French Minister Looks to EU for Rail Remedies Amid Alstom Storm

  • Industry Minister Sirugue speaks in interview on train maker
  • French government faces criticism over TGV rail orders

France’s new industry minister said more collaboration between European train-making companies like Alstom SA and Siemens AG may be a way to strengthen the industry against competition after the government came under a barrage of criticism over a rescue package aimed at saving a local rail factory.

Junior Industry Minister Christophe Sirugue, 50, speaking in an interview a month after taking the post, stopped short of promoting tie ups between European rivals, which he warned could threaten jobs.

Christophe Sirugue

Photographer: Francois Guillot/AFP via Getty Images

“We need to look at the railroad industry on a European level,” the minister said Wednesday in Paris. “We need to defend ourselves.”

Under a controversial plan unveiled Tuesday by Sirugue, the state will directly order from Alstom -- in which it holds a 20 percent stake -- 15 high-speed trains worth around 450 million euros ($504 million). The move is aimed at filling the company’s French order books and maintaining production and 400 jobs at an eastern French site in Belfort that was slated by the company to halt manufacturing in 2018. Rival politicians and the media called the plan ill-conceived, expensive and politically-motivated ahead of presidential elections next year.

Rail Airbus

For Sirugue, a lawmaker from eastern France who entered the government for the first time last month, France’s response to Alstom’s lack of domestic orders could also be accompanied by requirements in rail order tenders to favor local production. He said European companies have evoked intensifying their collaboration to counter foreign competitors, although any notion of consolidation into something like European aircraft manufacturer Airbus Group SE would be a double-edged sword.

“I’m not saying that we should not work on tie-ups,” he said in the interview. “But we have to be extremely prudent on the social consequences of what some call the Airbus of the railroad industry.”

Chinese Competition

The plan for Alstom comes after the Chinese government combined two train makers to form CRRC in a bid to better compete with Siemens of Germany and Alstom. Based in the country with the world’s biggest high-speed rail network, the Chinese company is targeting emerging markets in Africa, Latin America and Southeast Asia for rail-related orders, while also bidding for high-profile contracts in the developed world. Other competitors include Bombardier Inc. of Canada and Japan’s Central Japan Railway Co., which is looking for an overseas customer for magnetive levitation technology.

In August, Alstom announced it would build 28 high-speed trains to run along Amtrak’s corridor between Boston and Washington with most of the production in the U.S. Chief Executive Officer Henri Poupart-Lafarge has said 40 percent of the company’s activity in France fuels exports. The Saint-Ouen-based company last year won an order worth 3.2 billion euros to supply trains to Indian Railways and is expanding in Africa through a factory in South Africa.

No Future, No Rescue

“You can’t be schizophrenic” and support exporting companies like Alstom while protecting your own market, said Sirugue, dubbed by Le Point magazine as the antithesis of Arnaud Montebourg, the colorful former Socialist industry minister who advocated nationalizing a steel plant to save it and raised the possibility in 2012 of Libya’s sovereign wealth fund investing in an insolvent oil refinery in Normandy. The two men are rivals in the local politics of their region.

Industries that have no future won’t be rescued, according to Sirugue, adding that this isn’t the case at Belfort. “We need to have a truthful discussion and tell some industries that, unfortunately, we need to work on career changes and training,” he said. “We can’t let people believe that the state can go everywhere and find orders in industries where there aren’t any.”

Alstom will keep growing, he said, citing the expansion of the French capital’s transport network dubbed "Grand Paris,” a plan by state-owned railroad company SNCF to revamp its high-speed TGV train and increasing demand from outside France for trains. After 2021, the Belfort plant is expected to start working on a new TGV with SNCF.

More Dynamic

“We did not invest in a moribund sector,” Sirugue said, “It would frankly be a pity not to maintain the know-how of employees because there is a two-year-long hole in the order book.”

In addition to a stake in Alstom, the government owns shares in companies ranging from nuclear utility Electricite de France SA to carmakers PSA Group SA and Renault SA. The Alstom holding stems from a $10 billion state-led bailout in 2003 after the company was near bankrupcy.

As an investor, France needs to be “dynamic,” the minister said, advocating the selling of shares by the state in companies that are doing well and that won’t be weakened by the move.

“That will allow us to find resources to invest in other companies” for their new projects or daily operations, he said.

Before it's here, it's on the Bloomberg Terminal.