That would be an interesting move. I think that the Derby factory would be a huge asset in the event of a hard brexit for the same reason I think Vauxhall's Ellesmere Port and Luton factories would be. If the maximum WTO tariff of 10% were introduced then the only way Bombardier could remain competitive for UK orders would be to make the trains in the UK and order as many parts from UK companies as possible. Hitachi would also be well placed because R&D work in Japan can't have tarrifs added and it could buy more parts from UK suppliers. Derby and Newton Aldycliffe cant supply the entire UK train stock but Bombardier Derby is running at 60% capacity and both could expand or set up satellite factories if the money was worth it.
Bombardier Transportation has a number of operations in the UK each of which would be considered separately. BT has an on-going consolidation plan that will already have identified changes to the UK businesses, and will have taken into account the UK markets, product line-up and the UK's pending departure from the EU.
The detailed outcome of the UK exit negotiations are not going to be known for sometime, so they will largely be working on what they "know" now.
BT is consolidating production, within Europe, in the lower costs countries - Eastern and parts of Southern EU. That is already under-way as part of a three year plan. The difficult part is the shuttering of operations that do not fit into the consolidation plan and it is the success of that aspect that determines the viability of the business. That aspect does not appear to have been going well and may have been a contributory factor to these negotiations being initiated.
For vehicle manufacture, the high-value component sets will be shared across the product range with production undertaken in the new centres of excellence. That by and large leaves existing operations as redundant or assembly sites if they have not been identified as a centre of excellence. There is advantage to consolidating production for the EU in the Euro area or in countries with currencies effectively tied to the Euro.
In terms of the impact of BT's existing consolidation on UK operations:
- Maintenance and technical services would undergoing efficiency improvements but I would expect them to remain largely unaffected.
- Vehicle production; the UK is a fairly largish, and currently exuberantly robust market for BT's products, but despite existing projections that is not predicted to last. The UK market also has a tendency towards lean patches because of it's mid-size which causes difficulties for manufacturers of expensive product "unique" to the market, compared with the relative continuity of demand across the mainland EU for a relatively uniform product offering.
- Signalling: The product range is normalising across the EU and in other markets, so consideration of UK uniqueness will be a declining factor in manufacture, with UK considerations being address by deployment services. Again, the advantage is to consolidate production in the major market.
The UK is and will continue to be a significant market, and it has similarities to markets outside Europe so it still has factors in it's favour, but the latter will mainly favour UK-based services and consultancy. I would expect BT to retain the UK signalling production operations, but to gut the vehicle production side reducing it to a design and assembly operation. The growing competition from lower cost vehicle manufactures will be a significant factor in determining the outcome.
In terms of BT's retention of the UK vehicle manufacturing arm, that will depend on how much of the UK market the business can retain. Potential buyers, with different objectives may find value in the operations, but I expect they will come from either the USA or China, and will also mainly operate it as a design and assembly operation that can be wound down or up as demand dictates. The EU-based low-cost manufactures may see benefits from a UK operation but only if it does not undermine the performance of existing operations. It could perhaps find an independent future as a design and assembly boutique operation.
That might all change if the GBP/EUR rate was to drop low enough to allow UK manufacturing to compete with Eastern Europe where the wages are typical a quarter of those in the UK. EUR 1.10 is probably about the minimum but UK services, the robustness of the economy, and the ECB's QE are currently preventing that from happening.
Throwing consolidation with Siemens Mobility operations into the mix would only have practical consequences towards the tail-end of the existing BT plan. Consolidation of the joint UK product range would certainly be on the cards. It is also possible, given the recent choices made by one of the franchise bidders, that Siemens has determined that the UK Desiro City product's future is untenable.
The competition authorities (and national Governments/interest groups by proxy) are going to be the biggest obstacle, and it is possible that a full merger is untenable, but there could still be an exchange of businesses and the formation of JVs in specific areas. The earliest we would know of any practical details of changes arising from the discussions would be six to nine months after the announcement of the outcome of the discussions.
Bombardier got a duff batch
