Now a lot of people are complaining and saying that the contract should have gone to Bombardier, simply because they were (kind of) british. What do you think?
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Opinion
My opinion: Well, first of all, I can't say I'm unhappy about Siemens winning the contract. Technologically, both Bombardier and Siemens offered great, innovative trains, and while I don't know the decision in detail, I am confident that it wasn't wrong from that point of view.
In general, I think international competition helps. If the british government were to install a "buy british" policy, they'd be limited to Bombardier, who could charge a lot higher prices and innovate less than they have to do now, since all other british train manufacturers died or at least left that part of the business. International competition also allows british companies to compete in other countries, and companies like Arriva and EWS have had a lot of success operating trains all over Europe (they've since been bought by companies from other countries, of course, but that's not the point).
The DfT
Looking at the details of this decision, though, there are quite a few problems. One that has seen increased attention lately is that the train deal also had to include financing for the trains. Bombardier had a disadvantage in that it has a worse credit rating than Siemens. This seems incredibly stupid. In other countries, there are models evolving where financing is handled by the government, and the private companies lease the trains from them. A key advantage is that the government usually gets very good credit rating and low interest rates. Yes, the debt increases, but since it is all going to be paid off by the private companies, that's not an actual problem. And lower train lease costs for the private companies means they might need less subsidies for running the train services.
But I think a more interesting question is: What was the DfT doing ordering all that trains to begin with? If the trains could only be used on this route, it might make sense to order them centrally, but normally, the decision which trains to use is one that I think should be left to the operators. The DfT is ordering trains directly left and right, often for several companies together. I don't think that helps competition between train builders and between operators.
It's also questionable whether such a huge single order is a good idea. If some part of the train's design is found to be faulty, Thameslink will essentially shut down until its fixed. The DfT could have simply ordered two series of different trains. That would have cost more, of course, and there would have been no guarantee that Bombardier would win either since Alstom (french) and Hitachi (japanese) were also competing, but it would have increased the chances for Derby and decreased the risks for the entire line.
In general, the DfT's tactics in the rail sector directly lead to this "feast-famine" situation, where every few years, there are huge orders, then nothing in between. The DfT also hands out very large franchises to operators. I guess the idea is that this will be more efficient, and allow for cross-subsidies where the profits of express trains help subsidize the losses of regional ones. Part of the plan is also that the franchise operators will invest more money into the service. And they are actually increasing this strategy by making the franchise contracts ever longer. I think more and smaller franchises would be more interesting, because they would allow for more competition, from smaller companies as well, and they could distribute train orders more evenly.
Bombardier
But Bombardier isn't blameless either. In fact, some sources, in particular Siemens, say that Bombardier was planning to make these job cuts long before the decision, which would actually make sense: Even if Bombardier had won the contract, there is no need for most of these people during the design phase of the trains and while the prototypes are being built.
The Derby plant has the problem that it only serves the GB market. The british rail system requires trains built to very different design parameters from all other european countries (except Ireland, but that is a tiny market) and really all other world regions, too. Bombardier and Siemens have managed to sell some british-design trains to South Africa and Thailand for essentially high-speed metro networks, but that's not a source of income one can rely on.
Bombardier serves the rest of the world from their plants in Canada, France, Germany, Italy, Switzerland, Austria, Poland and so on instead. Many of them are quite busy and being expanded for various orders, and Derby sees almost none of that business. Had Bombardier invested in building the know-how and capacities for orders from continental Europe or other regions in Derby, they would probably have not had this problem.
Background
First a bit of background: The british government is upgrading a railway line called Thameslink, which connects towns suburbs north and south of London with the city and each other. The goal of the upgrade is to serve more towns with more trains, and to provide more space by making the trains (and platforms) longer. The line is run by a private company (First Capital Connect) under a contract with the british Department for Transport, but the DfT handles several key tasks such as rolling stock procurement. And obviously, with the upgrade plan, a lot of new trains are needed. 1,300 cars in total, to be precise.
