(StockHouse.ca posted the following Canadian Press report on its website on April 8.)
MONTREAL — Bombardier Inc.’s contract to refurbish London’s famous subway system has grown by nearly $1 billion in value and could grow further if the Montreal-based transportation giant meets several performance targets.
Initially valued almost a year ago at $6.9 billion, the complex 30-year contract now worth $7.9 billion involves Bombardier supplying 1,738 new cars, refurbishing 450 more, building signalling systems and maintaining the trains in a public-private partnership.
It’s the largest mass transit contract for Bombardier Transportation, which is one of five private shareholders that have bought a three-quarters share of the entire transportation system, which carries three million people a day.
Bombardier Transportation is also one of the five equal shareholders of Metronet Rail BCV Holdings and Metronet Rail SSL Holdings, a consortium running the project.
Investing $162 million each in Metronet Rail, the other four partners are Atkins and Balfour Beatty, two engineering firms, Seeboard, a major London energy utility that belongs to Electricite de France, and Thames Water, the major London water utility that belongs to a German firm.
Lortie said the London Underground is ‘one of the oldest and busiest underground train systems in the world,’with 275 stations, 408 kilometres and 3,954 coaches.
Metronet’s share of this will involve nine out of 12 subway lines.
The Metronet consortium has raised a further $6 billion, and its president stated last week that shareholders should earn 13 to 18 per cent per year on their investment.
Pierre Lortie, president of Bombardier Transportation, did not say how much his company might earn on the contracts, although there will be bonuses if it exceeds its contractual obligations.
Paul Tellier, chief executive of Bombardier Inc., said last week in announcing a $1-billion fourth-quarter loss for the rail and aerospace manufacturer that large orders were not enough: The company had to improve its margins on them.
Lortie said in a conference call from London that the company will give itself lots of time to introduce the new trains to avoid problems.
Prototypes will be built and will run for three years.
‘This will reduce significantly the risk and make sure the cars are quite reliable,’said Lortie.
‘We have learned lessons from other projects and the scheduling we have provides for some buffer.’
One of those other projects he didn’t mention would be the rapid Acela train introduced two years ago between Boston and Washington. Acela was rushed into service by Amtrak and had to be recalled for modifications, leading to bitter lawsuits still not resolved.
The signalling systems for the London trains will be provided by Westinghouse Rail Systems Ltd. in a subcontract worth almost $2 billion.
The new fleets will be built in Bombardier’s plant in Derby, England, between 2008 and 2015. There are two types: Those that go only underground, and those that go on sub-surface and above-ground tracks.
The value of rolling stock contract alone to Bombardier is about $3.45 billion.
In order to shore up its finances, Bombardier Inc. announced last week it will sell its recreational products division – including the pioneering Ski-Doo snowmobile, make an $800-million share issue and halve its dividend.
Bombardier common stock (TSX:BBD.B) was up six cents at $3.42 in mid-day trading Monday on the Toronto Stock Exchange.
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