The past few years have admittedly been tough for Bombardier Transportation in North America. Changing dynamics—in particular, China’s entrance into the vehicle market—combined with delivery and quality problems and highly public squabbles with key Canadian and U.S. customers—have impacted the company’s business as well as its reputation. Now, however, Bombardier’s fortunes appear to be turning around.
The most problematic contract has been the long-delayed order for 204 new low-floor Flexity Outlook streetcars for the Toronto Transit Commission, to replace the agency’s aging ALRVs and CLRVs. TTC’s Flexity is based on the standardized car used in cities like Brussels, Marseille, and Geneva, but tailored to Toronto’s unique needs. The vehicles use TTC’s unique track gauge (4 feet, 10.875 inches/1,495 mm) rather than standard gauge (4 feet, 8.5 inches/1,435 mm) and trolley poles using 600 VDC for current collection. Other design requirements such as the ability to handle tight turning radii and single-point switches, climb and descend steep grades and operate within tight clearances on city streets, and the ability to upgrade into a more modern pantograph current collection system were factored into the design. The Outlook is almost twice as long as the TTC’s older streetcars, and has five articulated sections.
What can only be described as an unfortunate perfect storm—supply chain problems (there are roughly 10,000 components per vehicle), fitment mismatches between the carbodies (built in Sahagun, Mexico) and underframes (built in Thunder Bay, where finally assembly was taking place), a strike at Thunder Bay, bad electrical connections (some 20,000 per vehicle that had to be redone)—pushed deliveries back by about two years. For example, Bombardier was to have delivered 73 streetcars by the end of 2015. Bombardier negotiated with TTC to deliver 30 vehicles by the end of 2015, but that goal was only achieved one year later, at the end of 2016. According to the original contract, 100 of the 204 cars were to have been delivered. (As a point of reference, TTC signed the original contract in June 2009, and the first car was delivered in September 2012.)
Bombardier has attempted to solve all these problems by taking several measures: reconfiguring the Sahagun assembly process and hiring additional qualified workers (in particular, welders); instituting a quality control process at Thunder Bay (the strike was resolved in September 2014); reducing the number of welding processes at Sahagun from six to two; ramping up an additional assembly line at its La Pocatière, Quebec, plant; and now, adding yet another production line in Kingston, Ontario. The Kingston production line, which employees 100 new people, has begun production and will begin to deliver vehicles in this year’s third quarter.
While deliveries are still behind schedule, there is a light at the end of the tunnel, and it is an oncoming Flexity Outlook. TTC Chairman Josh Colle reported at our Light Rail conference in Baltimore that more than one-third of the new streetcar fleet (more than 70 cars) has been delivered.
I’ve ridden these new cars on TTC’s 509 and 510 streetcar lines, and will tell you that they are delightful. They ride well, accelerate and brake smoothly, are easy to board and are very comfortable, with excellent visibility that compliments the automated onboard announcements. I’ve asked several operators how they like the Flexity, compared to the streetcars they are replacing. Every response has been positive.
Bombardier Transportation President Laurent Troger met with me in New York City recently. We talked about the division’s difficulties, the general state of the rail transit industry, the differences between the North American market and the rest of the world, and how the company is dealing with the sometimes-dizzying pace of changes. Following are several observations:
• “We share the TTC’s frustration with the delayed delivery times. So we doubled our capacity last year, and are doubling it again this year. We made a large investment in our supply chain to meet demand. I would point to our successes with the Toronto Rocket cars for the subway, and the contract we have with GO Transit to operate the service and maintain the Bilevel cars we supplied.”
• “In terms of equipment, our customers are primarily concerned with return on investment, the total cost of ownership. It’s not necessarily completely about the initial capital cost. They’re looking for higher performance, in capacity and safety. They’re increasingly turning toward automation. Operations are becoming more and more 24/7.”
• “The rise of megacities drives our agenda. There are more people traveling in and out of cities. Climate change and congestion are concerns. The choice is between new or upgraded infrastructure, and how fast it can be built. We have the technology available to bring multiple mobility solutions.”
• “Political agendas are changing. We’re seeing a stronger commitment from political leaders about moving people. This is key to growth. A major issue is, for some agencies, tradition, being trapped in the past, the old organizational model for procurements. We find that our customers are looking for higher performance and reliability, with a manageable total cost of ownership. But they, as well as us, must have a plan to accomplish these goals.”
• “With our work force, we’ve been dealing with a shortage of capabilities. We need to attract new talent with skills in project management and engineering.”
