Train manufacturing giants plan to merge their rail and mobility services operations in a bid to drive away competition from Far East newcomers

 

Siemens president Joe Kaeser (left) and Alstom’s chairman and CEO Henri Poupart-Lafarge revealed the merger plans

 

Siemens and Alstom, Europe’s largest train manufacturers, have agreed a merger of their rail and mobility services divisions. The deal, expected to be completed by the end of next year, has been driven by growing competition for global contracts from Asian businesses, particularly Chinese company CRRC, the world’s largest rolling stock and railway systems manufacturer.

Siemens president and chief executive Joe Kaeser said the new Siemens-Alstom business would “boost competitiveness of Europe’s rail industry far beyond where we are today” by pooling expertise in train systems, manufacturing, digital technology and automation, reducing costs and creating more funding for investment in product development.

Annual savings are expected to amount to 470m after four years. At present the two businesses have combined annual revenues of 15.3bn and operating profits of 1.2bn. They also have largely complementary geography in key growth markets combining Alstom’s larger presence in the Middle East, India, Africa and South America with Siemens operations in the USA, Russia and China.

The marketplace had changed significantly over the last few years. A dominant player in Asia has changed global market dynamics

Although CRRC has yet to establish a significant presence in Europe, Kaeser acknowledged that “the marketplace had changed significantly over the last few years. A dominant player in Asia has changed global market dynamics”. He added that a key focus for Siemens-Alstom would be to become the world leader in digital transport technology to provide efficient solutions for train control and urban mobility as urban populations increase across the world.

The deal is not expected to have a significant short to medium term impact on the UK rolling stock market and maintenance facilities with both companies operating fleet-specific depots and Alstom no longer an active bidder for UK train manufacturing contracts. However, consolidation would be likely to impact competition for Network Rail signalling contracts where both companies are large suppliers.

Although both Siemens and Alstom said they were under no pressure to merge, Eike Fietz, a Munich based partner specialising in mergers at law firm Pinsent Masons considered that the deal would be “absolutely necessary in order to keep Europe competitive and retain some technological leadership as well as jobs” in the face of globalisation and competition from Asian companies, particularly Chinese.

Rival companies active in the UK said they would be able to continue to compete. Bombardier, which had been in discussions with Siemens on a potential merger said it had “the scale, the technology and the people to compete and win in any competitive landscape”.

CAF said it had taken consolidation between rivals as a certainty in drawing up its strategy.

 

This article appears in the latest issue of Passenger Transport.

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