High-speed technology is our DNA
Terence Watson has an enviable view of the capital from his eighth floor office. London’s skyline is an apt backdrop to our discussion – the co-chair of industry body the Rail Supply Group is laying out the case for bolstering Britain’s rail exports. Lingering in plain sight is the City of London, our signature world offering in the past two decades. The need to rebalance the UK’s exports away from financial services towards infrastructure projects is an argument touted across the political and business spectrum. Watson believes domestic rail suppliers can lead the charge.
Watson is Country President of Alstom in the UK. The rail transportation heavyweight closed its UK train building operations at the completion of its contract building Pendolino tilting trains for Virgin Rail 15 years ago. The previous “fit and start” nature of the rail industry in Britain, reliant on short-term contracts, meant cashflow was an omnipresent concern, he says.
But the company’s hiatus from train making in Britain was ended after the company filed a planning application worth between £80m-£100m for a transport and technology facility in Widnes. The construction would be built in three phases, the first a near 28,000 sq m facility fit with car parking, service yards, rail sidings, landscaping and associated engineering operations. The later phases have the potential to include a new British factory, which would build HS2 trains if Alstom were to win that order.
Alstom is also introducing a training academy for railway – the first in the North West of England – as it seeks to build on its skills agenda and apprenticeships in the UK. The overall investment will directly provide some 500 new jobs to the area. It is a significant undertaking but one that came at the right time, Watson says. “If it doesn’t work I get the sack,” he jokes.
He identifies three central factors that lured Alstom back to train making in the UK; a healthy domestic rail market with long-term potential and a committed Government sending out the right signals about future investment and competitiveness. On this last point, Watson argues that the cost of assembling trains in Britain now roughly equates to shipping in product from South East Asia.
“We reached a point around a year ago where a clever supply model, assembling in Britain, roughly matches the price of a product shipped in from, for example, India in total. In other words we’ve reached that point of inflection. It is now, again, a reasonable proposition to make things in Britain competitively,” he says.
“So Alstom have decided it was time to put our money where our mouths are, taking a risk.. It is time to shift our investment strategy from a leasing model to an investment model.”
But why Widnes? The industrial town represents a key geographical advantage for Alstom with connection to the West Coast Main Line on which their Pendolino fleet of trains operate. It is also an optimum location to set up a presence for the HS2 route of high-speed trains. “Widnes is actually on West Coast rail line railhead. It opens itself out straight onto the main lines,” Watson explains.
“That means for the next 15 years when Pendolino is operating there, which they will, that’s perfectly compatible. But it’s also a great position for the first generation of classic compatible HS2 trains, which is half the fleet at least, that’s where we’re going to need presence on the railway for HS2 for the classic compatibles which are needed for the north. So that’s the first answer,” he says.
Indeed, HS2 Ltd have insisted whoever is granted the £4bn contract to build superfast trains for the HS2 rail line should hold a strong UK presence to boost domestic jobs. The seven contracts on offer cover the first phase of the HS2 line between London and Birmingham. Once the first phase of the project is completed, the Government plans to continue the line in a V-shape from Birmingham to Manchester and Leeds.
Alstom certainly has the heritage – “high-speed technology is our DNA”, Watson says – to take on the project. Alongside a train servicing centre in Manchester, the new production facility in Widnes could complete Alstom’s network of facilities, handily located at the heart of the ‘Northern Powerhouse’. Alstom has the credentials to take on the coveted contracts, Watson insists.
“For all those reasons we’re actually very, very strongly interested in HS2 and the north west and high-speed trains, which by the way for Alstom -high-speed technology is our DNA. It’s the best in the world, we really want to maintain that market. What this brings us is local assembly of HS2,” he says.
Talk turns to Watson’s work elsewhere in the sector. The Rail Supply Group (RSG) was set up by Government and industry to help UK suppliers secure business both at home and abroad. Along with fellow co-chairs Business Secretary Sajid Javid and Transport Secretary Patrick McLoughlin, Watson is determined for Britain’s SMEs to start exporting overseas.
Britain currently exports less than 10% of its rail GDP, compared with France and Germany who export as much as 40% and 50% respectively.
Are we hearing the right noises from Government to improve the UK’s performance? Watson is certain we are.
The RSG’s vision for 2025 includes doubling existing export volumes and aims for the UK to be a global leader in high-speed rail. Watson is especially keen to see much stronger collaboration between UKTI and the Department for Transport, which on its own does not “have the genetic code of an exporting department”.
But to take advantage of the export market requires substantial investment. Watson believes that government must provide support and strategy to provide the environment necessary to capitalise on opportunities abroad as suppliers diversify their products to take advantage of global markets.
“What you end up with is if you’ve got massive domestic projects and you capitalise on them to deliver successfully to the domestic market and build an export plan you are at great risk, because you are maximising scalability” he says.
“And with long-term investment, if you fail to succeed, you cannot not go bust. You are gearing yourself to a size and a scale that means you must have, not just strategic government awareness, but support. And you’ve also got to have all those intricate parts of that thing working to be successful long-term.”
Watson believes UK railway is at a pivotal point. Large-scale domestic contracts including Crossrail 2 and the upcoming HS2 project have rejuvenated the industry and presented huge opportunities on which to build. But he cautions that opportunities overseas represent “the test for sustainability” and are the key measure of the sector’s vibrancy.
The City of London became the world leader in financial services through innovation, an empathetic regulatory environment and investment. Watson believes with the right strategic approach, the same destiny awaits the UK’s rail sector.