Transport and the economy

Memorandum from Bombardier Transportation UK Limited (TE 89)


Bombardier Transportation UK Limited is pleased to submit this evidence to the inquiry by the House of Commons Transport Committee into Transport and the Economy.

Bombardier is a global corporation and leader in the fields of aerospace and rail transportation. With operations in 35 countries, Bombardier Transportation leads the world’s rail equipment manufacturing and servicing industry. Our 33,800 employees continue a proud tradition of delivering innovative rail transportation solutions, including:

· Rail vehicles - automated people movers, monorails, light rail vehicles, advanced rapid transit, metros, commuter/regional trains, intercity/high-speed trains and locomotives;

· Propulsion and controls - complete product portfolio for applications ranging from trolley buses to freight locomotives;

· Bogies - product portfolio for the entire range of rail vehicles;

· Services - fleet maintenance, operations and maintenance (O&M), vehicle refurbishment and modernisation, and material management;

· Transportation systems - customised "design-build-operate-maintain" transportation system solutions; and

· Rail control solutions - advanced signalling solutions for mass transit and mainline systems.

In the United Kingdom, Bombardier Transportation’s activities are concentrated at our world-class manufacturing facility in Derby employing over 2,500 people, from where we have produced over 2,600 vehicles for the UK mainline rail industry, the London Underground and for export since 1996. The Derby factory is currently recruiting 400 temporary workers to meet a peak in demand, but these will not be required in the trough that we can see following in 2011. In recent years, the Derby facility has exported vehicles to Taiwan and South Africa. The latter contract, involving transfer of technology, provided new trains for the Johannesburg airport link that was so successful in providing essential transport during this year’s soccer World Cup.

In addition, our Rail Control Solutions factory in Plymouth produces state of the art train control technology for export across the globe, to markets as far afield as India, Korea and Australia.

Bombardier Aerospace is the largest private sector employer in Northern Ireland, making a significant contribution to the local and national economy.

Executive Summary

1. Effective transport networks are foundational for modern society and a key driver of economic growth.

2. Transport can also help to maintain and develop the domestic supply sector as well as generating high-technology exports and highly skilled jobs:

a. Transport funding/expenditure can therefore support government objectives to re-balance the economy away from a reliance on financial services; and

b. Bombardier Transportation and its supply chain exist throughout the UK in locations in which the private sector needs to be expanded.

3. Transport planning responsibilities should reflect usage patterns and be geared towards sustaining regional and national economic growth.

4. Bombardier Transportation has a wealth of global experience in the transport sector in many countries with varied levels of economic development. Bombardier has developed and maintained rail systems across all tiers including high-speed rail, standard heavy rail, metro and light rail systems. We see how rail transport network development has been used as a policy tool to achieve wider government objectives.

5. We put the case forward in this paper that the Railways are uniquely placed to help achieve the Government’s goals and can do so in an environmentally sustainable manner.

We have not sought mechanically to answer each specific question but have rather divided our comments into sections broadly following the Committee’s issues whilst reflecting our expertise in the rail sector.

Section One: Effective Transport Networks Are Foundational to Our Society

Bombardier Transportation contends that transport is foundational for our society, and requires investment over the long-term in order to provide sustained economic value to the country. The current rail network in the UK is a legacy of the investments made over many decades. However, development of the network has not kept pace with changes to the economic geography of the UK in the second half of the 20th century and this has resulted in the problems identified by the Eddington Report.

We contend that transport infrastructure investment should be seen in the context of the long-term strategic development of the UK. We believe that provision of an effective transport network should be considered ‘foundational’ in the same way as public provision of core healthcare services and public sector children’s education.

Whilst predictions about future passenger and freight growth on the railways are difficult to make over a twenty or thirty-year period, the case for investment remains solid, even if forecasts are slightly lower or higher than estimated just a few years ago. What is essential is ensuring that we have a transport system that is matched with the level of long run economic development that occurs in the UK. Consequently, the current economic downturn must not result in less investment. Our view is reinforced by evidence that points to stable passenger numbers despite the current economic conditions.

