An employee works on a new regional transport train at the Bombardier plant in Crespin, northern France, on Oct. 17, 2016.The The Siemens-Alstom merger is proving to be the ultimate test of European competition law.Benoit Tessier/Reuters
The world’s most effective and feared antitrust cop, Margrethe Vestager, is not going quietly into the night. The European Union’s competition commissioner has some momentous decisions ahead of her before she steps down later this year. One of them could reshape the entire train industry, where Canada’s Bombardier is one of the biggest players.
By Feb. 18, Ms. Vestager will reveal whether she will approve or reject the proposed merger of the train operations of France’s Alstom and Germany’s Siemens. Their deal, announced in 2017, was designed to create a land-bound version of Airbus. “Railbus,” as it was dubbed, would be the dominant train maker in Europe, making it big enough, in theory, to compete on the global stage with China’s CRRC, the top maker of rolling stock such as high-speed trains. Were the deal to go ahead, Bombardier would be pushed into the distant third spot; in Europe, it would be half the size of Alstom-Siemens.
The deal is proving to be the ultimate test of European competition law. The proponents of the merger, including the governments of France and Germany, insist that the rude arrival of Chinese competitors has changed the game and that only a European champion could compete with the might of CRRC, which is backed by the Chinese state and has global ambitions. The opponents, including several national competition authorities, argue that the merger would greatly cut competition among European train makers, reducing choice and potentially raising product prices and ultimately fares for freight and passengers. Existing competition law would not allow the creation of a beast and should be respected, they say.
Ms. Vestager, who is 50 and was Denmark’s economics and interior affairs minister before she became EU competition czar in 2014, is certainly capable of standing down the French and German governments. But in the face of such intense political pressure, will she?
She is no pushover and seems to enjoy tilting at giants. She has slapped Google with billions of euros in antitrust fines, ordered Apple to pay €16-billion ($24-billion) in back taxes to Ireland, fined Facebook over its WhatsApp purchase and launched an investigation into Amazon’s potential abuse of digital information. She also won a big case against Europe’s large truck makers for operating a price-fixing cartel and is now going after Germany’s car makers for allegedly conspiring to restrict the development of emissions-control technology.
But the Alstom-Siemens case, unlike so many of her previous cases, is about the potential dangers of sheer bulk.
According to data compiled by rail consulting firm SCI Verkehr, Alstom and Siemens, together wouldn’t just be the biggest train maker in Europe by a long shot, but a global force too – which is what French and German governments say is the whole point of the exercise. Their combined global market share of 9 per cent, based on sales between 2014 and 2016, would be more than double Bombardier’s share of 4 per cent. CRRC’s would be 12 per cent.
According to sporadic reports and rumours, Ms. Vestager doesn’t much buy the argument that Alstom and Siemens have to be dominant in Europe or face getting eaten alive by CRRC, which was formed in 2015 by the merger of the China Northern and China Southern rolling stock companies, trades on the Hong Kong market and has more than 180,000 employees.
She apparently thinks Siemens and Alstom are already globally competitive, so what’s the point of handing all of Europe to them and burying Bombardier? “We are talking about two great companies that are able to compete in the market,” she said this week in an interview published in the German newspaper Die Zeit. “We have closely examined the Chinese presence in the market. Alstom and Siemens are already world champions in their businesses, not only European champions.”
What she didn’t say is that CRRC might find it very difficult to penetrate Europe even if the merger does not happen and Alstom, Siemens and Bombardier remain archrivals. That’s because selling trains has always been a highly political process. In short, it’s hard to land a big sale in a big European country unless the trains are made in the country doing the buying – it’s all about jobs. CRRC’s presence is Europe is virtually non-existent. To make a splash in Europe, it would have to build factories or buy a train company with factories (it and its predecessor companies had stalked Bombardier for years). Until that happens – neither scenario is likely any time soon – CRRC is of little to no threat to Alstom and Siemens, at least in Europe.
Ms. Vestager may be on the verge of outright killing the Alstom-Siemens deal, or making it conditional on so many asset sales that the two companies would simply abandon the whole effort. Bombardier, which is shrinking its aerospace business, is becoming more and more of a train company. It would be relieved if Ms. Vestager were to uphold European competition law. Alstom’s and Siemens’s fears about CRRC’s market-munching abilities are way overblown. Preserving competition among European train makers is more important than constructing an unnecessary “champion.”