Untapped potential

Posted on 26 Jul 2011 by The Manufacturer

Jane Gray asks if the chance to realise service potential has finally arrived as PwC publish a report which forecasts the potential value of selling the High Speed 2 infrastructure and maintenance.

Pricewaterhouse Coopers, the financial services company, has today released a detailed assessment of the value to be gained through the sale of High Speed 2 (HS2) the next major high speed rail project to take place in the UK.

Looking back at the sale of operating and maintenance contracts for the infrastructure of High Speed 1 and suggesting areas for improvement the report Selling HS2 is a compelling body of evidence on which base expectations for government return on tax payer investment.

But this publication, written for the not for profit organisation Greengauge and released just days before the end of a high profile consultation over the cost and value of the proposed HS2 scheme, should not only cause civil servants and politicians to prick up their ears.

Selling HS2 estimates that 50% of the initial design and installation costs for HS2 can be recouped immediately on sale of the infrastructure which PwC values at a healthy £6bn-7bn. This estimation is based on the fact that the infrastructure for HS1 was sold under 30 year concession to a consotium of service and maintenance contractors for £2.1bn after an intial design and installation cost of £5.8bn.

For manufacturers there is obviously fantastic opportunity to tender in the initial stage of the HS2 project. While the manufacture of rolling stock has been very publicly shown to lack strength in the UK in the recent Bombadier-Siemens bidding war, there will still be huge demand for steel and concrete fabrications – areas where the UK has some leading expertise (just look at our profile articles on DavyMarkham and CPM Group for proof of this).

But if manufacturers only consider supply of parts and engineering skills in the construction of HS2 as their remit they will be missing a trick.

There has been lots of talk lately about the need for manufacturers to diversify their service models and reap more value from them. But so far it seems that it is only a small proportion of Aerospace companies who have really dug down into system complexity in order to understand how they can leverage it and make themselves indispensible to their customers for the long term.

Rolls-Royce have become famous for its success in promoting the ‘power by the hour’ concept to customers but it is dangerous to idolise one company’s model. Different companies and different sector will have to innovate their own service offerings based on a thorough understanding of the dynamics and values of the markets they operate in.

Bombardier, despite the recent negative press the company has received, is aware of this and is already moving fast to develop its maintenance and operations models in the UK. The fact that Bombardier chose, almost at the last minute to stand as one of the four major industrial partners to the new EPSRC Centre for Through-life Service Engineering at Cranfield University, proves that the rail manufacturer is serious about being at the forefront of through-life service – perhaps even more so now that it has been burnt in the primary manufacturing field.

Of course should Bombardier succeed in its mission to lead rail operations and maintenance operation in the UK, not necessarily with regards to HS2 but also on other national and regional rail projects, it could be good news for the 14000 laid-off Bombardier workers as technical maintenance and engineering skills will need to be redeployed into new service positions.

There is a lot of speculation here but the publication of Selling HS2 by PwC should not be allowed to pass unnoticed by manufacturers. This is an investment rich project if only taken at the value of the money set aside for construction. The clearly stated intention to sell the infrastructure of HS2 after under a 30 year concession might ultimately prove even more cash rich for those who succeed in playing the service game with panache. Positioned as they are on both sides of this fence manufacturers surely have a march on competition from outside the sector?

To see the full Selling HS2 report click here.