Deal for LA Rail Car Factory Falls Through (Source: California High Speed

Link: California High Speed Rail Blog: Deal for LA Rail Car Factory Falls Through

Tuesday, November 3, 2009
Deal for LA Rail Car Factory Falls Through

by Rafael

AnsaldoBreda is an Italian manufacturer of passenger rolling stock, with a portfolio covering light rail, subways, standard speed and high speed products. SPCR radio reports that the company has walked away from a $300 million order for 100 light rail cars for Los Angeles MTA. In spite of earlier assurances, in the end the Italians were not willing to sign up to stiff penalties in the event of late delivery. It is now likely that the authority will have to execute an open tender process after all, which in the long run may well prove the best possible outcome.

What's Past is Prologue

In 2003, LAMTA awarded AnsaldoBreda a contract to build a new fleet of 50 model P2550 light rail cars with options for 2 x 50 more, in spite of delivery delays on two previous contracts. Evidently, third time is not the charm, as the company is late yet again - by three years, no less. The units already delivered are almost 6,000 lbs overweight, which means they cannot be used on certain lines.

Nevertheless, Mayor Villaraigosa pressed for these options to be exercised in a no-bid follow-on contract, with the understanding that the company set up a factory in LA and also move its corporate headquarters there. An LAEDC report dated March 2009 confidently forecast 535 manufacturing jobs and summarized that "in total, AnsaldoBreda will sustain continuing economic activity worth $368.5 million in economic output and 2,240 FTE jobs in Los Angeles County with estimated annual earnings of $91.1 million." Rumor has it the factory was to be built by an outfit headed up by the former chief deputy mayor.

Critics point out that this level of fresh employment could only be sustained with an annual output of 75 units, which would require additional orders from other US transit agencies. However, in addition its history with LAMTA, the manufacturer is now also several years late on unrelated orders from Denmark and the Benelux. The latter are for V250 "Albatross" high speed trainsets. Nomen est omen, though in all fairness the latter project has been hamstrung by factors beyond the company's control. Given AnsaldoBreda's global track record of missed deadlines, LAEDC's implied forecast that it would become a major player in the US rail car manufacturing industry was perhaps more pious hope than realistic expectation. After all, the company's assembly plant in Pittsburg never grew to the originally intended size, either.

Note that the deal that just fell through would have been ineligible for federal co-funding because the current surface transportation bill contains a five-year deadline for exercising options on existing contracts.

Plan B: Go Fish

With the passage of Measure R last year, LAMTA's needs have anyhow expanded to a total of around 200 cars for both subway and light rail in addition to refurbishment of the existing fleet. The increased size of the deal means the authority now has a much better chance of attracting bids from major players in the rail transit vehicle industry, some of whom also have high speed trains in their portfolio. Names mentioned in the radio interview: Siemens Mobility, Bombardier Transportation and Kinkisharyo, though this list was not meant to be exhaustive.

In principle, a fresh order would be eligible for federal co-funding in the context of even the current surface transportation bill, though that is already being extended for 90 days at a time because the Obama administration has decided to postpone discussion of the next one. Whichever bill would apply, there are long-standing FTA rules against federal co-funding if a tender process is skewed in favor of bidders who offer to set up a local manufacturing facility. Nevertheless, in order to help the Mayor save face, LAMTA intends to write just such a skew into the rules for the upcoming tender. That means sticking with the strictly local funding model in the (forlorn?) hope that USDOT will redirect its generosity to other component projects of Measure R so it ends up a wash.

For reference, Siemens Mobility already has a light rail assembly plant in Sacramento. Bombardier Transportation has rail maintenance facilities in Southern California and is also present other US states. Patentes Talgo S.A. is present in Washington state and is setting up a factory in Wisconsin.

Potential Implications for California HSR

While LAMTA has no formal authority whatsoever over vendor selection for the California HSR project, Los Angeles does wield significant clout in Sacramento. Don't be surprised if Mayor Villaraigosa attempts to sweeten the pot by dropping heavy hints regarding possible follow-on business from CHSRA to encourage bidders to set up shop in his city.

Like it or not, industrial policy - i.e. manufacturing job creation/retention - has been a factor in vendor selection in many HSR projects all over the world, especially for the prestigious initial order. I suspect CHSRA's role in vendor selection may therefore end up limited to the technical and commercial pre-qualification of a shortlist, though neither the Governor nor the legislature have said so publicly.