How Europe’s top train maker is trying to get back on track
France’s Alstom is choosing a smaller number of new projects after most recent profits warning
When Spain’s rail operator launched a contest to build up to 40 new trains capable of running at 350km an hour, Europe’s top manufacturer was absent from the line-up.
Alstom, the world’s second-biggest train maker famous for its high-speed TGV, confirmed it had not lodged an offer by the June deadline set by Renfe. Alstom decided the delivery deadline of just over three years was too tight and the speed goals for the new trains were too ambitious, according to two people familiar with the matter.
But its decision not to bid for a contract worth an estimated €1.8bn was unusual — and a sign of the complexities of securing big rail contracts.
High-value train projects can take many months, sometimes years, to be awarded to train manufacturers that must nevertheless commit to multiyear vehicle delivery timelines and prices. Specifications often change along the way and safety and regulatory approvals can be arduous.
Those conditions in turn put pressure on balance sheets driven by large capital requirements, working capital swings and lumpy payment schedules.
Martin Sion, who took over as Alstom chief executive in April, is trying a fresh approach to tackle some of these thorny issues. He began his tenure by prioritising a smaller number of new manufacturing projects to focus on profitability, cash and ironing out execution problems on existing contracts.
But Alstom’s Paris-listed shares have roughly halved since touching €30 earlier this year. In April, the group issued its third profit warning in five years, just after Sion’s arrival. It also dropped a cash-generation target.
Alstom’s withdrawal from the Renfe tender also provides a glimpse into an industry that regularly draws criticism from politicians and the media for delays in deliveries.
“In Europe every quayside has a different height, tunnels are different in every country, even the voltage on the tracks is not the same,” said one of the people.
William Mackie, head of capital goods research at Kepler Cheuvreux, said such characteristics set the train industry apart. “The airline industry is very homogenised. You don’t find that in the same way in rail,” he said.
Capital intensive contract delays are particularly tough for the cash positions of train makers, given final payments only occur after trains are tested on networks for months. Late deliveries trigger financial penalties.
The near-century-old Alstom, also known for making trains for Eurostar and the London Underground, is still benefiting from strong demand from rail networks.
Big new contracts included suburban trains in Australia, intercity ones in Portugal and Poland, and a new fleet for commuters travelling between New York and Philadelphia.
But while Alstom’s total order book was worth €103bn on June 30, the end of its first quarter, new orders were down nearly 40 per cent in that quarter compared to a year earlier.
“Life is difficult when you’re listed and have to pitch for projects that you’re awarded six months later and you commit to timelines and prices that you then build over a decade — and you have to guide financial markets,” said one Paris banker.
Analysts and rail executives said some of Alstom’s problems were self-inflicted. The €5.5bn acquisition of Canadian rival Bombardier in 2021 created overlaps it may still have to tackle with cutbacks, they said. Alstom has taken more than €1bn in provisions and adjustments on contracts inherited from Bombardier.
Alstom’s market value now languishes at under €8bn, compared to €17.6bn months after the Bombardier deal was completed.
Officials at the group acknowledge it needed to better manage deliveries and costs, although one former insider said many attempts had been made before.
“We need . . . greater discipline in steering our projects, more predictability in our deliveries and more simplicity in the way we operate,” Sion, who joined from space-rocket maker ArianeGroup, told shareholders in July.
At the shareholders’ meeting, investors voted against an exit payment of €1.3mn for recently departed chief executive Henri Poupart-Lafarge.
Criticism from clients can also be harsh.
In July, French President Emmanuel Macron’s former prime minister Jean Castex, who now runs state-owned operator SNCF, took a veiled swipe at Alstom.
“My biggest problem today is not that we’re opening up the train market to competition, it’s the lack of trains,” Castex told a conference. “If there are manufacturers in the room that I will not name — hurry up and deliver!”
Among major contracts, Alstom won a €3bn deal in 2018 for 100 next-generation French double-decker TGV trains, which are being updated to fit 200 more passengers.
The first were due to be operational during the 2024 Paris Olympics. They should now start after the summer, two years later, following multiple issues with approvals, supplier delays and testing phases.
Such difficulties are widespread, affecting rivals from Stadler to CAF, Siemens Mobility to Talgo, and would also be challenging for China’s CRRC, the world’s biggest train maker, were it to attack Europe’s train market.
All four European train makers alongside Alstom had profit margins of under 10 per cent in their 2025 financial years.
Meanwhile, a small group of national operators, such as SNCF and Renfe, as well as Italy’s Trenitalia and Germany’s Deutsche Bahn, hold significant sway.
“They can almost dictate how it’s going to be. They negotiate very hard with their suppliers on payment terms and delivery terms and conditions,” Mackie at Kepler Cheuvreux said.
Another factor hitting margins is that in France, for instance, the SNCF does most of its own train maintenance, limiting Alstom’s ability to undertake such high-value work.
Investors had been warned that big performance improvements could take time, in an industry “whose practices lead to delays”, Sion told shareholders back in July.
“There is no magical recipe,” he said.