Deutsche Bahn

The new chief ex­ec­u­tive of Deutsche Bahn takes over at a time of great chal­lenge for the Ger­man com­pany. TONY STREETER con­sid­ers where things stand for an or­gan­i­sa­tion with a sub­stan­tial UK foot­print

Rail (UK) - - Contents -

It’s a time of great chal­lenge for Ger­man com­pany Deutsche Bahn, which has a num­ber of rail pas­sen­ger con­cerns in the UK.

It must be nice to have good news just af­ter tak­ing over an or­gan­i­sa­tion - and new Deutsche Bahn Chief Ex­ec­u­tive Richard Lutz had some­thing pos­i­tive to an­nounce on March 23.

Just a day af­ter be­ing named as Rüdi­ger Grube’s permanent suc­ces­sor, and stand­ing in front of two of DB’s In­ter­city Ex­press high-speed trains, for­mer fi­nance boss Lutz ex­plained that in 2016 the Ger­man railway gi­ant re­turned to profit af­ter the pre­vi­ous year’s loss.

The nam­ing of the ‘money man’ for Deutsche Bahn’s top job was an­tic­i­pated, es­pe­cially given that he had been act­ing CEO since Grube’s un­ex­pected de­par­ture at the end of Jan­uary.

But while there was up­beat news for this long-term DB man­ager to an­nounce at the press con­fer­ence, held in its home city of Ber­lin, the com­pany faces sig­nif­i­cant chal­lenges both at home and abroad.

Ger­many’s wholly state-owned railway com­pany is in the midst of a re­struc­ture. Last year it agreed with politi­cians what amounts to an in­jec­tion of cash. And chal­lenges re­main on both the freight side and at home, with com­pe­ti­tion from long-dis­tance buses. Liberalisation of the lat­ter took place in 2013 - be­fore that, such ser­vices were largely banned.

The Ger­man com­pany’s debt has risen in re­cent years - fi­nan­cial debt from around 16.5 bil­lion eu­ros in 2009 (ap­prox­i­mately £14.3bn at cur­rent prices) to more than 22 bil­lion eu­ros (£19bn) in 2015, and net fi­nan­cial debt from ap­prox­i­mately 15 bil­lion eu­ros to 17.5 bil­lion eu­ros.

In Septem­ber DB at­tracted wide­spread head­lines when it was re­ported that the state had agreed to pump in another one bil­lion eu­ros to help the or­gan­i­sa­tion’s cap­i­tal po­si­tion, a fur­ther 2.4 bil­lion eu­ros over four years, and ef­fec­tively 1.4 bil­lion more in re­duced div­i­dends paid to its owner, the Fed­eral Repub­lic.

DB’s own­er­ship means that its di­rec­tion is ul­ti­mately driven by Ger­man gov­ern­ments, and this makes a de­ci­sion such as the ap­point­ment of a chief ex­ec­u­tive a po­lit­i­cal as well as com­mer­cial one.

So, fol­low­ing Grube’s de­par­ture, it was Fed­eral Min­is­ter for traf­fic and dig­i­tal in­fra­struc­ture Alexan­der Do­brindt who an­nounced that the re­place­ment would be de­cided on at the next DB su­per­vi­sory board meet­ing. That su­per­vi­sory board is made up 50/ 50 from rep­re­sen­ta­tives of the work­ers and the Ger­man state, as share­holder.

The huge con­cern is that since its cre­ation in 1994 DB has been through dif­fer­ent phases - in the pe­riod be­fore the fi­nan­cial crash it was be­ing con­tro­ver­sially lined up for flota­tion, a project that sub­se­quently was ef­fec­tively aban­doned. The com­pany also pur­sued ma­jor over­seas ex­pan­sion to cre­ate a world­wide lo­gis­tics gi­ant - not least through the ac­qui­si­tion of Bri­tain’s EWS (in 2007) and Ar­riva (in 2010), as well as chas­ing fran­chises in its own right.

