FIF Delegate-General Jean-Pierre Audoux voices his concerns for the French railway manufacturing sector. The uncertain outlook in terms of train orders beyond 2016 is a massive headache for manufacturers across the whole market spectrum (tramways, regional trains and TGV sets). The rail-sector strategic committee proposes solutions to unlock the situation. Comments.

Transport Public: In what shape is the French railway manufacturing sector?

Jean-Pierre Audoux : The outlook is different as between the short and long term, and also depending on the industrial segments involved. Where rolling stock is concerned, the domestic market has peaked on a high with an annual turnover of around € 2 billion representing  40% of the aggregate figure. The signalling branch, after posting very poor results, picked-up again last year courtesy of some excellent export-sales figures. On the infrastructure front, the news is quite good if only because several projects are under way such as the Rhine-Rhône HSL.  This apart and in the wake of the Rivier report,  we have now embarked on a much more ambitious annual track rehabilitation programme involving 1000 km of infrastructure annually (cost : € 2 billion) against 450 km previously (cost: € 700 million).

Competition in France is an increasing reality, with operators from other European countries playing a particularly active role ."

As mentioned earlier, the infrastructure branch is quite buoyant but the new development is the advent of increasingly sharp competition on the domestic market, particularly  with the involvement of operators from other European countries like Spain or Austria ( Voest Alpine). The "volume" effect is consequently somewhat blunted as a result.

Is this all down to the ongoing crisis and the curtailment of rail-infrastructure projects in countries like Spain and Portugal?

Quite ...These events have had two external negative impacts for companies. Firstly, all track-building projects in Libya have ground to a complete halt , which is a severe blow for the large contracts signed by companies operating in France (Tata Steel, Vossloh among others).

We next have the financial crisis and its effects on countries like Spain, Portugal and Italy. where projects have either been staggered over time, cancelled or put on ice. The market for large infrastructure projects has simply gone flat . As a result,we expect many foreign companies to start targeting French markets , as it is easier for a Spanish or Austrian operator to do business in France than the other way round. Such is the price to be paid in an open market environment, unlike in Japan.

After this snapshot of the current situation, how do you view future prospects ?

We expect the signalling branch to start growing again, driven by the ERTMS boom worldwide. In France itself, I believe that RFF and SNCF are firmly resolved to invest in this sector after several   "wait-and-see" years. Where rolling stock is concerned, I firmly expect the market to grow by 4% worldwide.

In France, by contrast, the picture beyond 2016 is extremely worrying. On the plus side, we have the RATP metro contracts for some fifty MF2000, M109 and MF77 trainsets to be built or retrofitted annually.

On the tramway front, some twenty projects are in course of validation for the next 5 to 6 years. Short of asserting that the GART will fail to fulfil its ambitions in this field, there is nevertheless a distinct possibility that some of these projects will be staggered or delayed. In all events, the annual turnover for this once major market segment will most probably not hit the € 400-600 million mark for tramway sets alone.

And what of railway rolling stock?

The picture here is not exactly promising. Looking first at the high-speed scene with the saga surrounding the future of the TGV product in France and the need to renew the fleet of First-Generation TGVs (dating fom 1981), anything between 200 and 300  "orange" sets will need replacing. This project should have been brought to fruition by the end of the 2010-2020 decade, which would have guaranteed a reasonable workload for several years. Such was the declared objective of SNCF until Spring 2009. At the time, against the background of ongoing discussions on track-usage fees and given the slack in economic activities, SNCF and its CEO finally conceded that TGV orders if any would not exceed 40 in number. In September 2011 the mood darkened even as the Government arbitration over usage fees came down in favour of RFF by agreeing a well-above-inflation usage-fee hike. SNCF immediately hit back at this decision by announcing that 180 units in its TGV fleet were surplus to requirement.

We then had the Grenelle Railway Summit meeting during which several participants openly argued the case for the railways to refocus on their " sphere of pertinence" and for TGVs only to operate on  dedicated HSLs. This would mean SNCF needing only 300 TGV sets for this purpose. Moreover, the retrofitting work would only involve some 100 units and last until 2020. At the end of the day, the Government had a rethink, opting instead for a more reasonable usage-fee increase, and following tough negotiations between the TGV manufacturer and its prime customer, a firm order was placed for 40 trainsets. Prospects are less dismal than was initially feared in that the production gap between 2016 and 2020 has now been bridged. The future has therefore been secured.

