June 2011 saw the publication of a very detailed report entitled « Rouvrir la voie : une industrie d’avenir pour la France, un atout pour l’Europe[i] » (Re-opening the line to secure a future for the French railway industrial sector, an asset for Europe). This is a sector responsible for building trains, tramways and metros, but one marked by extreme concentration over the past thirty years, with Alstom (France) and Bombardier (Canada) absorbing a number of well-established French MSEs (medium-size enterprises) in the sector.

The parliamentary committee of inquiry chaired by Northern France MP Alain Bocquet (Communist Party), stout defender of a well-developed industrial sector in his region and of its workforce, had entrusted Val-d’Oise MP Yanick Paternotte (UMP Party) with the task of framing conclusions and producing a digest of the results of his interviews conducted locally  and during numerous hearings. The Committee heard many representatives from the industrial sector plus the executives of railway operators as customers and of major industrial groups, all behind closed doors and subject to non-publication (in part or in full) of their statements to protect « business secrecy” (Bombardier Transport, Siemens, Alstom Transport, Veolia Transport...). It also travelled to the Nord-Pas-de-Calais region to visit factories: Bombardier, Alstom and AFR, to Châteaubriant (ABRF Industries, Aytré (Alstom), Duppigheim (Lohr Industries), not forgetting a trip to Poland ( Alstom Konstal).

An audit : for what purpose?

This parliamentary audit originated in the new globalised-market environment and the resulting powerful competitive pressures exercised particularly by emerging countries, former communist countries from Eastern Europe and from China, all low-cost economies. In a context such as this, tender calls rather tend to favour the « lowest bidder » as opposed to the « highest bidder », taking fullest advantage of fierce international competition from CNR and CSR (China), Hyundai (Korea) and  Mitsubishi and Hitachi(Japan).

« As of now, no major builder and equipment manufacturer can expect to live a life sheltered from competition by dedicating virtually all of its production to meeting the needs of a national operator. This arsenal-type logic is now a thing of the past… and yet it long meant that SNCF was treated as the sector’s “mother hen”. The “Eurostar deal" will have acted as a detonator, for despite being 55% owned by SNCF, 40% by London & Continental Railway and 5% by SNCB), this operator nevertheless recently ordered a dozen high-speed trains from Siemens. Given competition from new operators, « mother-hen » SNCF is no longer constrained by this arsenal strategy nor by the need to incarnate one of the representatives of this « High-tech Colbertist » mentality (to quote economist Elie Cohen) forged during the Thirty Glorious, when it served as testing ground and shop-window for domestic industries trying to win  export orders.

A robust German outsourcing base

Here then is an in-depth radiography of a « historical and emblematic sector » as recalled by Transport Secretary of State Thierry Mariani, which he depicts as a supposedly efficient industry basking in the glory of recurrent SNCF successes and of its TGV world rail speed champions. In 2009 this sector employed 17000 persons and generated a turnover of € 4.1 billion (one-quarter from overseas sales), so contributing € 720 million to our trade balance. Yet this French railway industrial sector is actually fragmented and unbalanced, with the three well-established train builders Alstom, Bombardier and Siemens conducting the train-design work themselves, leaving component-assembly activities to small equipment manufacturers and sub-contractors. This strong specifity, as remarked by the Committee, is a weak point when compared with the morphology of German industries. Several equipment manufacturers across the Rhine have achieved world size and sometimes own subsidiaries in France, cases in point being BVV, Voith Turbo, Bosch Rexroth, Knorr Bremse and Schaltbau.

In France, alone Faiveley stands comparison with these German equipment manufacturers in that it domestically supplies Alstom and Bombardier, generating 90% of its business turnover through overseas sales. It ranks second worldwide in the braking field behind Knorr-Bremse and third for landing doors, airconditioning equipment, door boards and current- collection systems. Faiveley is the only French equipment manufacturer whose MSE status means it can dispense with the “protection” of main contractors, negotiate as an equal and, most importantly, operate powerful R&D structures capable of developing innovative, successful and recognised products.

In the days of « mother-hen » SNCF, its suppliers (« 100% French » was the slogan used to vaunt the first-generation TGV sets delivered) could afford to make-do with being « Single-product and single-client enterprises”. However, this era is over and, as remarked by Yanick Paternotte « …the French industrial fabric, when compared with the situation in Germany, cruelly lacks MSEs of this type”.

 An industry to orders..

This industrial structure has today translated into the emergence of countless small-size sub-contractors dominated by a customer intent on reducing its costs and developing a just-in-time strategy. The sub-contractors involved thus find themselves having to absorb the cost of warehousing their products with no guarantee of actually selling their stocks. In the same vein of thought, they are also the victims of the so-called « first-train logic”, with the design phase and prototype work conducted in France, leaving these sub-contractors to manufacture components for the first trainsets after which “mass-production and outsourcing work is delocalised!»(p. 56). In a bid to remedy this state of affairs, a  recent Charter governing user-supplier relations in the railway industrial sector was signed in December 2010, to which the most important rail-transport stakeholders, namely RFF, SNCF, RATP, Alstom, and Veolia have subscribed, but it is would be premature for valid conclusions to be drawn on its impact.

