January 22, 2019 / 2:53 PM / 2 years ago

UPDATE 2-Swiss Railways will not take new Bombardier trains until earlier problems fixed

(Adds context, comments from spokesmen)

By John Miller and Allison Lampert

ZURICH/MONTREAL Jan 22 (Reuters) - Swiss Federal Railways said it would not take new trains from Bombardier until the Canadian company fixes the ones already in service, raising questions over the timing of future deliveries for the 1.9 billion Swiss franc ($1.9 billion) contract.

Bombardier investors are watching the 62-train Swiss order, one of a handful of rail contracts impacted by delivery delays that generated a disappointing free cash flow result last year and subsequent selloff of Bombardier stocks and bonds.

Problems with the Swiss trains would not cause “significant changes” to the company’s working capital outlook, a Bombardier spokesman said, and should be resolved within weeks, although he declined to provide a delivery schedule.

Swiss Federal Railways spokesman Reto Schärli said future Bombardier deliveries for the country’s largest-ever rail contract would follow fixes to the 12 trains now in service, including doors that don’t close properly and uncomfortable rolling that makes some passengers nauseous.

“We’re not going to be doing any experimenting with our passengers,” he told Reuters, adding the federal rail service does not yet have an estimate for when the problems would be fixed.

A Bombardier spokesman said a “majority of technical issues” were related to a door-system from a supplier, which was working on a solution.

“We are confident that we will resolve the current teething issues we are experiencing and do not see significant changes to our working capital outlook,” said Thomas Schmidt, a spokesman for Bombardier’s Berlin-based rail unit, the company’s largest division by revenue.

Bombardier blamed the higher-than-expected use of cash reut.rs/2FGvaKf in 2018 to delays in the rail contracts, since train makers are paid upon delivery. The company said cash from the orders, including the one from Swiss, would be moved mainly to 2019.

Schärli said Bombardier had committed to delivering the remaining 50 trains to Swiss by the end of 2020. Schmidt would not specify when the Swiss trains would be delivered.

The railway awarded Bombardier a 59-train contract in 2010 but the first 12 deliveries were only made in 2018.

Bombardier agreed in 2014 to give Swiss an additional three trains free of charge as part of compensation for delays.

Schmidt dismissed a Swiss parliament member’s remarks to local media on Monday that Bombardier could face fines of 500,000 Swiss francs as “speculation,” calling the amount “far too high.” The member, Ulrich Giezendanner, did not return calls seeking comment.

Bombardier and Swiss federal railways would not disclose penalties for the delays.

Bombardier, which has wrestled with delivery delays and operating problems in cities like Toronto and New York, has said it is taking steps to improve its performance.

$1 = 0.9971 Swiss francs Reporting By John Miller in Zurich and Allison Lampert in Montreal; Editing by Denny Thomas and Bernadette Baum

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