(Bloomberg) -- Bombardier Inc. expects to see another year of 10 percent sales growth from its train segment as the Canadian manufacturer holds the line against bigger rivals from China and Europe.
Rail-equipment orders outpaced deliveries last year, and the trend is likely to continue in 2018 with potential orders in Asia, Europe and elsewhere demonstrating strong demand, said Laurent Troger, head of Bombardier’s train business. The unit’s backlog of future work was valued at about $33 billion as of September, representing more than three years’ worth of business.
“We have the capacity to meet this additional demand that we see in the market,” Troger said Monday. “Our revenue grew by about 10 percent in 2017, and we think this same growth can continue in 2018.”
Chief Executive Officer Alain Bellemare is counting on the trainmaking business, which accounts for about half of Bombardier’s annual revenue, to help boost total sales to $20 billion by 2020. Troger predicts the unit will win plenty of orders despite tough competition from China’s CRRC Corp. and Germany’s Siemens AG, which is combining its rail operations with Alstom SA after choosing the French manufacturer over Bombardier.
Demand is being driven in part by megacities such as London and Shanghai, a well as fast-growing smaller cities in emerging economies such as India, where orders are climbing as local officials turn to public transit to ease congestion. An expansion in travel between cities for trips of less than 1,000 kilometers (620 miles), where rail competes more strongly with aircraft travel, is also boosting demand, Troger said.
More than 37,000 people work for Bombardier Transportation at 36 manufacturing and engineering sites worldwide. The unit has more than 500 customers in about 70 countries.
Troger is steering the maker of tramways, subways and high-speed trains through a business restructuring that began in 2016 when Bombardier announced 7,500 job cuts -- most of which targeted the train division. About 75 percent of the plan has been put in place through agreements with unions in various countries, the executive said.
“It’s a five-year plan and we are ahead of the plan in terms of results,” Troger said. “This transformation will enable us to be more agile and more competitive.”
Like other industry players, Bombardier is facing stiffer competition from industry leader CRRC, formed from a 2015 merger of China’s two main regional train makers. Bombardier is also gearing up to go against the European behemoth that will be created when the Alstom-Siemens deal closes later this year.
“We have the critical size today,” Troger said in a December interview. “We are global and we have no issue working in many countries."
In the Americas, Troger and his executive team are keeping a close eye on government negotiations aimed at reshaping the North American Free Trade Agreement. Bombardier, which operates rail plants in all three Nafta countries, would potentially use fewer Mexican suppliers or work with subcontractors that have a more global footprint if changes are made to the agreement, he said.
“If tomorrow the U.S. decides to put up barriers to entry, to increase taxes immediately, what comes from Mexico or elsewhere becomes much less competitive,” Troger said. “Industrial companies will be invited to make more local investments in the U.S.”
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