«German railway industries, as both our partners and competitors, generate a € 10 billion turnover, half of which is produced by the domestic market and the rest by overseas sales. The difference with our country has nothing to do with the train builders themselves, who are broadly comparable, but is actually rooted in the fabric of equipment manufacturers most of whom, namely: BVV, GHH-Valdunes, Voith-Turbo, Bosch Rexroth, Knorr-Bremse or Schaltbau, own subsidiaries in France. Faiveley apart, our country does not boast any truly comparable enterprises.»

 Jean-Pierre Audoux, FIF Delegate-General

A poorly-appreciated freedom

The European liberalisation policy covering markets signed between customers and suppliers has been prejudicial to suppliers with a tradition of selling « hand-sown » products to SNCF and consequently ill-prepared to satisfy more diversified customer demands, due to the non-existence of an elaborate European railway standardisation regime. As remarked by the rapporteur (p.143): “In the railway sector, neither the abolition of frontiers (Schengen agreement) nor the free movement of persons and goods have resulted in any form of European harmonisation for railways or rolling stock. Just remember how history has moved on since the advent of transport market liberalisation without any standardisation or industrial concentrations, so resulting in dispersal within the sector and in the consequent scatter of outsourcing activities, even though this history was European in scope».;

Conversely Bombardier, unfettered by any arsenal logic, owes its success to a corporate strategy of acculturation to the different domestic markets. As explained by the its French subsidiary President Jean Bergé (p.98): «In the same way that Bombardier is French in France, German in Germany, likewise it is Chinese in China where we actually do business in chinese. This for us is the best approach to understanding our customers and getting to know their habits (...) we hold a 35% share of the world market ».

Ill-assorted or extinct enterprises

What comes out clearly is that on the different indigenous markets, the historical national builders and manufacturers are now paying dearly for their vulnerability in the face of stiff competition from low-cost countries, more particularly from the very many sector industries operating in Eastern European countries like Romania or Slovakia, many of which have been decatalogued (or black-listed) by DB given the extremely poor quality of their products. In terms of the wagon-building sector, which is largely dependent on the future of rail freight, the committee highlighted the numerous plant closures that have occurred : Etablissements Cadoux, Ateliers du Nord de la France, Société Nationale des Ateliers de Vénissieux (SNAV) (a Renault subsidiary company). Among those who have survived:  Arbel Fauvet Rail (a century-old company) has been taken over by Indian Group Titagahr Wagons, railway foundry Sambre & Meuse de Feignies was sold in October 200 to Russian Conglomerate UZV, whilst the Ateliers Bretons de Réalisation Ferroviaire (ABRF), a subsidiary of AORF Group, are deep in trouble. The Lohr Group, involved in the Modalohr wagon project, car-carrying wagons and car-carrying trailers, is massively dependent on orders from Lorry Rail, itself owned by SNCF subsidiary Geodis as the majority shareholder.... The numerous small private companies tasked with the maintenance of railway rolling stock - private owners’ wagons in particular – are now having to contend with a formidable competitor in the form of Masteris, an “offspring in disguise” of the SNCF Rolling Stock Department. For the record, Masteris is a recently-launched subsidiary charged with marketing the know-how acquired by SNCF in-house workshops (p.85).

The TGV story:  things left unsaid…

Where the high-speed rail market is concerned, Transport Economics Laboratory economists Yves Crozet and Alain Bonnafous remark to what extent the specific « French-style » TGV model, far too beholden to the domestic market, was simply in no position to respond to other types of high-speed needs (p.257): «Major enterprises must not be allowed to escape their responsibilities: the “French style” TGV, with its eight coaches, 78t per axle minimum, and limited seating capacity, does not necessarily match international market demands (...). Indeed Alstom engineers are conscious of the need to avoid projecting French preferences on to overseas markets. They must absolutely diversify their product offering”. Whereas during 30 years the French TGV, designed and assembled by Alstom, was meant to showcase a product of excellence easily exportable in Asian countries or the United States of America, the disappointing overseas sales results explain the complete about-turn recently performed by Guillaume Pépy (p. 226): «The TGV is nothing but a spectacular and symbolic series of niche markets: it embodies the most elaborate qualities imaginable yet is limited in quantitative terms…” With the further liberalisation of the French rail passenger market, SNCF has been forced into shelving its procurement plans for 300 new trainsets, opting instead for a more modest TGV fleet refurbishment programme covering the first-generation TGV South-East rolling stock. This strategic rethink is a major source of concern for French industries specialised in the field of high-speed rail. Besides, the European market is very small with only 60 TGV-type trainsets built in Europe annually. To make matters worse, it is also extremely cluttered with five train builders on the starting blocks: Alstom (AGV), Bombardier (Zephiro), Siemens (Velaro) and, to a lesser extent, Talgo (Spain) and Ansaldo Breda (Italy).

