Bloomberg News

Bombardier to Cut 1,400 Jobs at Britain’s Last Train Factory

July 05, 2011

(Updates with analyst comment on cost of cuts in eighth paragraph, union comment on overseas contract awards in 10th.)

July 5 (Bloomberg) -- Bombardier Inc., the world’s biggest trainmaker, will eliminate more than 1,400 jobs at a plant in Derby, England, in a move unions say could threaten the future of Britain’s sole remaining railcar factory.

The cuts follow the U.K. government’s decision to award a contract to build 1,200 carriages for the Thameslink commuter service to Siemens AG on June 16, Bombardier said today. Siemens will carry out most of the manufacturing work in Germany.

“Without new orders we cannot maintain the current level of employment,” Francis Paonessa, president of Bombardier’s U.K. passenger unit, said in a statement. The Thameslink contract would have “secured workload” at the Derby site, he added.

Britain’s Department for Transport last month selected Munich-based Siemens, private-equity firm 3i Group Plc and private-finance specialist Innisfree Ltd. to expand Thameslink’s train fleet. While some U.K. jobs will be created in component manufacture and at two new maintenance depots, the trains will be built in Krefeld, near Dusseldorf, Siemens said at the time.

‘Misguided’

“The dire consequences of the misguided decision to exclude Bombardier from the contract are now becoming a reality,” Unite union General Secretary Len McCluskey said in a statement, adding that thousands of other jobs in the rail supply chain are also at risk. “The government must now act swiftly and decisively to save Britain’s last train manufacturer,” he said.

The Derby plant, known as Litchurch Lane, will finish building Turbostar multiple units for the London Midland rail franchise by the end of September, leaving only work on London Underground tube trains through 2014 that’s insufficient to support its 3,000 employees, Montreal-based Bombardier said.

A mandatory 90-day consultation process will be held on the loss of 446 permanent posts and 983 temporary jobs, the company said, with Colin Walton, U.K. chairman for Bombardier Transportation, adding that the Thameslink decision has forced an ongoing “U.K.-wide review” of the company’s operations.

The job cuts will cost less than $50 million, according to New York-based Credit Suisse AG analyst Hamzah Mazari, who said Bombardier may opt to shutter the Derby plant in the “slightly longer term,” since the next major U.K. contract, the trans- London Crossrail project, won’t commence manufacture until 2015.

‘Vandalism’

The RMT rail union said today the Siemens award was an act of “industrial vandalism that would wipe out train building in the nation that gave the railways to the world.”

Some 97 percent of rail-procurement awards in Germany over the past three years went to companies based there, included a 5 billion-pound ($8 billion) contract given to Siemens by state- owned Deutsche Bahn AG about which “no-one batted an eyelid,” the union said. In France the figure was 100 percent, it said.

Litchurch Lane also supports about 12,000 workers in its supply chain, according to Bombardier, and 4,000 of those positions may also be at risk, said Howard Wheeldon, senior strategist at BGC Partners in London, who reckons the U.K. government made a poor choice with the Thameslink award.

“I have nothing against Siemens and I completely understand that there may well be slightly less risk to the U.K. government by going this particular route,” he said. “But the politics of trade today demand that when an industry such as this one is threatened as a direct result we should ditch the ridiculous notion of free market competition unless each and every other country guarantees to open their markets on the same basis.”

Job Split

Siemens says its bid will create 300 positions in component manufacture in Hebburn, northern England. Bombardier spokesman Neil Harvey said that compares with the 3,000 posts that would have been safeguarded in Derby, though close to 1,000 temporary jobs may still have been at risk depending on other programs.

Both bids offered 1,400 maintenance and construction jobs at depots on the Thameslink line, which carries commuters on the main north-south route across London. Bombardier’s tender would have created more than the 300 U.K. supply-chain posts touted by Siemens because more parts would be British-made, Harvey said.

British Business Secretary Vince Cable said he’ll establish a task force to help mitigate the impact of the job cuts and work to hang on to Bombardier as a U.K. manufacturer.

“It is vital that we retain these skills,” Cable said in a statement. “And we will help the company explore any other international markets which are priorities for them.”

Procurement Question

Transport Secretary Philip Hammond said earlier that decisions regarding the tender were taken mainly by the previous Labour government, and that while “very disappointing for Bombardier,” Siemens had made the best-value bid according to European procurement laws.

“The contract process was started off by the previous government, the specification of what was required was set by the previous government and the methodology by which bids were to be evaluated was set by the previous government,” Hammond told the British Broadcasting Corp. “What we have done, effectively, is open the envelope and announced the result.”

Cable said in his statement that the coalition government recognizes the need to examine whether Britain is making the best use of its application of EU procurement rules.

Alstom Closure

Britain has manufactured trains since it pioneered rail travel 200 years ago. Bombardier’s Derby site was one of several that made up state-owned British Rail Engineering Ltd. until that business was privatized, passing into the ownership of ABB Ltd., Daimler AG -- as Adtranz -- and then the Canadian company.

Alstom SA, the French maker of TGV high-speed trains, shut a 150-year-old plant at Washwood Heath in Birmingham in 2005 after completing a contract to build tilting Pendolino units for Richard Branson’s Virgin Trains. Most London Underground tube trains were built there by onetime owner Metropolitan-Cammell.

Britain has already ceased making locomotives, with the last batches built by General Electric Co. in the U.S. and Electro-Motive Diesel Inc., a unit of Caterpillar Inc. previously owned by General Motors Co., in Canada.

Hitachi Ltd. will assemble trains at Newton Aycliffe, northeast England, as part of a 7 billion-pound program to replace Britain’s 30-year-old InterCity 125 diesel expresses.

About 500 jobs will be created from 2015 in outfitting and integrating body-shells shipped from Japan and it’s possible that full-scale manufacture may follow, depending on the size of the requirement, spokeswoman Daniela Karthaus said today. Financial close on the contract is expected this year, she said.

Bombardier was trading 0.4 percent lower at C$6.88 as of 11:46 p.m. in Toronto, paring the stock’s gain this year to 37 percent. Siemens closed up 0.1 percent at 94.47 euros in Frankfurt and has added 1.9 percent in the year.

--Editors: Chris Jasper, Andrew Noel.

To contact the reporters on this story: Sabine Pirone in London at spirone@bloomberg.net; Robert Hutton in London at rhutton1@bloomberg.net

To contact the editors responsible for this story: Benedikt Kammel at bkammel@bloomberg.net; Eddie Buckle at ebuckle@bloomberg.net


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