IN A WHIRLWIND tour last month, Bombardier Transportation President & Chief Operating Officer Jean-Yves Leblanc visited every one of the company's European sites, starting at Crespin on May 4 and finishing in Wien on May 12. His aim was to explain personally to every member of staff the company's strategy to make Bombardier 'the world's number one passenger vehicle supplier'.
It is an ambitious target, but Leblanc believes it is attainable. Bombardier's corporate results for the year to January 31, published on April 21, show that over the past decade group turnover has risen from C$550m to C$8·6bn, a compound annual growth rate of more than 20%. By comparison, for Transportation to double turnover in the next five years requires 15%.
While other major players in the rail market continue to post trading losses, Leblanc is confident that his record order book of C$11bn (of which C$7bn is in Europe) can be converted to a reasonable return. Last year saw both the Austrian and Belgian operations return to profit.
Two European divisions
Underpinning the strategy is restructuring in Europe. The autonomous units in each country will be grouped into two operating divisions, with centralised management, marketing, engineering, procurement, personnel and financial functions. 'This structure has served us well in the free-market North American conditions, and we feel the time is right to introduce it in Europe as well,' explains Leblanc.
Atlantique Europe, to be headed by ANF President Bernard Dolphin, will combine ANF in France, BN in Belgium, Prorail of Great Britain and recently-acquired Vevey Technologies in Switzerland. Continental Europe will merge Aachen-based Talbot with the multiple plants of Deutsche Waggonbau AG, BWS in Austria, Czech-based Ceska Lipa and the October Railway works in St Petersburg. The old companies will remain as legal entities in their respective countries, but in practice everything will be channelled through the divisions.
Clearly the move will reduce duplication, but Leblanc says it is not primarily about staff cuts. Whilst 150 will go at ANF and BN, this is already down from 350 following recent orders, whilst the work force at Prorail has leapt from 180 to over 700. The move is more about eliminating boundaries, developing best practice, and working together as team players. Leblanc says investing in people will be critical to the company's success.
He rejects suggestions that the company has too many plants. 'Each has its own importance and its expertise; what is important is to resize the business to a level appropriate for the market. Today ANF occupies 50% of the space it did, whilst BN is only 35% of its size at acquisition.'
Although in theory Bombardier only needs 1% growth in market share to head the world passenger vehicle business, Leblanc recognises that market leadership 'is not about one year's figures, but about getting there and staying there'. Each division will have clear mandates in its domestic markets, and a logically defined export area. For example Continental Europe is mandated to expand business in the Baltic states, CIS and Russia.
Doubling turnover in the next five years will require a variety of growth strategies. One area with considerable potential is in servicing and maintenance, as railways come under pressure to spin off their workshops or contract work out. Bombardier has recently picked up fleet maintenance contracts from GO Transit in Toronto and the Los Angeles Metrolink. The Virgin CrossCountry order to be signed in mid-summer will see maintenance responsibility for the existing stock handed over before the end of this year.
New rail networks also offer substantial prospects, and the Canadian-based Turnkey Systems division will have a global remit, working with the manufacturing divisions to harness the best combination of technology and financing. Turnkey Systems has recently completed the first heavy metro line in Ankara, and is fitting out the Putra automated metro for Kuala Lumpur. It is also talking to local civil engineering firms for other possible bids.
Leblanc is also hoping to develop a 'centre of excellence' for freight vehicles. Ceska Lipa's main business is wagons, and Talbot also has some expertise. On May 4 Bombardier announced a Memorandum of Understanding for a 50:50 joint venture with US builder Greenbrier to build wagons at the Concarril plant in Mexico. This is assembling SD70MAC diesel locos for the North American market under a 'partnership' agreement with General Motors, but Leblanc says no decision has been made on whether Bombardier will enter the loco business on its own account.
Unlike its rivals, Bombardier does not have close links to a major electrical group, and Leblanc says it will continue to buy-in traction equipment from a variety of sources. The recent purchase of a 26% stake in Elin will provide software resources and a better understanding of the traction market, but Leblanc highlights independent suppliers such as Kiepe and the big Japanese electrical groups.
Growth is also anticipated outside Europe and North America. After three years of negotiations Bombardier has signed a deal with Loric's Sifang works in China to build inter-city passenger coaches. The JV will initially supply 100 cars a year to Chinese Railways, with the first scheduled to roll out by the end of 1998, but may later be expanded to serve more of the Asia-Pacific market.
What about further acquisitions? 'Why not', responds Leblanc, 'if it makes sense at the right time.' Noting that 'we are not targetting anything at the moment', he brushed off suggestions that the group might be interested in Ansaldo Trasporti as an entry to the 'complicated' Italian market.
Despite past problems at BN, DWA and BWS, Leblanc says that Bombardier 'is now the most profitable supplier in the passenger coach market'. He attributes this to a rigourous bidding procedure, and avoiding loss-making contracts. 'We will always talk to the customers to see if they are willing to change the bidding terms and conditions, but at any point we are prepared to take a "No Go" decision'.
In the recent flurry of orders from private British train operating companies, Bombardier only bid on two: the Virgin CrossCountry fleet which it won, and the Connex EMU build, which it didn't. And every lost bid is systematically examined to determine the crucial factors for next time. Leblanc holds up the VCC bid as an example of the way European operations are likely to work in the future. 'Prorail, BN and ANF came together with their expertise and skills to produce a package that none of them could have managed on their own.' He sees a growing market for 200 km/h DEMUs and push-pull trains following the Virgin build, and considers the company is 'well placed for 2003-04.'
As soon as a bid is successful, Bombardier will have its project team in place 'within 48 h of getting notice to proceed'. This ensures that no time is lost at the design and planning stage; 'a month lost at the beginning of a 26-month contract can prove very expensive at the end'. Thus he is confident of meeting the very tight deadlines for the Virgin order.
But how far can railways still afford to buy bespoke solutions? Leblanc feels that 'the market is not ready for the standard train ... we have yet to see a standard customer ... Richard Branson and SNCF have very little in common.' Modularity is a cost-effective approach to minimising production costs, and Leblanc endorses this approach. 'With Talent we have gone a long way towards standard modules, but the customers cannot take more at this stage.'
'The market is not ready for the standard train ... we have yet to see a standard customer'
President & CEO, Bombardier Transportation