TRANSPORTATION:

Foreign suitors lining up for U.S. high-speed rail payday

With the United States expected to spend billions of dollars on high-speed rail over the next decade, European and Asian manufacturers have launched charm offensives aimed at selling themselves and their technology to states with big projects in mind.

The train makers came courting after the White House secured $8 billion from the federal stimulus for high-speed rail. They hosted federal and state officials on trips to show off their bullet trains and visited Washington, D.C., and the Midwest to show interest in developing long-term relationships.

Talgo, a Spanish manufacturer, says it is looking to open a factory in Wisconsin for building two passenger-train sets there. Those contracts are not part of the stimulus program, but the company has made no secret it would expand the plant if it were handed a high-speed rail contract.

Likewise, German train maker Siemens AG is trumpeting the possibility of ramping up its factory in Sacramento, Calif., to switch from making light-rail equipment to high-speed trains. The company purchased a neighboring lot as a sign of its commitment to expand if given a contract.

French manufacturer Alstrom and Canadian maker Bombardier -- both of which were involved in building Amtrak's Acela service linking Washington, New York and Boston -- have made similar overtures.

The story is similar across the Pacific, where Japan, the country with the longest high-speed history, and upstart China both are hoping to get in on the U.S. action.

Central Japan Railway Co., which operates the famous Shinkansen lines connecting cities like Tokyo and Osaka, made its interest in U.S. high-speed rail known early, holding a meet and greet at a ritzy Washington hotel last spring. The company has hired a consulting firm to examine the possibility of expanding to the U.S. market, and the company's chairman, Yoshiyuki Kasai, has said an official decision is likely to come as soon as January.

China's Ministry of Railways this month announced a new high-speed partnership with General Electric Co.'s transportation division, GE Transportation, which like the rest of its U.S. compatriots currently lacks the technology to build high-speed trains. The deal was billed as a way for GE to catch up to the rest of the high-speed world, while providing China with inroads into the U.S. market.

"With the commitment from the administration and from Congress, these companies really see a new opportunity," said Wes Irvin, a former senior U.S. Transportation Department official who now leads the infrastructure group at APCO Worldwide.

Irvin, an unabashed proponent of high-speed rail, draws parallels between the foreign train makers and the Japanese automakers that set up shop in the United States in the 1980s, which he said created good-paying jobs throughout the South while boosting the carmakers' bottom lines.

"Toyota and Honda have a tremendous track record for both their product and for the jobs they created here," Irvin said. "You can look at that structure and you can certainly see a similar payout for this high-speed rail effort."

Major train makers are most likely to see the biggest paydays from the billions of dollars that President Obama and several leading lawmakers hope to pour into the high-speed rail effort. But smaller companies are expected to get into the action too, said Irvin.

"There will be so many partnerships that go along with the building, operating and maintaining of these systems," Irvin said. "It's not only the rolling stock that we're talking about here. It's your communications, your safety; it's your stations, what fare card collection you go with. There's a great deal of opportunities for others that will be part of this."

Construction firms will also be needed to build the multitude of grade crossings -- the tunnels, underpasses and overpasses -- that are required for a train to approach the 200-miles-per-hour speeds of most true high-speed rail systems.

"We'd need to partner with a number of local companies for things like concrete," said Juergen Wilder, the vice president of Siemens' U.S. rolling stock division, which is hoping to land contracts in California and the Midwest. "We'd also be looking at a number of public-private models and would want to partner with an operator."

Job creation

It remains to be seen what states will prioritize when they make their selection. They could focus on the best train for their corridors, or they could choose the one that will bring the most jobs to their state.

The manufacturers are not taking any chances. They are selling their products both on their technological merits and their potential to create jobs.

Local jobs are "absolutely" part of Siemens' pitch to California transportation officials, Wilder said, adding that the company would consider opening a new plant somewhere in the Midwest if it landed work in that corridor.

Several of the manufacturers angling for a piece of the high-speed pie already have small domestic presences, but most of the work is on commuter and freight trains and not the high-speed rail technology that states are interested in.

That would have to change under the "Buy American" strings attached to the stimulus cash. To be eligible for the state contracts, the companies would have to do most of the assembly of the rolling stock and other products in U.S. facilities.

But whether companies open new plants or expand existing ones, they are likely to get help from whichever states they decide to call home. States are expected to offer a host of financial incentives to the firms, ranging from providing low-cost factory space to waiving some tax requirements.

Still, most of the work that lies at the heart of the systems would be done outside the United States, with the firms simply revamping existing technology to meet the needs of the U.S. market, said Gary Schulman, who leads Booz Allen Hamilton's government transportation consulting business. "They'll assemble them here, but of course the engineering will be done back in the homeland," he said.

Irvin, the former DOT official, believes that while job creation is important, ultimately the decision-makers won't risk derailing the larger high-speed rail effort.

"When it comes to [selecting] rolling stock and technology, I think the transit systems and transportation departments ... are going to go with the best system, the most reliable system," he said. "They're going to want to turn to, and try to replicate, the very best."

'A leg up' on competition

Despite the bounty of foreign suitors, there still remains plenty of work to be done -- likely years of it -- between now and when states head to the checkout counter with their new train sets.

The Federal Railroad Administration has yet to award a single dollar from the stimulus cash. The first rounds of grants are expected to be handed out sometime in early 2010, but there has been no indication of how much of the $8 billion will be doled out then. The agency could wait until September 2011 to finish making the bulk of its selections.

The winners will have to complete environmental review processes and finish planning before they are ready to seriously consider bids from train contractors.

Schulman estimated it could be three or four years before some states are ready accept bids. Cobbling together political support at the state and local level, and finding the additional cash to finance high-speed rail work are the more pressing matters for now, he said.

"The money and the will are the hard part; the engineering and construction are relatively easy," Schulman said.

Still, with billions of dollars potentially available in the U.S. market, train makers are unwilling to sit on the sidelines.

"The reason you have so much interest in this new market is that the first firm to get a solid order is going to have a real leg up," Schulman said.

He said being the train maker of choice for the first projects would likely help the firm land additional high-speed rail projects, both in the United States and in markets that may open in places like Africa and India in the future.

While Siemens is hoping for as much business as it can get, it is unrealistic to think the United States will go with only one train maker for all of its high-speed work, Wilder said. Instead, he believes the more likely scenario involves several manufacturers landing lucrative contracts.

"I expect that it would be a competitive process from corridor to corridor, it wouldn't be whoever wins that first corridor would necessarily get the rest," Wilder said. "That would be an ideal situation for the first winner, but I'm not really sure that the intention is that that would happen."

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