According to the Office of Rail Regulation (ORR) National Rail Trends, ordinary fare revenue increased by 3% between 2008 and 2009 despite the recession. Thus, Eddington’s recommendation that " action is needed to prevent rising transport demands dampening the UK ’s long term productivity and competitiveness" is as relevant in 2010 as it was in 2006.

The economic returns from transport investment are high. T he Committee has previously noted that, " Transport investments could, for example, support clusters and agglomerations (typically in urban areas or industrial locations) of economic activity, by expanding labour market catchment areas, improving job matching, and facilitating business to business interactions." (Priorities for Investment in the Railways, Chapter 3, paragraph 18 ).

In writing this paragraph, the Committee was rightly commenting on the impact of transport investment on the wider economy. But clustering and agglomeration benefits are seen on the supply side of the equation too. Derby is the largest rail industry cluster in the world , so the wider economic benefits derived from transport investment assist the further development and retention of the technical skills base the rail industry needs and that has taken generations to build up. A leading high-tech centre of excellence in manufacturing such as Derby must be encouraged to succeed if the UK is to rebalance its economy towards export-led growth delivered by a growing private sector.

A recent study ("Planes, Trains and Automobiles") commissioned by Derby City Council (DCC) and the East Midlands Development Agency (EMDA) considered the economic benefits to the city and region from the aerospace, rail and automotive manufacturing clusters in the city. It concluded that for the rail sector, that an employment multiplier of 2.0:1 was appropriate to represent the impact of indirect and induced employment in the local economy, suggesting that the 8,500 rail employees in the East Midlands region support employment of a further 8,500 people in the wider economy of the region. Whilst this might appear a conservative multiplier compared to some claims, it has been independently benchmarked as part of the DCC / EMDA study and we believe therefore presents a robust analysis of the true economic impacts of the sector. A copy of the "Planes, Trains and Automobiles" study report is enclosed with this submission for the information of the Committee.

Through the supply side, transport investment benefits the economies of regions across the country. Therefore, while London and the SouthEast has understandably high transport investment needs because of the scale of economic activity there, awarding supply contracts into the domestic supply sector brings economic benefit across the UK. Bombardier Transportation in based in the East Midlands and South West regions, whilst our supply chain extends throughout the UK, in areas where the private sector could and should be expanding. The importance of maintaining the railway manufacturing skills base in the se regions of the UK cannot be underestimated as it helps to counter the peaks and troughs of economic cycles.

Section Two: Transport Investment Can Grow the Economy

Eddington pointed out that whilst in a mature economy such as the UK it could be possible to achieve economic growth without significant capital investment in entirely new transport infrastructure, the constraints upon the existing network could impede economic development and damage the UK’s international competitiveness.

One major problem for the UK is that our current transport networks – especially rail - reflect travel patterns of the 1950s. A network mostly laid down in the 19th century has quite simply not kept up with economic and social developments since that time. This is graphically highlighted by the poor rail connections to Heathrow and by the tortuous process of modernising the West Coast Main Line, which has proved to be only a stopgap solution in providing the required extra capacity.

Regional economic growth can be encouraged when transport infrastructure development is matched to the long-run development of the economic geography of the region. In China, where the economic landscape has been changing dramatically over the last two decades, transport network investments have been made which complement the unfolding economic development. First, investments were made in metro systems to allow large city centres to function. Then effective connections between cities were targeted. A further step is investment in suburban networks, as cities mature and less dense development grows at the fringes.

Bombardier Transportation has implemented a strategy for delivering the full hierarchy of rail-based solutions in China, from metro to high speed and finally provincial services. Whilst China’s emerging economy cannot be said to replicate the UK as an economic model, the approach adopted and the long-term strategy developed has proved to be extremely successful.

Some of the current transport schemes in the UK such as Thameslink, Crossrail, the Manchester Hub, and the extension of the London Overground network are good examples of transport infrastructure investment that reflects modern patterns of growth of the economy in regional locations and demonstrates how transport demand goes hand in hand with economic growth. These are good examples because they deal with the constraints on capacity that can impact on the productivity benefits that the transport network potentially creates.

