INTRO: With a move to the private sector now a real talking point for transport policy-makers, German Railway faces a serious challenge to prove that it can become a profitable company

ON AUGUST 16 German Railway was due to publish its interim results covering the first six months of this year. The figures will reveal whether or not DB AG is on course to make a profit in 2004 - an essential step if Chairman Hartmut Mehdorn’s dream of turning his railway into a private-sector company is to become reality.

Moving into profit will be neither simple nor painless. DB AG has not published results for the first quarter, but there are indications that trading was difficult, and tough measures are being pushed through in the drive to attain the profitability target.

Mehdorn’s ambition for DB AG to achieve a stock market listing is shared by a number of politicians, but the view is not universal. When a group of industrialists, academics and economists recommended in June that DB AG should move swiftly towards the private sector (RG 7.04 p385), the Bundestag quickly poured cold water on the idea, calling instead for DB AG to demonstrate that it could operate at a profit on a sustained basis. Nor is there agreement over how the railway should be privatised, or indeed if the entire company should or could make the transition. Nonetheless, Morgan Stanley was appointed last month to monitor DBAG’s preparations in the run-up to a possible listing.

Mehdorn describes 2003 as ’a difficult year’ with an expected improvement to the German economy failing to materialise. Acquisition of Stinnes took the group revenue total to €28·2bn, but without Stinnes the figure was €16·2bn compared with €15·8bn in 2002.

EBITDA (earnings before interest, taxes, depreciation and amortisation) was just over €3bn before ’special burden compensation’, the term used to describe federal government payments to DB AG needed to upgrade the former Deutsche Reichsbahn network, whose condition at the time of reunification DB AG describes as ’horrible’. First made in 1994, the payments started at more than €3bn a year and fell to €0·4bn for the last payment in 2002. The funds covered all kinds of improvements such as replacing one-third of all concrete sleepers on the DR network which were affected by concrete degradation.

For many years, other railways have envied Germany’s lavish expenditure on track and trains, but a phase of consolidation now looks inevitable. During July DB AG announced a ’qualified spending ban’ aimed at bringing the accounts into the black by the year end. No specific figure for savings has been set, but the ban will affect all internal expenditure - for example on new buildings and IT equipment. Operations, services and projects involving customers are not affected.

DB AG’s passenger business is currently in discussion with the trade unions about the possibility of reducing the number of ticket sales staff. Media reports suggested that up to 1000 jobs could be cut, but DB AG would not confirm this last month. In any case, staff are protected from redundancy and would be offered work elsewhere in the organisation.

All areas of expenditure are currently under review, and another candidate for savings could be the Metropolitan luxury business service which operates four times a day between K