Charter governing relations between customers and suppliers with the railway industrial sector, signed on 14 December 2010

In the light of findings published in November 2008, and pursuant to the policy of mediation for bank loans to enterprises, the State has been looking at ways of remedying the difficulties encountered in relations between major customers and SMEs (Small and medium-size enterprises). This effort has translated into the adoption of a « Charter for the Mediation of Bank Loans and for the French Association of Buyers (CDAF), governing relations between major customers and SMEs.”

Interestingly the Charter has been signed by the parties, all rail-sector stakeholders: SNCF, RFF, RATP, Alstom, Veolia, Faiveley, SNR Roulements ...

In signing this Charter, the large groups undertake to observe 10 so-called “responsible procurement” pledges and thereby avoid cases of abusive behaviour in full knowledge of, and compliance with their respective rights and obligations. The Charter also provides for the designation by each signatory of an in-house Mediator to be an effective correspondent with whom any supplier can liaise in case of dispute or conflict. To monitor proper compliance with these commitments, the signatory shall also operate a monitoring-indicator system.

Building together for the future

Might there be a more joined-up solution to cope with the challenge of new low-cost builders ? Is the creation of a European railway industrial sector the way forward ? The Committee did ponder over the issue of Franco-German cooperation, and discussed whether the response might perhaps lie in the adoption of an “Airbus-type model” to serve the railway industry…..The FIF Delegate-General Jean-Pierre Audoux does not conceal his pessimism, arguing that “…the concept does not really appeal to stakeholders across the Rhine….Not only are our German colleagues not ready for this, but more importantly their equipment manufacturers enjoy market positions which we simply cannot match. These are the very companies which, within the VBD, have been putting spanners in the works”(p. 129). In the circumstances it is simply easier to settle for the more modest Franco-German rail-sector task force which is already at work and charged with framing common projects : homogeneisaation of interoperability requirements, creation of a single technical railway network, development of a real European safety authority, homogeneisation of  benchmarks for railway industries and operators, all culminating in the institution of a European Research & Development policy  (p. 127).

Organise to improve self-defence

 Finally, Jean-Pierre Audoux sums-up the weaknesses of the French export model but first articulates its assets as follows: a well-founded industrial experience plus an excellent brand image and a top-class technical expertise, which unfortunately are not sufficient to offset its real handicaps, namely a dispersal of the sector’s engineering potentialities (at public level in particular), plus the lack of effective funding accesses for international projects, the absence of integrated bids for large projects, the inability to “hunt in packs” or adopt joined-up approaches (p. 162). This state of affairs calls for institutional and financial support policy measures, as suggested by the strategic committee for the railway industrial sector (CS2F) set up in the wake of the Special Conference for Industry, announced by the then Industry Minister Christian Estrosi on 5 August 2010, launched in Spring 2011, and chaired by Senator Louis Nègre, also President of the French Railway Industries Association (FIF). Sector stakeholders expect great things from the work of this Committee, which has benefited from mobilisation by the FIF and the Railway industries association (AIF), a Northern France grouping of some one hundred companies more or less involved in the sector, employing a workforce of some 10 000 people in factories located on the industrial platforms of major train builders (Bombardier at Crespin, Alstom at Petite-Forêt), plus young and innovative SMEs. These players collectively represent half the French railway industrial sector. This aside, following the model modernisation fund deployed for the automotive equipment manufacturing sector (FMEA) in April 2009, the committee proposes the creation of a similar fund for the railway equipment manufacturing sector (FMEF) in the form of a sector fund sourced on a fifty-fifty basis by the State and the three major train builders.

It was only natural in the circumstances that the proposals concluding the committee’s report consensually shared by the different parliamentary groups represented within the committee chaired by MP Alain Bocquet. The FIF, as the foremost stakeholder concerned, has welcomed the work of the parliamentary committee. Hardly surprising in the circumstances that the proposals concluding the Committee’s report should be shared unanimously by the different parliamentary groups represented within it under the leadership of MP Alain Bocquet. These political messages were duly picked-up by the highest authority in the land, namely President Nicolas Sarkozy who, taking the floor on 8 September last during the ceremony marking the launch of the first section of the Rhine-Rhone high-speed line, made the following declaration : «  France boasts one of the best-performing railway manufacturing industries in the world (…) and I am here to tell you that we will be investing as never before in the railway sector…”, adding that there was clear political resolve “ to restructure the French railway manufacturing sector” underpinned by the creation of a modernisation fund for railway enterprises plus the attribution “of € 150 million for investment in the TGV of tomorrow”.

The bottomline is that the Bocquet committee has absolutely succeeded in rekindling  the instinctive recourse to Colbertist interventionism by an industry-protective State…as borne out by the fact that policy-makers have historically banked on development of the railway industrial sector as a national industrial champion, have been ever-ready to step-in when danger threatens (a case in point being the Alstom rescue by the State in 2004) or more recently to map-out a pro-rail horizon during the Grenelle Environment Summit.

Georges Ribeill : ribeliigeorges@orange.fr

[i] National Assembly Report n°3578, 455 p