The bidding process settled on either Bombardier or Siemens. Bombardier is originally canadian, but thanks to a huge buying spree, they own a lot of factories in Europe, including one in Derby, UK, which is mainly used for UK train orders. Siemens is german and has mainly grown by buying german competitors. They build trains for the british market in Krefeld, Germany. Not too long ago, Siemens was named the preferred bidder, so except something really weird happens, they will build the new trains.
Bombardier has announced that they will cut 1,400 jobs in Derby, and have blamed it on this purchase decision. Almost all other train orders for the UK market will be finished by the end of the year, except for a large one for London Underground, which will run to 2013. It is possible and likely that Bombardier will get new orders in the meantime, but train production has very long lead times, so large parts of the Derby plant will have nothing to do pretty soon. Siemens will create new jobs as part of the contract, but only about 600 in the UK manufacturing sector.
The question
Now a lot of people are complaining and saying that the contract should have gone to Bombardier, simply because they were (kind of) british. What do you think?
---
Opinion
My opinion: Well, first of all, I can't say I'm unhappy about Siemens winning the contract. Technologically, both Bombardier and Siemens offered great, innovative trains, and while I don't know the decision in detail, I am confident that it wasn't wrong from that point of view.
In general, I think international competition helps. If the british government were to install a "buy british" policy, they'd be limited to Bombardier, who could charge a lot higher prices and innovate less than they have to do now, since all other british train manufacturers died or at least left that part of the business. International competition also allows british companies to compete in other countries, and companies like Arriva and EWS have had a lot of success operating trains all over Europe (they've since been bought by companies from other countries, of course, but that's not the point).
The DfT
Looking at the details of this decision, though, there are quite a few problems. One that has seen increased attention lately is that the train deal also had to include financing for the trains. Bombardier had a disadvantage in that it has a worse credit rating than Siemens. This seems incredibly stupid. In other countries, there are models evolving where financing is handled by the government, and the private companies lease the trains from them. A key advantage is that the government usually gets very good credit rating and low interest rates. Yes, the debt increases, but since it is all going to be paid off by the private companies, that's not an actual problem. And lower train lease costs for the private companies means they might need less subsidies for running the train services.
But I think a more interesting question is: What was the DfT doing ordering all that trains to begin with? If the trains could only be used on this route, it might make sense to order them centrally, but normally, the decision which trains to use is one that I think should be left to the operators. The DfT is ordering trains directly left and right, often for several companies together. I don't think that helps competition between train builders and between operators.
It's also questionable whether such a huge single order is a good idea. If some part of the train's design is found to be faulty, Thameslink will essentially shut down until its fixed. The DfT could have simply ordered two series of different trains. That would have cost more, of course, and there would have been no guarantee that Bombardier would win either since Alstom (french) and Hitachi (japanese) were also competing, but it would have increased the chances for Derby and decreased the risks for the entire line.
In general, the DfT's tactics in the rail sector directly lead to this "feast-famine" situation, where every few years, there are huge orders, then nothing in between. The DfT also hands out very large franchises to operators. I guess the idea is that this will be more efficient, and allow for cross-subsidies where the profits of express trains help subsidize the losses of regional ones. Part of the plan is also that the franchise operators will invest more money into the service. And they are actually increasing this strategy by making the franchise contracts ever longer. I think more and smaller franchises would be more interesting, because they would allow for more competition, from smaller companies as well, and they could distribute train orders more evenly.
Bombardier
But Bombardier isn't blameless either. In fact, some sources, in particular Siemens, say that Bombardier was planning to make these job cuts long before the decision, which would actually make sense: Even if Bombardier had won the contract, there is no need for most of these people during the design phase of the trains and while the prototypes are being built.
The Derby plant has the problem that it only serves the GB market. The british rail system requires trains built to very different design parameters from all other european countries (except Ireland, but that is a tiny market) and really all other world regions, too. Bombardier and Siemens have managed to sell some british-design trains to South Africa and Thailand for essentially high-speed metro networks, but that's not a source of income one can rely on.
Bombardier serves the rest of the world from their plants in Canada, France, Germany, Italy, Switzerland, Austria, Poland and so on instead. Many of them are quite busy and being expanded for various orders, and Derby sees almost none of that business. Had Bombardier invested in building the know-how and capacities for orders from continental Europe or other regions in Derby, they would probably have not had this problem.