And the TERs in all this?

Here we are rather at a cross-roads but the good news is that after the sustained and increasing pace of TER deliveries to the Regions, two orders have since been announced for Regiolis and Regio2N sets. I remain very impressed by the level of orders placed : 1860 sets combined, that's a massive number which  is an extremely powerful and positive signal sent-out by the Regions , so reinforcing their belief and their determination to  continue their TER development policy. However, as things now stand, firm orders have actually been placed for 270 sets, made up of 165 Regiolis units for Alstom, and 106-110 Regio2N.  The ARF input to the debate did not call into question the resources so much as the means, with the Regions firmly entrenched in their belief of being deprived of vital

revenue streams while being burdened with a number of new tasks. The issue today is all about devising funding solutions that necessarily entail high borrowing levels. How then do we fund the TER procurement programme? This being a mere option exercise, the Regions concerned cannot be forced into paying unless they have the corresponding resources . It also means that the profitability of these two contracts is far from guaranteed for the manufacturers. Therein lies a real dilemma for them.

But don't TET trains represent a genuine lifeline?

A deal was indeed struck with SNCF some 18 months ago whereby € 350 million would be invested in inter-regional fleet modernisation. More importantly the State, now become the sponsoring authority, could thus invest up to € 3 - 3.5 billion in state-of-the-art rolling stock. The different stakeholders (GOVERNMENT/SNCF/FNAUT) did hold a meeting but quite clearly there has been a delay in agreeing timeframes. Neither the rolling stock itself nor the networks have been specified - work on this is ongoing - yet this is a precondition for defining an investment plan. Then will arise the issue of funding capacity and here the present government will need to respond to a number of questions. The TET rolling-stock market could really take-off in 4-5 years, but time will tell!

"What's lacking is a clearly-defined public investment plan like in the UK"

Can the opening-up of the rail network to competition be a  growth  driver for manufacturers?

It all depends on the conditions that can be secured. Generating real momentum is what is required here but will this in itself induce growth and orders? The question is whether the model thus obtained is coherent enough to re-energise activity.  Elsewhere in Europe some very different reforms have produced the desired outcomes. Fundamentally, the model per se is but a side issue.

Does the rail freight market give cause for special concern and why?

This market is extremely buoyant in Germany yet in France the business has flatlined. The last batch of Alstom-Siemens diesel locos ordered by SNCF should be delivered in May and that's it! Yes one operator, namely Europorte, has some locos on order, but with a foreign manufacturer. SNCF itself has no clear time-horizon for  freight-dedicated electric  and diesel locos. The least said the better where wagons are concerned . In Germany, when times are good, as many as 400 - 500 locos are ordered each year and even when the going gets tough, orders by DB and its competitors number 100 to 200 units.This represents several hundred million euros. In France, prospects for manufacturers are quite dismal. even though there is potential for some € 30 billion worth of tonne-kilometres. Yet the sector will probably have to settle for a pitiful 25 million TKM (including 20 for SNCF) all told. What a colossal waste today!

Any hopes  as regards the SNIT project?

We are monitoring  events very closely. As stakeholder mandated  by the Confederation of Small and Medium-Size Businesses (CGPME), we produced a  fairly coherent report in just six months based on the existing project while recognising it needed refining subject to a number of prerequisites, remembering of course that this is a French SNIT first and foremost but with  a European dimension, in tune with the logic of globalised flows (I have the ports in mind here). We were also keen for the schemes to have an intermodal dimension and we urged that the 19 TGV projects be prioritised. There will never be a solution without a socio-economic study that classifies the high-speed lines in order of priority. The need for such a methodologial approach is accepted by all the stakeholders, otherwise some might be tempted into suggesting that the SNIT is a still-born concept  given the billions of euros it represents!.

Is not the lack of political courage to make choices the real issue ?