• “With the exception of North America, our customers around the globe are largely geared toward standardized equipment. For example, we have a joint venture in China, where for numerous transit systems, there are only two types of cars. We haven’t experienced any problems in manufacturing other than in North America.” (Indeed, at our LRT conference, the question was asked, “Why does it take at least twice as long, sometimes up to four times as long, to complete a project, compared to everywhere else?”)
• “Our Chinese competition has acquired technology and has the capacity to export it anywhere. In the United States, CRRC has won contracts in Boston, Los Angeles and Chicago. But the technology has not been proven here, at least not yet. To buy cheap is something everyone can do. The upfront capital cost may be cheap, but what is the quality going to be five to seven years out, as well as the reliability? What will the vehicles cost to maintain? This remains to be seen.”
• “New York City seems to be operating in a constant ‘state of emergency,’ but this is a 20-year-old problem. New York is behind the curve [in terms of investment that meets both its immediate needs and long-term objectives], but this problem is not particular to New York. Planning transit, whether legacy or new, is complex.”
• Bombardier’s standing with its largest North American customer, the New York Metropolitan Transportation Authority, has been compromised due to manufacturing problems (underframe cracks) on the R179 cars. Production is two years behind schedule. As a result, Bombardier was not allowed to bid for the 1,175-unit R211 contract. Ironically, the R211T, of which up to 640 will be built, is an open-gangway design similar to the Toronto Rocket cars, which Bombardier successfully supplied to the TTC, and which were a first for North American rapid transit. “The Toronto Rocket cars with their open gangway configuration are just one example of a vehicle that has been adapted by many cities,” Troger told me. “The Toronto subway was a significant challenge because of the tight curves, which are very similar to those found on the London Underground.”
• “We consider Metrolinx a long-term strategic partner—a 30- to 40-year span.”
The long-standing dispute involving Metrolinx and Bombardier over delivery of 182 Flexity Freedom LRVs for the Eglinton Crosstown, Finch West and Hurontario projects was resolved after six months of negotiations. The new agreement calls for Bombardier to construct 76 LRVs, rather than the 182 contained in the original order, reducing the contract’s value to C$392 million from $770 million, with financial penalties if deliveries are not on time. (In May 2017, Metrolinx placed an order with Alstom for 61 Citadis LRVs, at $528 million as, in effect, an insurance policy for the Crosstown line.)
One of the incentives for Bombardier to accept the new agreement was a promise by Metrolinx that the company would be allowed to bid on the lucrative operations and maintenance agreement for GO Transit regional/commuter services, when it comes up for renewal. Bombardier—the current contractor—had previously been restricted from bidding, and thus renewing its agreement, due to the dispute with Metrolinx. As part of the settlement with Metrolinx, Bombardier’s contract was extended by 18 months.
Meanwhile, the Kitchener-Waterloo LRT is receiving new Flexity Freedom vehicles, albeit delayed by the same problems that have affected the TTC cars. That system is poised to begin operations later this year, once enough LRVs are on the property to protect the service.
Bombardier’s first-quarter financials were quite strong. The order intake reached $2.3 billion in the first quarter, bringing the book-to-bill ratio to 1.0 for the period, and the backlog to $35.7 billion. Revenues in the first quarter continued to grow, increasing by 21% year-over-year (or 10% excluding currency impact) to $2.4 billion, driven by the ramp-up of key projects. Revenues increased across all segments, comprising rolling stock and systems, services and signaling. The major project ramp-up phase initiated mid-2017 continued in the early months of 2018, “building working capital to support the increase in production to meet an acceleration of deliveries expected later during the year.” EBIT before special items increased to $189 million in the first quarter, continuing to trend at or above an 8.0% margin. Orders were signed across geographies including Europe, North America and Asia-Pacific, and include “significant contract extensions and exercise of options by customers. In addition, the majority of new orders were in support of our strategy to re-use existing technologies, increasing our ability to leverage recent investments and grow margins.”
As the transportation divisions of Alstom and Siemens continue on their merger journey, they, Bombardier, CAF, Brookville, Kinkisharyo, Sumitomo, Hyundai-Rotem and Kawasaki—the latter four once disruptive forces in the North American rail transit market—are watching CRRC coming up, fast, in the rear view mirror.
Troger believes Bombardier, which before the Siemens-Alstom engagement announcement had courted Siemens, can thrive on its own. I hope he’s right. A healthy market will always do better with competition.
I wonder, what would Edward G. Budd and George Pullman think of all this?