BUSINESS

Bombardier disappointed as Amtrak abandons plans for Acela purchase

12/14/2012 01:43 EST | Updated 02/13/2013 05:12 EST
MONTREAL - Bombardier is looking at a new order opportunity despite being disappointed that Amtrak won't purchase its Acela rail cars for the northeastern U.S. corridor as the passenger rail operator instead advances plans to acquire faster, modern high-speed trains.

Amtrak said it will formally start the process early next year to eventually replace the existing 20 Acela Express trains plus add additional trains to meet its forecasts of increased ridership in the years to come.

It had originally considered purchasing 40 Acela passenger cars, two of which would be added to the six cars that operate on each of its 20 trains.

But chief executive Joe Boardman told a congressional committee in Washington on Thursday that such a move was "a stop-gap measure."

“Moving directly to new high-speed train sets is the best option to create more seating capacity, permit higher speeds, and maximize customer comfort all while improving equipment reliability and reducing operating costs," he stated in a news release.

Besides posing technical challenges, adding new cars was determined to be not cost effective and insufficient to handle new ridership growth projections, add required frequency upgrades and meet the many infrastructure challenges the network faces, Boardman said.

Delivery of the new trains is expected to begin in five to seven years, but Amtrak said it expects the Acela trains will continue to operate into the 2020s.

"We're getting some additional train sets and when they start coming on line they will be operating side by side with our existing 20," said spokesman Steve Kulm.

Bombardier (TSX:BBD.B) and Alstom partnered in 1996 on a US$1.2 billion contract to supply the original Acela trains. Bombardier said it has been in discussions and submitted a proposal to manufacture the additional passenger cars at its Plattsburgh, N.Y., facility.

Spokeswoman Maryanne Roberts said Bombardier isn't totally surprised by the decision because it was one of several options being considered.

"They were always going to order the next generation of high speed trains too and they were looking at an in between measure so we're disappointed that they're not going to go forward with that but we stand ready to help them with their future procurements," she said in an interview.

"We weren't counting our chickens before they were hatched."

Roberts said the world's largest railway manufacturer offers a range of train speeds, including the Zefiro that would have to be modified to meet U.S. safety standards.

Bombardier, Siemens, Alstom and Hitachi are among the world's large rail manufacturers that are expected to participate in a tender call for trains that could travel up to 354 kilometres per hour. Amtrak has yet to decide what speed of train it will seek or how much it plans to spend on equipment.

Amtrak estimates that it will need to spend about US$151 billion, mostly in infrastructure upgrades on tracks and tunnels to reach that top speed. Upgrades to the section from New York to Washington would be completed by 2030, while the section between New York and Boston would follow by 2040.

The Acela trains are designed to hit 265 km/h, but travel at much slower average speeds, averaging just 116 km/h on sections north of New York City. They only reach 241 km/h for a few kilometres in Rhode Island because of infrastructure issues with the track.

Amtrak expects a public-private partnership could play a significant role in the upgrade because of the prospect for more than US$1 billion in operating profits and some 40 million passengers annually once it is in full operation.

Boardman said international experience suggests that the private sector is only willing to participate in high-speed rail projects after the public sector allocates significant funding.

David Tyerman of Canaccord Genuity said he's not sure which manufacturer would be a leading contender, but noted that Bombardier has a good shot despite some problems with Acela.

"I would think they would have an advantage being the incumbent but there were obviously some issues at least in the early days of the program so maybe that goes against them but I suspect not," he said in an interview.

Ultimately, he said not winning the contract for 40 passenger cars is not significant for a company the size of Bombardier.

"It's probably better from Bombardier's standpoint to have a shot at winning a big new order than to have a guaranteed order of a much smaller size."

And while budget pressures in the U.S. may affect the availability of funding, Tyerman said improvements to this profitable railway corridor likely has a better chance of winning support than others being considered across the country.

Amtrak transported a record 31.2 million passengers in fiscal 2012, including 11.4 million in the northeastern corridor. It has tried to build itself as an airline alternative especially for business travellers and carries more passengers between New York and Boston than all airlines combined.

On the Toronto Stock Exchange, Bombardier's shares closed at $3.44 up four cents in Friday trading.