No these are not choices for central government to make. Responsibility here should lie with an independent boy  modelled on the Lausanne Federal Polytechnic. FIF President Louis Nègre did ask for a parliamentary debate which was never granted, coupled with an enabling law enshrining a  potential volume of expenditure spread over time. All in all, the SNIT concept can effectively be reactivated with a mere 30% implementation rate, so safeguarding two-and-a-half years' worth of activity.

In a bid to solve the problems described by you, the Sector Strategic Committee proposed an action plan at the end of April. What does it entail?

Two types of measures are involved, some to be taken by the sector, and the rest by the public authorities. The first issue revolves around the shared visibility needed by the different sector stakeholders, which means getting all of them, namely the customer, Alstom, Faiveley plus the equipment manufacturers  and the clusters to sit round the same table once a year , then  briefing  them on the one-year prospects for the domestic market, and on world-market prospects, and spelling-out what is expected of us...

Would that not be tantamount to setting-up a "super" FIF structure?

Why not... That would be an extremely interesting development as it would mean all the stakeholders "cuddling" under the same roof. However, I doubt this measure ever coming to fruition without the blessing of the public autorities.

What was the second subject?

Here the decision depends on the public authorities even more, the idea being to boost the dynamism of the domestic market and reduce costs as these are two interactive elements. Prospects for this market are somewhat mixed. The missing ingredient is a clearcut public investment plan as exists in the UK for each sector: rolling-stock /infrastructure regeneration, new lines, tramways, locomotives etc. I would add to this category the capacity to trim costs, which involves cooperation between stakeholders: central government with its regulatory function, SNCF, RFF, Industry, etc.

Do you have a say in the great infrastructure debate?

Not really but we do contribute to the debate on the organisation of activities, processes, maintenance-related procedures. We are mere onlookers in proceedings at company level, which is pivotal. We are active on the ground, constantly seeking ways to reduce network costs. Why not for example internalise the debate about life cycle costs, which means focusing on aspects such as procedures, maintenance conditions, etc. We've been battling for 2 years to get things moving, and actually succeeded one year ago in bringing SNCF and RFF round the same table. Tripartite, quadripartite task forces are working with intent to achieve meaningful cost savings at network level and in the rolling-stock field.

Does this mean that your industries are able to propose more cost-effective procedures and systems?

Yes, of course. The idea is to develop what the Anglo-Saxon term "business cases", the aim being to convince RFF and Government. Things are moving in the right direction. The argument is that the railway system is a costly one, that it has a debt mountain, that its funding needs are on the increase, all of which provides ammunition to those who maintain that ambitions have to be lowered. Yet are the challenges encountered being tackled in the right way? Our response is simple : modernise the system and ensure that people in the field interact , recognising that as problems become more complex, so the likelihood of solving them bilaterally reduces. Better then to examine the issues from all sides, study the problems arising, the costs involved and the solutions proposed.

Are the proposals put by the sector strategic committee a response to "Fer de France"?

No. Bear in mind that this committee was set up in August 2010 whereas the "Fer de France" concept was first mooted in October 2011. The Committee by then had already unveiled its road map and its objectives. By the time Bruno Angles first proposed "Fer de France"  during the Railway Conference, the Committee had already been at work for one year. "Fer de France" will no doubt have a complementary role to perform and this can only accelerate the projects of the sector committee. 'Fer de France"  is an excellent initiative that reflects a number of concerns voiced in particular in the Bocquet-Paternotte report but it needs to be acting as an  accelerator and a facilitator, particularly at international level, for some of the projects launched by the sector committee.

Which other projects are important in your judgement?

One of these is the development of a testing facility for the railway sector, as already exists for urban transit systems at Valenciennes, but is is vital for the railway sector to have its own,  so that   railway equipment can be "debugged" on time before delivery to customers. Unlike Railenium whose main function is to define key R&D strategic policy guidelines for infrastructure and possibly signalling (see related feature article in this issue) , this facility would play an important and strategic role in the future railway landscape.

In Europe, what we need are regenerative projects that reinforce cooperation between industrial branches.

Another project would involve building a test track for rolling stock, not necessarily in the form of a 30km loop costing € 300 million as unveiled in the Nord-Pas-de-Calais Region. Ours would be a more modest 10km test facility costing between € 160 and 200 million, which would serve for  80% of all "debugging" tests. The absence of such a facility is a huge cost to the sector , which is why one is badly  needed.

