Manufacturer calls for suspension of penalty payments

Production at Bombardier Transportation’s Derby plant resumed last month

The Times has reported that train manufacturer Bombardier has warned the government that it will be “unable to continue production” without support as it burns through cash during the lockdown.

The manufacturer is understood to has asked for penalty payments to be suspended for delays to deliveries after it was forced to suspend production as a result of the coronavirus pandemic.

The penalties are understood to amount to around £20m each month and have placed significant pressure on Bombardier’s balance sheet in recent weeks.

Reports suggest the Department for Transport is ready to agree to the proposals, but the Treasury is understood to have reservations because the rail franchises were placed under government control on March 23.

The company suspended production in late March as a result of the lockdown, but subsequently resumed production at Derby, where 2,000 people are employed, in April. However, social distancing rules mean the Litchurch Lane plant is operating at 60% of capacity.

The Times reports this has led to an increase in production costs as a result of reduced efficiencies. Bombardier aims to get back to full capacity in September, but the higher costs are expected to remain.

These delays have triggered penalty payments to its rail franchise customers. It also has bond payments to make to Transport for London. Bombardier has asked for these to be suspended until September.

In a letter to the Treasury, Bombardier is understood to have warned that it will be “unable to continue production” if the request is not granted. Cash would have to be diverted from staff salaries and running costs to penalty payments.

Reports suggest the government has demanded Bombardier move production of the wheel chassis from Germany to the company’s Crewe facility in return for waiving the payments.

Get the latest news delivered to your inbox. CLICK HERE to subscribe to our e-newsletter.