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Foreign high-speed train makers see promise In U.S. market

(Dow Jones Newswires circulated the following story by Bob Sechler on October 6, 2010.)

NEW YORK — Fast passenger rail service in the U.S. still exists mainly on drawing boards, but that hasn't dulled the optimism of foreign high-speed train manufacturers surveying the potential market.

"I'm absolutely convinced that getting one done [in the U.S.] will breed enthusiasm" for more high-speed trains, said Pierre Gauthier, president of French train maker Alstom SA's (ALO.FR) U.S. division.

Eventually, "I believe we will see in America exactly what happened in Europe," in terms of major population centers linked by high-speed rail lines, Gauthier said in a recent interview.

The bullish sentiment has yet to translate into major new U.S. investment by Alstom or other foreign-based train makers, however, a trend the companies chalk up partly to a lack so far of high-speed projects advanced enough to start purchasing equipment.

The U.S. trails Europe and Asia by wide margins in the development of fast passenger train service--generally defined as 125 mph or greater--and high-speed rail vehicles currently aren't built here.

But a strict "Buy America" provision attached to the $8 billion in stimulus money earmarked by the Obama administration to seed high-speed rail, as well as subsequent federal funding, is aimed at energizing the industry in the U.S. and boosting manufacturing jobs.

"We would not make a decision [on major new U.S. investment or hiring] until we win business," said Oliver Hauck, president of Siemens AG's (SI) U.S. mobility division.

Hauck noted, however, that the German industrial conglomerate already has purchased land near its existing light-rail plant in Sacramento, Calif., for possible expansion, and it's "forming teams to bid and win [high-speed train] contracts" throughout the U.S. as projects move out of the planning stages.

The first opportunity could come as early as next spring, when the main portion of a relatively small, $2.7 billion project in Florida -- linking Orlando and Tampa -- is scheduled to go out for bid. The line tentatively is set to open in 2015.

Among other projects, high-speed train makers are closely watching plans for additional Florida dedicated high-speed corridors, as well as an effort in California to build a Los Angeles-to-San Francisco link costing upwards of $40 billion that could open in 2020.

Karen Rae, deputy administrator of the Federal Railroad Administration, said she's optimistic the high-speed rail push will pay off in new U.S. manufacturing jobs and investment, not to mention the economic benefits of a major new transportation option.

Many foreign train makers with substantial high-speed experience operate assembly plants in the U.S. to serve Amtrak and light-rail systems operated by various public transportation agencies. Those plants are designed in part to help the companies comply with requirements calling for up to 60% U.S.-built content in federally funded projects.

But the money for high-speed rail carries a stricter mandate -- 100% U.S. content.

The goal is for train makers to have "more than just an assembly plant in the U.S.," Rae said. The aim is for development of "a manufacturing-focused industry here."

Foreign train companies and suppliers have been broadly supportive, viewing the creation of new U.S. jobs and investment as added carrots to help sway more public support for high-speed rail spending.

Still, industry observers say that hitting the 100%-U.S.-content target will be problematic, particularly at first when the market is small and uncertainty exists as to whether U.S. funding for high-speed rail will be sustained long term. Some foreign train makers agree, although they contend they can get close.

"Obviously, with these [big] investments you need to have the certainty" that the business justifies it, Alstom's Gauthier said.

In addition, "in today's industrial economy, anything is hard to do 100%," he said, although the aim clearly will be "to maximize the local content."

Rae, of the Federal Railroad Administration, noted that waivers to the 100% requirement can be granted when it's proven that particular components can't be produced in the U.S.

"But the threshold is going to be extremely high," she said. "Our goal is to creep up on that 100%."

Monday, October 11, 2010

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