July 3, 2008 / 2:00 AM / in 9 years

Toronto could hand Bombardier a "signature" contract

TORONTO (Reuters) - Bombardier Inc appears poised to win a major contract to replace Toronto’s fleet of streetcars, highlighting the growing global demand for the plane and train maker’s light rail vehicles.

The contract, worth C$1.25 billion ($1.7 billion) for 204 new streetcars, is expected to go to the Montreal-based company after Germany’s Siemens AG decided not to enter the bid.

Given growing concerns over pollution and congestion in major cities around the world, the light rail segment is likely to have long-term growth potential for Bombardier. It is already the world’s No.1 provider of light rail equipment with customers in Europe and North America.

“It’s green, it’s politically correct,” said Jacques Kavafian, analyst Research Capital, of the transit division, “It’s got the whole environmental thing written on it, so I think it’s going to be important.”

The potential contract has an option for purchasing up to an additional 364 streetcars over the next 15 years, as part of a plan to expand the use of light rail and rapid transit across Toronto.

A spokesman for the TTC was unable to give a total value of the contract should the option be exercised, but a report in the Globe and Mail newspaper put the value at more than C$3 billion.

David Slack, a spokesman for Bombardier’s transportation division, said the deal could stand as a “signature” contract for the company as Toronto is an important city for mass transit in North America.

“In terms of positioning ourselves as the leader of light rail vehicles in the world, it’s very important in that regard,” said Slack.

Bombardier and Britain’s TRAM Power were the only two companies to submit bids to the proposals process, which the Toronto Transit Commission closed on Monday.

The TTC had stipulated that the streetcars needed to be completely wheelchair accessible, and that at least 25 percent of the content for the vehicles’ design and construction would have to be Canadian.

The Canadian content requirement could help give a boost to the manufacturing sector in Ontario, which has been struggling to cope with the impact of the robust Canadian dollar.

For a contract of this size, the company would typically involve multiple plants in the process, Slack said. “Certainly there would be an important role for our site in Thunder Bay, Ontario.”

A spokesman for Siemens, which could have been a major rival to Bombardier’s bid, said the Canadian rule was one of the things the company considered when deciding against entering the process, although he noted it was not the most important consideration.

The Canadian requirement, as well as Bombardier’s previous work in providing subway cars for the TTC, put the odds on the company being awarded the contract, analysts said.

The TTC said that it expects to make a final decision on the contract in November.

Shares of Bombardier closed down 20 Canadian cents, or 2.7 percent, at C$7.21 on the Toronto Stock Exchange amid a wider market downturn.

($1=$1.01 Canadian)

Reporting by Leah Schnurr; Editing by Frank McGurty

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