The decision to make Agility Trains, a consortium led by Hitachi, the preferred bidder on the Department for Transport’s new fast train contract has dismayed many observers. But does it matter if a Japanese company builds trains in the UK, providing British jobs and business benefit? Will Stirling reports on a controversial case
Feelings are running high in Derby, a manufacturing heartland. The Evening Telegraph, a local newspaper, is running a petition to change an important decision by the Department for Transport (DfT) to award a big contract to build new high speed trains to the Agility Trains consortium, in favour of a consortium including local train builder Bombardier Transportation. Technically Agility — made up of Hitachi Rail, John Laing and Barclays Bank — has not been officially given the £7.5bn contract but it is the preferred bidder, widely regarded in public sector projects as being as good as the full award. The petition sits on the website of the Prime Minister’s office and has 2,332 signatures to date. Labour for Derby North MP Bob Laxton said at the time the decision was “bad news” for Derby and for the rest of the UK, disputing the number of jobs the Government claimed would be created or safeguarded, remarking “this is a crass decision by government which gives the Japanese an opportunity of getting into the UK market.” Unions including the GMB and the Rail Maritime and Transport Union, and the shadow transport secretary Theresa Villiers, also voiced their concerns that the decision reflected poorly on Gordon Brown’s stated devotion to British jobs for British workers.
Jobs on the line
To many the decision was unpopular. The central criticism is over jobs. DfT claims the contract will “create and safeguard” 12,500 jobs. Agility is led by Hitachi which, so the argument goes, will manufacture much of the contract in Japan, to be imported for assembly in the UK, causing many to dispute the jobs figure or call for a closer analysis of its arithmetic. Bombardier Transportation, a Canadian company which purchased Adtranz in 2001, becoming the latest company to occupy the one time manufacturing headquarters of British Rail, employs 2,600 people at the Litchurch Lane site in Derby. Bombardier, whose consortium includes Siemens and Babcock Transportation, is the only train builder with a full manufacturing facility in the UK. At present the plant has a “busy but not full” order book to the end of 2010, and is has just been awarded the contract for 120 Stansted Electrostar cars to take it through to mid-2011, subject to contact. But it needs more work and the IEP (Intercity Express Programme) would have been sorely welcome – indeed, many in the Derby area might contest that the safeguarding of many of those jobs depends on the IEP or a similar sized contract in the next 12 months.
Agility has not denied that a large proportion of the manufacturing will be done in Japan. All the car body shells will be built at Hitachi’s Kasado factory and shipped to the UK for assembly and testing at up to six purpose-built manufacturing/maintenance facilities, but Agility has committed to spending 70% of the contract value within the UK. Involvement at the Japanese factories appears unavoidable — in a statement, Agility says: “Hitachi will employ its patented friction stirwelding approach to manufacture the car body shells in Japan; Hitachi’s Kasado factory is the only facility in the world with the specialist equipment required to produce the 25m long friction stir-welded joints necessary to make car body shells. As friction stir-welding is a fully automated process, the number of workers involved in this in Japan is relatively small — approximately 20 jobs in Japan are involved in this process.” Having said that, clearly it cannot be the only facility with the technology to fulfil the IEP’s technical specification, as according to the DfT the rival tenders were very closely matched, which implies the Bombardier/Siemens pitch could have delivered an equivalent solution.
The jobs themselves, both new and safeguarded, have come under close scrutiny (see box). While Agility’s maths on the creation and safeguarding of 2,500 direct jobs associated with the manufacturing and maintenance of the IEP are seemingly robust, it has applied a “conservative economic multiplier, based on the automotive industry, for every direct job created/ safeguarded by the programme, four further indirect or induced jobs would be created or safeguarded.” While this a widely accepted model used by the car industry to calculate indirect jobs, it is impossible to confirm before train building commences, and there is no deeper breakdown of either how many of these jobs will be created rather than secured, and what types of jobs they will be. “There isn’t any really strong evidence to support the 12,500, it’s a bit dodgy,” says Christian Wolmar, a rail analyst. “Many would have to be maintenance and service jobs.”
Safeguard expertise, but whose?
Bombardier has to be tight-lipped on how many jobs IEP would have safeguarded or, more importantly, created at the company had it been made preferred bidder for the trains; the company is involved in other train tenders with DfT and this is understandably sensitive. But herein lies the rub; without a direct comparison with a second offering, how can politicians, unions and others in the anti-Agility camp claim the decision is bad for British jobs? While the detractors may pick holes in Agility’s calculations, it is committed to creating 500 new jobs at the new manufacturing facilities as a minimum when others cannot make counter claims on protecting employment.
It is easy to simplify this complex situation. Bombardier may not be in a position to make statements about job creation but the thrust of the anti-Agility argument is why should government not support a long established, British-based company with inherent specialist expertise which can safeguard existing jobs long term?
Another argument is that given the fickle, irregular nature of big UK train contracts, would it not be safer and more sustainable for one well-established company to take on these projects, and reinvest in its own facilities, rather than split an unpredictable volume of work between two rival companies to the detriment of one or both if future train contracts are squeezed? The DfT says it is bound by EU competition laws to consider every tender strictly on the basis of criteria including compliance and value for money only, and can show zero favouritism to companies with UK-based facilities.
Supply chain win-win
Hitachi told The Manufacturer it is optimistic about its contribution to the UK rail industry and the benefits to a UK workforce. “We would love to win more business and to remain in the UK,” a spokesman said. “We’ve just finished a contract for Class 395 trains used for the Channel Tunnel rail link. They were all manufactured in Japan and shipped over here, but we are entering a new era by building our own manufacturing facility [here]. In future if we win business obviously it will be manufactured in the UK and not Japan and shipped over.”
While many have their doubts, others involved in the train supply chain are more sanguine about the decision. Colin Flack, chief executive of Rail Alliance, a body that represents many SME manufacturers that supply a variety of products to train companies, is positive about the decision. “Agility was a result, but I see either bid as being a win-win for our companies,” he says. “Hitachi is along way from home, it makes sense they partner with UK SME suppliers to reduce risk. The important thing is that IEP is going ahead, because people were quite worried that it was wobbling.”
Neil Bates, a director of Creactive Design, a Midlands based design and manufacturing business, agrees and points to the long term. “The UK manufacturing base is really in the best position to take advantage of exchange rates with Europe — we are 20% cheaper than where we were this time last year. Although UK manufacturing is finding it difficult to export, because of low demand when things begin to improve UK rail businesses are naturally going to be looking to export. Hitachi doesn’t have the foothold in Europe which Bombardier has yet. But you may find that their presence in Europe (starting in the UK) becomes the train industry equivalent to what Nissan and Honda did 25 years ago. Japanese businesses generally take a long-term position and their approach – establishing a manufacturing facility in the UK – is likely to be much more enduring than other overseas manufacturers.”
Vital UK train industry
Because of its public sector necessity, train and rail engineering arouses strong passions among train companies, subcontractors, the public and indeed among advocators of manufacturing in general. There are grounds to be dismayed; from 2000-2007, statistics show the following percentages of trains built within their country of use: France 100%, Germany 98%, Spain 81% and the UK 73%. It is an emotive and very political business. “Protectionism is high on the agenda, and the Japanese certainly don’t let anybody into their train market,” says Christian Wolmar. If the manufacturing sector is going to make a greater contribution to UK GDP, domestic train building needs be protected and nurtured. But the decision to effectively award the contract to a Japanese company should be assessed objectively for the opportunities available to UK businesses to form new partnerships and engage in technology transfer. The jobs that are actually created in the process, and not transferred, meanwhile, will be examined under the microscope.