Proposals have already been adopted by the public authorities, including for example a € 40 million credit line accessible to medium-size businesses (ETI). Will its remit be to bail-out "lame- duck" entreprises ?

Not at all! The reply to your question was given by the Strategic Investment Fund (FSI) as soon as it came into being, and by the manufacturers themselves. It is a top-down solution which, if implemented, will see the arrival of a high-profile player on the scene.  Any talk of a lame-duck rescue is completely off the mark. This fund is specifically designed to federate enterprises with the competencies, the complementarities and synergies in areas where synergies are required, a case in point being interior fittings for coaches. When questioned, the players in their majority favoured the emergence of a leader in their field.There are other ways of achieving the desired outcome than through the creation of an ETI. For example, the Neapolia cluster regroups some fifty enterprises active in the railway field and specialised in the interior-fitting business. The approach adopted by them is to band together according to the type of contract tendered for. Why not also set-up a laboratory of railway trades charged with carrying out continuous surveys of needs in terms of trades, training etc…, and with building bridges between the different entities. Trades change, needs evolve and one is never certain of not encountering a bottleneck one of these days for having failed to call the correct shots!

With Alstom and Siemens clearly unready for a “railway airbus » model, could this concept  not be tried-out  at least among sector intermediaries?

An attempt had indeed been made by these two companies through the EuroTrain project in response to the needs of the Asian market – a sort of Pax Koreana – but it quickly aborted. When Louis Nègre first came-up with this idea, what he meant to say was that, unless there was cooperation with Germany, he saw no future for the concept of a "Europe of the Railways" and for  the French railway industrial sector. The second point to highlight is that we need regenerating projects liable to strengthen cooperation between European manufacturers in response to the inevitable challenges posed by Asian competition in Europe. Do remember that Hitachi has already gained a foothold in Europe, that it is tendering for DB orders and likewise in Great Britain. We also know that Rotem too can strengthen its position on the European market, while the Chinese are slowly but surely encircling our Continent and will swoop on it sooner than we imagine. Their tactic is to shop around, then to bid for railway equipment companies or SMEs like Lohr. They are also tendering for contracts in  Tunisia and Turkey, the one tantalising question being to know when exactly they will start flexing their muscles here .....In 5 to 10 years' time, I guess!

What is the logic of pushing for convergence between French and German interests?

Costs must be trimmed and common standards defined in these hard-core areas. This is where the States have a major regulatory role to perform. When in 2006 the concept of mutual rolling-stock acceptance was first mooted, the idea was as as follows: Why is it that in each country we need to start from scratch each time before rolling-stock is declared fit-for-use? How ridiculous.

Its recent policy has been to argue that the Commission must only arm itself with a recripocity mechanism for use when a State refuses to open-up its public procurement markets, so ensuring that companies from that country are prohibited from tendering for UE public-procurement contracts as a result. This is just an initial response as a EU directive is in the pipeline, the question being how best   to put these measures into practice.

And what about a "Buy European" act?

The idea here is to impose a European content in each public-procurement market, in other words to ensure that 60% of the added-value are generated inside the EU. The USA require a local content iin excess of 50%, so too the Chinese.. Why should Europe  be more generous?

Is there not a risk of French railway industries delocalising massively just to stay competitive?

I see two types of delocalisation at work: One type  crucial to ensuring development on a large regional market like Russia. As remarked by Siemens and Alstom, this is an extraordinarily dynamic market but anyone wanting to be an active player on it needs to know that a local presence is a must. Call it "market delocalisation" if you like.  The other type is one  designed  to drive costs downward.  I do not believe that a great future awaits us in China: it's a faraway country and besides what happens when you have maintenance problems to contend with? The Chinese by contrast will localise here. In the eastern part of Europe, the Czech Republic is losing its cost advantage. The only region making the news is the Maghreb, with Morocco as the country where labour costs are quite reasonable, but from there to imagining that this would become endemic. I do have my doubts!

How many people does the railway industry employ in France?

There are 21 000 direct jobs against 16 000 ten years ago,and we bank on a net increase of between 4000  to 5000 by 2010 thanks to export markets, providing the Committee's plan is implemented.

As told to Robert Viennet and Marc Fressoz