Un­der the strat­egy dubbed ‘DB2020’ that

was un­veiled in 2012, DB sought to be a “prof­itable mar­ket leader”. More re­cently, how­ever, the un­veil­ing of ‘DB2020+’ has sig­ni­fied a change of ap­proach. In­stead of “prof­itable mar­ket leader”, the talk now is of a “prof­itable qual­ity leader”. That sin­gle word of dif­fer­ence has the po­ten­tial to her­ald sub­stan­tial change.

Last year also fea­tured a restructuring that dis­solved DB Mo­bil­ity Net­works Lo­gis­tics (of which Ar­riva was part), by merg­ing it into the par­ent com­pany. This re­moves what had been a two-tier struc­ture.

What does all this mean for the UK? Given DB’s wide­spread ac­tiv­i­ties in this coun­try - Ar­riva claims around 22% of the pas­sen­ger rail mar­ket - what hap­pens with the Ger­man gi­ant can have pro­found ef­fects here, too.

How­ever, rather than cir­cum­stances out­side Bri­tain, the news last year of hun­dreds of job cuts at DB Cargo UK ( RAIL 812) was driven by do­mes­tic con­di­tions in this coun­try - not least the col­lapse in bulk coal traf­fic that has been such a sta­ple of rail-borne freight.

Bri­tish pas­sen­ger ac­tiv­i­ties run by the Ger­man state-owned con­cern in­clude the train op­er­a­tors Cross­Coun­try, North­ern, Ar­riva Trains Wales and Chiltern, as well as Lon­don Over­ground and the open ac­cess op­er­a­tor Grand Cen­tral. It has also op­er­ated the Tyne and Wear Metro, al­though as this is­sue of RAIL went to press this was due to trans­fer to Nexus, the lo­cal trans­port au­thor­ity.

Other than in­ter­na­tional long-dis­tance trains, all DB’s pas­sen­ger ac­tiv­i­ties out­side Ger­many have been grouped un­der Ar­riva since 2011. That in­cludes not only trains but also buses (in which sec­tor it is the UK’s third-placed op­er­a­tor). The DB sub­sidiary is or­gan­ised into three di­vi­sions: UK bus, UK train and Main­land Europe.

Last year, it was widely re­ported in Ger­many that DB had in­tended to raise cash by float­ing Ar­riva through an Ini­tial Public Of­fer­ing (IPO) - but this was shelved in the light of the pound’s de­pre­ci­a­tion against the euro fol­low­ing the Brexit ref­er­en­dum, and the con­se­quent re­duc­tion in the ex­pected re­turn.

So, where do things stand now? DB con­firmed to RAIL in March that “cur­rently there are no plans for an IPO or for a par­tial IPO” of Ar­riva.

Fur­ther­more, be­yond those al­ready an­nounced staff cuts at DB Cargo, in terms of other mea­sures likely to have a sig­nif­i­cant ef­fect on either Ar­riva or DB’s op­er­a­tions in the UK the or­gan­i­sa­tion said there is “noth­ing planned as of now”.

In all this, though, Brexit has per­haps shown one of the ironies of glob­al­i­sa­tion. There have long been com­plaints about over­seas state com­pa­nies run­ning sec­tions of Bri­tain’s pri­va­tised railway (and prof­its mov­ing else­where), but it is now a do­mes­tic Bri­tish vote that has up­set the plans of one of the giants among those or­gan­i­sa­tions.

With ‘Ar­ti­cle 50’ only just trig­gered, the ul­ti­mate con­se­quences of last year’s ref­er­en­dum vote are, of course, still far from clear - for the rail­ways as for other sec­tors. Yet re­gard­less of Brexit, it re­mains true that de­ci­sions re­gard­ing DB’s ac­tiv­i­ties and its ‘foot­print’ in the UK will not only be sub­ject to com­mer­cial con­cerns here, but also - partly at least - to Ger­many and its pol­i­tics.

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