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MONTREAL — Bombardier says it has to restore its credibility as a rail transportation leader after being shut out of a US$3.2-billion contract to supply subway cars in New York City because of past delivery delays.
The Montreal-based company (TSX:BBD.B) said it learned last week that its bid submitted to New York’s Metropolitan Transportation Authority in December won’t make it to the final round.
In a letter sent to employees, the president of Bombardier Transportation’s Americas division said the manufacturer’s poor performance that caused a nearly 24-month delay in delivering a current order for 300 subway cars “sealed the fate of our bid.”
“Our actions have exacerbated an already difficult mobility environment in New York City and our client’s decision demonstrates that the market is no longer willing to accept delays in performance and suffer the impact of our shortcomings,” wrote Benoit Brossoit.
“This is a serious warning shot and we must respond to it in accordance with our promises of delivery, time and without excuses.”
The New York transit authority declined to comment because the procurement has yet to be awarded.
Its decision follows Bombardier’s problems in delivering a prototype light rail car and streetcars that have soured its relationship with Toronto area transit authorities.
The provincial transit agency Metrolinx has excluded Bombardier and three other firms from bidding to continue operating GO Transit suburban trains. Bombardier is asking the courts to review the decision on the contract valued at more than C$2 billion.
Bombardier spokesman Eric Prud’homme said the company is extremely disappointed by New York’s decision but notes that the loss of the contract to supply up to 1,700 subway cars is not currently expected to have an impact on employment at its facilities, including its Plattsburgh, N.Y. site.
The company has won other rail contracts around the world and has bid on helping New York State to improve commuting in the city by supplying new rolling stock and enhancing signalling so trains can run more frequently.
“We may have lost one battle, but we haven’t lost the war with New York,” he said in an interview.
Prud’homme said Bombardier is transforming its global manufacturing operations, but New York’s decision affects a relationship that has endured for 35 years and seen the delivery of nearly 2,000 subway cars.
Analyst David Tyerman of Cormark Securities said the contract miss isn’t good news but Bombardier has continued to win large orders showing that its delivery challenges haven’t imperilled its ability to compete.
“I am a lot more worried about China Railway Construction Corporation Ltd. than I am about periodic issues with contracts,” he said in reference to the low-cost rival that is gaining ground.
He said Bombardier has tried to cut down on delivery delays by standardizing more equipment, using more mature technology and spending more on research and development.
Tyerman added that manufacturers in other sectors have overcome similar challenges.
“You serve your penance and go sit in the corner with the dunce cap,” he said from Toronto.
“And eventually you’re allowed back to compete because the reality is there are only so many competitors out there and it’s probably not a good idea to keep one of your potential bidders out of the running.”