The new lines (with rolling stock supplied by Bombardier) on Transport for London’s Overground network show how the railways can respond to changing patterns of demand and assist in generating wider social and economic benefits. These lines have created the possibility of orbital movements for many Londoners (thereby freeing up capacity on other lines) and have increased the number of people who can commute more easily to jobs in the City, thus improving social inclusion. Moreover, initial reports indicate that house prices in those areas that the South London line now runs through have risen by approximately 10 per cent since it opened.

Thameslink is a prime example of a project being driven by constrained demand and one that will assist in regional and economic growth, linking three major regions of the UK together and providing the first comprehensive cross-London rail service (similar to many continental cities). Bombardier is a shortlisted bidder to supply new trains for the route, so the wider economic benefits of this investment programme could stretch across the country through our multiple manufacturing and supplier sites in the East Midlands and nationwide supply chain but also through the planned cascade of the current Thameslink rolling stock to areas such as the Thames Valley and the North West.

We have referred to our experience in China, but this is a country where there is currently little necessity for light rail solutions in the very large Chinese conurbations. However, these solutions are much better suited to the economic geography of the UK. Indeed this idea is supported by the combined ATOC, Network Rail and Rail Freight Operators Association report, Planning Ahead 2010, which makes the case that "light rail or tram trains could benefit regional and rural markets with locally specific initiatives, supporting the local economy and environment by delivering an alternative to ‘heavy’ rail." (page 9, para graph 2.26)

Nevertheless, heavy rail can deliver massive additional capacity to our transport network in a very environmentally-friendly way. So, the railways can assist the Government to meet its 2020 carbon reduction targets by helping to shift traffic away from the private car and short-haul aviation. This could also help to reduce congestion on the roads as more people and goods are moved by rail. Whilst it is difficult for economists to quantify exactly how much money would be saved as a result of significant modal shift, it is clear that the costs to business of delays would significantly reduce.

Also, the relevance of data used in analysis and assessment of schemes could be improved: several recent transport white papers have based their economic modelling on the price of oil being $50 a barrel. In the last two years this has fluctuated drastically which has had the effect of doubling transportation costs and impacting negatively upon demand forecasts. Further, such inaccurate figures create false impressions about affordability and environmental performance.

In the intercity rail segment, Bombardier has also recently proposed two cost-effective solutions to enhance capacity and reduce the carbon footprint of existing rail operations:

· Project Thor, being developed with a number of UK private sector partners, would see 500 existing diesel multiple unit vehicles converted to bi-mode diesel / electric capability, allowing them to operate as electric trains where there is already electrification infrastructure in place, while continuing their journey in diesel mode where the wires end. The Department for Transport is currently working to confirm the business case, which appears strong, and wider benefits. A paper produced by the private sector partners describing the benefits that could be delivered by this project is enclosed with this submission for the information of the Committee.

· TRAXX UK is the proposed UK derivative of Bombardier’s market-leading electric locomotive which operates all over mainland Europe. This would potentially represent an extremely cost-effective solution when coupled to refurbished existing coaches, as an alternative to replacement with a new intercity train.

Section Three: Sustaining Capital Expenditure

Whilst economic conditions have changed dramatically in recent times, it is important that a strategy for sustained long-term investment is in place as the development of our transport system and by implication the economy, depends upon it. Whilst any Government has to maintain a balance between revenue and expenditure there will inevitably be times when decisions about levels of subsidy to users have to be taken around particular policy objectives or priorities.

Bombardier would argue that there is a need to separate out the issues between capital expenditure and revenue. As the Government recognises, capital must continue to flow into the rail network in order to sustain economic growth. However, simultaneously decisions also have to be made about revenue support and this has historically been dependent on public policy objectives and economic conditions. Furthermore, neither of the two main mechanisms for supporting rail industry revenue – an increase in fares or an increase in subsidy - are popular choices. Yet investment in transport infrastructure is so crucial to the future prosperity of the UK that the question is really about how we pay for transport schemes rather than about whether to pay for them or not.

Indeed, a microcosm of this debate can be seen in arguments around the development of High Speed Two, which is a national strategic decision. Many believe that a high-speed network should be funded but not at expense of other smaller enhancement schemes. Yet the experience of China referred to earlier is that a growing economy must have both urban metro schemes and high speed rail for inter-urban journeys.

