June 14 (Bloomberg) -- Siemens AG, Europe’s largest engineering company, sealed a 1.6 billion-pound ($2.5 billion) contract to provide carriages for a London rail link, beating Bombardier Inc., which is cutting jobs at its plant in England.
The order to provide 1,140 new carriages for use on the Thameslink line will be awarded to a consortium led by Munich-based Siemens, the U.K.’s Department for Transport said.
The Siemens team was nominated as preferred bidder by the British government in June 2011 after its financing unit helped structure the payment of the deal, whereby the U.K. won’t pay anything upfront. Montreal-based Bombardier said after the announcement it would cut more than 1,400 jobs at its railcar plant in Derby, England. Most of Siemens’s rail manufacturing is in Germany.
“This will be a death blow to Derby’s economy,” Frances O’Grady, the general secretary of the Trades Union Congress, said in an e-mailed statement. “The Bombardier workforce is loyal, committed and highly productive. It is the exact opposite of the industrial policy that this country needs.”
Unlike Bombardier, Siemens has its own financing division which is able to lend money to customers to invest in its projects and facilitate investment by third parties. The consortium awarded the contract is called Cross London Trains, and comprises infrastructure investment groups Innisfree Ltd. and 3i Infrastructure Plc, and Siemens Project Ventures GmbH, a unit of Siemens Financial Services.
The project vehicle has financing in place equal to the full value of the Thameslink contract and is owned in equal proportions by Siemens, Innisfree and 3i, Moody’s Investors Service said in a note rating the company’s debt A3 on June 12. The loans comprise a 225 million-pound facility from the European Investment Bank due 2033 and a 1.36 billion-pound term loan due 2035.
The rolling stock project is part of a 6 billion-pound upgrade of the Thameslink network, which operates overground trains from north to south across central London. SFS helped secure the preferred bidder status by structuring the financing of the order, the unit’s head Roland Chalons-Browne told Bloomberg at the time.
Siemens’s earnings have been burdened by charges related to delayed deliveries of trains to Deutsche Bahn AG, Germany’s national rail operator. The charges topped 245 million euros ($326 million) in the three months through March.
Siemens has beefed up its U.K. railway assets with the acquisition of Invensys Plc’s signaling business for about $2.8 billion in November.
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