INTRO: Eight acquisitions in two years have added more expertise to Alstom Transport’s armoury in the battle for domination of the world railway equipment market. Murray Hughes found that Alstom Transport President André Navarri’s philosophy was ’simply growing the business’
BYLINE: André Navarri
PRESIDENT of Alstom Transport André Navarri was just back from a trip to China and Taiwan where he was keeping tabs on the gestating Beijing - Shanghai and Taipei - Kaohsiung high speed line projects. But before discussing details of business prospects in Asia, Navarri was keen to sketch out the rapid progress that Alstom has made since its flotation on the London, Paris and New York stock markets last June.
Operating in six industrial sectors, Alstom registered sales worth 14·1bn euros in 1997-98. With a turnover of 2·9bn euros, transport accounts for around one-fifth, and in 1997-98 the sector had a 5·4% net operating margin; this was before the acquisition of Cegelec and Sasib. Orders in hand at February 8 were worth 6·95bn euros.
Navarri keeps in his mind’s eye a ’company portrait’ that shows just how far the organisation has progressed from its origins as the Anglo-French company GEC-Alsthom. ’We have become a truly global company, and we are market leaders in Britain, France, Spain, Belgium and Poland’, he said. Alstom now has subsidiaries or interests in 14 countries, not least in North and South America, which in 1997-98 generated 25% of turnover.
’In the company photo you will also see us in Mexico, the USA, Canada and Brazil, where we have a real domestic base.’ Navarri was referring to Mafersa, now fully owned by Alstom and delivering metro cars for Rio de Janeiro, São Paulo, Brasilia and Fortaleza, and signalling specialist Alstom Transporte Ltda in São Paulo, formerly CMW, which with GRS and Sasib has strengthened the group’s expertise in the signalling field.
Acquisitions have been fundamental to Alstom’s recent policy, and Navarri counts eight in the last two years. ’The dynamics of internationalisation are supported by a simple strategy, which is internal growth and external growth. We are a key business in the Alstom group, and our objective is to become the absolute leader.’
Speaking in his office in the company’s stylish headquarters in the Paris suburb of St Ouen, Navarri emphasised that ’the difference from our competitors is that we are profitable ... Just look at the history of Alstom. We are averaging 12% growth a year while the market is only growing by 5%. In the nine months from April to December last year, we managed growth in orders and growth in sales. I see no reason to disappoint the stock market.’
Returning to the topic of the Asian market, Navarri referred to the Metropolis metro car family, which ’can be customised for all needs but is based on service-proven components such as the Onix traction package.’ Chosen for Singapore’s Northeast line, it is also shortlisted for Shanghai’s Line 3 (RG 1.99 p28); a joint venture could be set up in China to build the trains. Navarri felt there might also be an opportunity to supply Citadis trams to Shanghai, and said that ’our offer goes beyond rolling stock to offer all the core systems too.’
High-speed technology transfer
On the Taiwanese high speed line project, Navarri warned that ’it is very large and very complex, and may take several months yet’ before contracts are signed. He was convinced that ’it will certainly happen.’ The Beijing - Shanghai high speed line was ’much longer term, and we still need decisions from the Chinese on how to do it, the route and use of foreign technology.’ Alstom is working in partnership with Siemens to offer Chinese Railways the Eurotrain combination.
Navarri has some reason to be confident about prospects for selling TGVs: ’the TGV has won all the international competitions for high speed trains’. Asked about the Seoul - Pusan project in South Korea, he said that the government has decided to continue with the project, albeit in phases, ’which is quite normal’. As to whether the French contract was profitable or not, he remarked that ’if my competitors like to think we are making a loss on the Korean contract, that’s up to them. We are not in the business of losing money.’
The effective cancellation by Florida governor Jeb Bush of the FOX project to build TGV lines from Miami to Tampa and Orlando was less than welcome, but ’it was never in our business forecasts’, said Navarri. He commented that while the TGV was a symbol of his company’s technical prowess, at the moment TGV production represented a mere 10% of turnover: ’it’s only one part of the business among many other products.’
In any case Navarri felt that the European market offered ’fine perspectives such as TGV Est, Madrid - Barcelona and the Amsterdam - Marseille corridor, which means the USA is just the cherry on the cake.’ Alstom was working with Bombardier on the American Flyer, while other segments of the US market were just as important - cars for the San Diegans and refurbishment of 284 cars for Chicago Transit Authority, to name but two examples. ’We see strong growth in this area, and we won US$250m worth of contracts in 1998 alone’, he said.
On February 9 Alstom signed what is perhaps the high speed train contract with the highest profile of all. The fleet of 53 trains for Britain’s West Coast Main Line services is a critical element in Virgin Rail’s ambitious plans to turn the intensively-used 885 route-km network between London, Northwest England and Scotland into a money-spinner. Navarri chose the West Coast main line as ’a good example of our company’s strategy. We started out with the acquisition of maintenance contractor GTRM (51%), and it was not by chance that it served the West Coast. Then we moved on to win the resignalling contract. We left our competitors standing because we understood more quickly than they did the new way of thinking on Britain’s privatised railways. I don’t want to be arrogant, but the West Coast is really a Railtrack-Virgin-Alstom partnership. We will even be responsible for the depots, and for phasing the old trains out and the new ones in. The service provision contract is not to please Virgin, but because we ourselves are very committed.’
Navarri remained confident that the West Coast trains would be delivered on time ’because we will equip the Old Dalby test track and put the first train into testing immediately. It will be completely fit for service after real-life testing.’ Although the trains would be ’very innovative in the passenger environment, they will use proven technology such as the Fiat tilting equipment and our Onix IGBT traction drive. If you put all that together, we are not developing a mystery train. And the same applies to the Juniper EMUs.’
Maintenance has become big business for Alstom and its competitors. Alstom holds train service provision contracts for the AVE fleet in Spain and for London Underground’s Northern line trains, and it is responsible for maintaining main line locomotives in Mexico. Navarri believes that ’worldwide we are among the biggest maintainers of trains - we have the engineers, whether electrical, electronic or mechanical, and we can offer our customers best practice obtained from our wide experience.’
Dealing with overcapacity
With recent acquisitions in mind, to what extent was overcapacity an issue for Alstom? Navarri agreed that it was: ’there are two problems; one is overcapacity, the other is that there are too many players in the business. It is not that the market isn’t growing, but because modern products such as Citadis and Metropolis need less work.
’At Alstom we have always, always adapted our capacity to the market - we have cut our workforce in France and in Britain, for example at Eastleigh recently and at Birmingham. The number of employees has gone up and down with the market to adapt the level of the workforce to reality. So I do not find myself waking up one morning saying "today I must restructure". In fact today I must face up to the need to reduce staff at our locomotive plant in Belfort - it takes many fewer hours to assemble a locomotive than in the past. Matching capacity to demand is a continuous process of adaptation, not a massive and sudden effort to change.’
While he was confident that the market will continue to grow because of the ’world railway revival’, Navarri felt that more consolidation in the industry was inevitable. ’I am not a soothsayer, but making losses in this business cannot go on. I don’t know whether it will happen quickly or slowly, but more consolidation will come sooner or later. One problem is that bad decisions take a long time to show up. But in the end consolidation will improve systems for our customers, who in turn will get the chance to grow market share over their competitors. It will be a virtuous circle, with the end customers, the railways and the industry all benefiting. What I can tell you is that Alstom will be one of the poles of consolidation.’
CAPTION: The first of eight 8-car Class 460 Juniper EMUs being built by Alstom Transport for Britain’s Gatwick Express franchise was delivered to Stewarts Lane depot in London on January 26