HS2 does nothing to undermine the case for investment in London – where the expected population growth is 1.3 million by 2031 – or in other conurbations . Indeed, a high-speed network would free up existing lines for freight and passenger movements, thereby simultaneously delivering an increase in capacity on commuter services, strategic freight routes and key inter-urban corridors with national and regional economic benefits. If the Government decides to proceed with HS2 then Bombardier has all the expertise and technology required to assist if requested.

Bombardier welcomes the Government’s consultation into rail franchises and will be submitting evidence in due course.

Section Four: Relentlessly Growing Demand

According to the National Audit Office 2010 report into Increasing Rail Capacity, "Network Rail’s Rail Utilisation Strategies indicate that for many routes, and for the most crowded routes in particular, train operators had already largely exploited the potential for running more trains on the existing network. Further capacity enhancements would often require investment in additional rolling stock to run longer trains, which in many cases would require: longer platforms and/or station, junction and signalling improvements; and depots and stabling to accommodate the new stock." So how should the UK plan and deliver the extra capacity that is sorely needed?

The Government has announced the abolition of the Regional Development Agencies and with them the Regional Spatial Strategies that were used to plan and assess particular transport schemes. New structures will need to be established to make decisions about proposed transport schemes, from local, small scale projects to strategically important national investments. For rail, we would suggest that more formal structures could be constructed on a similar basis to the consultee bases for Network Rail’s Route Utilisation Strategies.

The Local Economic Partnership (LEP) structures are still in their infancy and are likely to be based around geographic regions and metropolitan areas, yet it is unclear how much power they will actually wield, or how they will be funded and resourced. Heavy rail for passenger or freight use could lose focus if the LEPs concentrate exclusively on local transport schemes such as buses and smaller light rail projects. Equally, whilst it makes sense for some mega-schemes to be planned and delivered nationally (such as HS2) it makes as much sense for major schemes (such as the Northern Hub) to be planned and delivered regionally. To enable local empowerment to be effective, frameworks will need to be put in place to ensure cross-regional co-operation for schemes of national importance.

For example, in London real power over transport spending has been devolved to the locally elected Mayor and Assembly, allowing transport to support clusters and agglomerations of regional economic activity throughout the capital. Whilst the example of London is often used to highlight the benefits of a regional authority having power over transport spending, London is a unique conurbation. Perhaps a more repeatable example is that of the Merseytravel Integrated Transport Authority. This has achieved significant modal shift that has resulted in less congestion in Liverpool city centre, an increase in social mobility and an effective transport hub for the South Liverpool and the growing airport. As the franchisor of the local rail network, Merseytravel has been able to offer strategic direction and leadership that has resulted in Merseyrail Electrics consistently being one of the country’s best performing operators.

Section 5: Conclusion

We have argued that effective transport networks in general, and rail transport networks in particular, are foundational for a modern society, and a key enabler of growth in the nation’s economy.

We have described the link between transport infrastructure investment and economic benefits derived from the high skill domestic supply sector that is ready to deliver these projects, contributing to re-balancing the economy and driving exports. We recognise the potential role of such investments as tools to achieve a wide range of government policy objectives.

We recognise the short term challenge of funding capital investment, but urge the government to recognise the long term benefits that flow from transport investments, and to prioritise investment accordingly.

We also recognise that it is not possible to adopt a ‘one size fits all’ approach to planning and delivering transport projects, and propose that powers should be devolved to regional and local bodies according to the geographic scale of the passenger and freight flows.

Bombardier Transportation has massive global expertise that can be mobilised to help shift the UK towards a new paradigm where appropriate processes are used and transport planning reflects usage across different levels. Through our global leadership of the sector, we understand the role of the full range of rail solutions in the public transport portfolio – from light rail to high speed and freight. We have, within our own company, and within our extensive UK supply chain, the expertise to deliver transformational transport projects. We stand ready to support the government in achieving its objectives, and would welcome the opportunity to contribute further to policy discussion.

September 2010