Dec. 23 (Bloomberg) -- Siemens AG said the first four of 16 trains ordered by Deutsche Bahn AG received regulatory approval to operate, two years after delays on the new model started burdening earnings at Europe’s largest engineering company.
Germany’s Federal Railway Authority cleared the four Velaro D trains for immediate use on the country’s high-speed Inter City Express rail lines after two were delivered in November for tests, Siemens said today in a statement.
“We’ve reached an important milestone in this project,” Jochen Eickholt, head of the rail-systems division at Munich-based Siemens, said in the statement.
Deutsche Bahn, Germany’s state-owned railway, decided in December 2011 to put off service linking Frankfurt with London by two years to 2015 because of delays in receiving models to be used on the route. Over the next two years Siemens paid hundreds of millions of euros in fines for missed delivery deadlines, contributing to missed profit goals that prompted the ousting of Chief Executive Officer Peter Loescher in July.
Four more Velaro D trains will be delivered in the spring of 2014, with the remaining eight reserved for test runs in Belgium and France in preparation for cross-border routes, Siemens said today.
“It’s now crucial that, based on the experience we’ve gained, we further develop cooperation between industry, regulatory authorities and the railway in ongoing projects,” Heike Hanagarth, Deutsche Bahn’s technical head, said in a statement posted online. The trains will initially be used in a reserve pool, the company said.
Siemens gained as much as 0.9 percent and was trading up 0.8 percent at 98.81euros as of 1:33 p.m. in Frankfurt, heading for the highest closing price since Jan. 8, 2008. The stock has gained 24 percent this year, valuing the manufacturer at 87 billion euros ($119 billion).
Joe Kaeser, who was promoted from finance chief to succeed Loescher as CEO, said in November that he attended a Deutsche Bahn management board meeting and invited a team from the railway operator to monitor production at Siemens’s train factory in Krefeld, Germany, as he sought to end the delays.
The rail-systems division is part of Siemens’s infrastructure and cities business, whose 1.6 percent earnings margin in the last fiscal year made it the least profitable of the company’s four sectors.
Hannes Apitzsch, the infrastructure business’s chief financial officer, promised Dec. 5 to focus more on picking projects for profitability, saying that he expects to post 50 million euros in annual charges. That compares with 270 million euros in costs last year related to high-speed trains.
Sueddeutsche Zeitung reported earlier today on the train delivery.
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