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Dec 12, 2018

Bombardier hit with 'astonishing' Via Rail blow amid NJ Transit win

Bombardier CEO Finds Optimism in Rail Growth

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Bombardier Inc. (BBDb.TO) got a split decision in its accelerated push for rail contracts, scoring a victory in New Jersey and a home-turf loss the company called “astonishing.”

The Montreal-based manufacturer won a US$669.1 million deal Wednesday to supply rail cars for New Jersey Transit, a project with the potential to balloon to US$3.6 billion based on options for additional equipment. That took some of the sting out of losing a US$1 billion pact to provide locomotives and passenger cars to Canada’s Via Rail, which awarded the business to Siemens AG.

Bombardier is trying to overcome recent stumbles on high-profile rail projects as Chief Executive Officer Alain Bellemare bets the company’s future on train equipment and private jets, while stepping back from commercial aircraft. Bombardier has been plagued by missed deadlines in a Toronto light-rail project and was blocked last year from bidding on a New York subway-car contract because of past delays.

The company’s Class B shares climbed 4.3 per cent to S$2.30 at 2:13 p.m. in Toronto amid a broad market rally. Siemens climbed 1.6 per cent to 99.51 euros at the close in Frankfurt.

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    On-Time Focus

    The New Jersey Transit deal must still be finalized, Bombardier said. The rail operator will decide later whether it needs more equipment.

    In Canada, government-owned Via Rail said on-time delivery was a key reason for its decision to choose Siemens for a $989 million (US$740 million) supply contract and a 15-year maintenance pact valued at $356 million. The trains will be manufactured at a Siemens plant in Sacramento, California.

    “Via Rail is happy to partner with one of the global leaders in the rail industry, a company recognized for its innovation and its engineering,’’ Chief Executive Officer Yves Desjardins-Siciliano told reporters Wednesday. The new train sets “will substantially improve the customer experience for our millions of passengers currently and those to come, offering more comfort, bike storage” and greater accessibility.

    Deliveries for testing will begin in 2021, with passenger service scheduled to begin in 2022, Via Rail and Siemens said. Via Rail’s passenger traffic has increased by more than 30 per cent since 2014, the CEO said.

    ‘Extremely Disappointed’

    Bombardier said it was “extremely disappointed” in the outcome.

    “It is astonishing that a call for tenders for trains which will pass through Canada’s national capital and Quebec’s provincial capital has not been subject to measures which would ensure maximum local benefits and the use of Canadian high technology, in accordance with Canada’s international obligations,” the company said in a statement.

    The loss was Bombardier’s second major setback in Canada this year. In February, Caisse de Depot et Placement du Quebec, Canada’s No. 2 pension-fund manager and owner of a minority stake in Bombardier’s rail unit, picked France’s Alstom SA to make trains for a $6.3 billion automated system in Montreal.

    Via Rail said it worked with an independent supervisor to ensure the bidding process was equitable. The Siemens order includes 32 bi-directional train sets and options for another 16, he said.

    Aging Fleet

    The passenger carrier announced a request for bids in April as it sought to modernize its fleet. It had specified 9,100 passenger seats, as well as an unspecified number of fuel-efficient diesel engines -- with the option to operate on electrified rail infrastructure.

    Via Rail operates one of the oldest passenger fleets in North America, with an average age of 35 years, Desjardins-Siciliano told reporters in Montreal. Via Rail is planning to gradually retire its existing trains over the next five years, he said.

    Besides Munich-based Siemens and Bombardier, Talgo of Spain also bid for the contract, the he said.

    Via Rail can’t demand a minimum per centage of Canadian content because it’s governed by international free trade agreements, Desjardins-Siciliano said. But Siemens rail executive Michael Cahill said more than 20 per cent of supply and services connected with the order will come from Canadian companies.

    An earlier headline on this story included incorrect information about the value of the contract. BNN Bloomberg regrets the error.