Why the Alstom and Siemens plans for a ‘Railbus’ went too far

Europe is used to hearing about how it is being left behind by the Americans and Asians in the big industrial and technological challenges, but sometimes Europe does stand out. The Airbus consortium competes with Boeing in the commercial airplane business, while the Ariane rocket has carved a successful niche in space transport. So, if big European associations can make it in airplane and rocket building, why can’t they do the same with trains?

Megamerger

That was the logic behind the megamerger planned between two rail giants, Alstom of France and Siemens of Germany. Siemens makes ICE trains for Deutsche Bahn and builds units for Channel Tunnel operator Eurostar. Alstom manufactures France’s TGV bullet train amongst other rolling stock and signalling systems. The two titans talked of creating an industrial champion that would compete across the world in building bigger and better high-speed trains. Backed by their respective governments, they would finally stand up against rivals, specifically China’s CRRC, the world’s largest train maker.

But on February 6, the European Commission dashed the ‘Railbus’ scheme when it blocked the planned merger. EU Competition Commissioner Margrethe Vestager described the deal as “incompatible” with the EU’s internal market, harming competition for railway signalling systems and high-speed trains.

So, does this kill off hopes for a European rail champion?

In her decision, Vestager made clear that she did not accept the case made by both Paris and Berlin that Europe needed to create a rail giant akin to Airbus in order to compete with China. Indeed, she said it was “highly unlikely” that CRRC would be competing in Europe any time soon. It faces high barriers related to safety, technical compatibility and market knowledge before it can enter into what another rival, Canadian train manufacturer Bombardier, calls the most complex railway market in the world.

Rather, Vestager said the Commission blocked the merger, “because the companies were not willing to address our serious competition concerns.” She added in a tweet that, “Without remedies the merger would have resulted in higher prices, less choice and innovation.”

The decision infuriated both companies, as well as French and German ministers. German Economy Minister Peter Altmaier even called for changes to EU competition rules to allow mergers that would create companies that can be “on an equal footing” internationally.

But the planned deal was always going to be controversial. Other rail companies complained that Siemens and Alstom’s proposed asset sales did not go far enough. Rail network operators said it would stifle markets. And smaller competition authorities took the rare step of publicly criticizing the companies’ concessions as insufficient.

Not breaking its own rules

All this helped Vestager’s team reach the conclusion that the planned rail giant would rip off consumers in national markets where the merged entity would often have an overwhelmingly dominant position.

Vestager herself says she is not against European champions. But as she noted last month, it won’t happen if the EU breaks its own rules just for them. “We can’t build those champions by undermining competition,” she said.