Train maker sees hazards ahead: John Eisenhammer hears a pessimistic view from GEC-Alsthom's transport chief

THESE days most Continental industrialists tend to insist that things can only get better. Not Claude Darmon.

He admits the coming years will bring more than enough troubles to wipe the grin off his deeply tanned face. 'We are heading for a low, a very deep low towards the end of this decade, which is going to cause some major upheavals in the industry.'

Mr Darmon is chairman of the transport division of the Anglo-French group GEC- Alsthom, known above all for its high-speed train, the TGV (Train a Grande Vitesse).

In his office on the 21st floor of the Neptune Tower at La Defense, with its spectacular panoramic view of Paris, he paints a gloomy picture.

The rail industry is highly cyclical but reacts to current events only after a lengthy lag, he explains. As a result the difficulties of 1993 are building up in the pipeline.

Two factors in particular are squeezing the world's leading train producers - GEC-Alsthom and the Swedish-Swiss group Asea Brown Boveri, each of which has a market share of about 10 per cent, with Germany's Siemens close behind with 7 to 8 per cent.

The first is the uncertainty caused by plans for deregulation and privatisation of rail services, which has led to a degree of paralysis in the planning of future projects.

The second is the need for radical savings as governments can no longer afford to pour vast sums into the budgetary black holes that are their national rail companies. The result is line closures and slashed investments.

'The only area that is resisting is that of suburban transport and underground systems - all the rest will get very tough,' Mr Darmon said.

GEC-Alsthom's French parent, Alcatel-Alsthom, last month announced stable first- half net profits of Fr3bn ( pounds 353m) on slightly lower turnover. Although the transport division has orders equivalent to three years of turnover, Mr Darmon is aware that now, at the bottom of the recession, is the decisive moment.

'It is absolutely vital to win orders and market share,' he said. The timing of the Korean government's recent choice of the TGV for the 422km stretch between Seoul and the southern port of Pusan could not have been better.

Worth dollars 2.4bn for 46 trains, the Korean deal, for which negotiations on the final contract are proceeding, marks the TGV's big breakthrough outside Europe and into the vital Asian region.

As important, GEC-Alsthom regards the Korean deal as a decisive victory over Siemens, with its Inter City Express (ICE). The fury of the Germans at being passed over gives the full measure of its importance. Wolfram Martinsen, head of Siemens' transport division, went so far as to accuse the French of resorting to industrial espionage - remarks he had to retract.

'The Germans are just bad losers,' Mr Darmon said. 'But the real result is that GEC-Alsthom is now the undisputed world leader in high- speed trains.'

Doing what it is famed for on big contracts, the full force of the French state was mobilised, from President Francois Mitterrand on a state visit to Korea downwards. During the two years of bidding against the Germans and the Japanese who, with their ageing bullet train, fell out of the race early, the French embassy in Seoul housed a special 'rail attache' whose sole job was lobbying.

In the end, even though the German ICE was judged to be technically more advanced, Seoul opted for the great experience of the French.

The TGV has been in full service for more than 10 years, while the ICE began running in 1991. The experience advantage owed much, however, to GEC-Alsthom's co-operation with the French state railways, SNCF, and its consulting subsidiary, Sofrerail. Acknowledged to be the best in the business, Sofrerail is the expert in managing high- speed lines.

The German marketing drive in Seoul focused on the ICE's technical superiority.

'Certainly, if you mean by technology that which gives most pleasure to research engineers, the ICE is better,' Mr Darmon said. 'But if you mean the best relationship between costs and technology, the TGV is better.'

During two years and six consecutive bids, GEC-Alsthom reduced its original bid by 40 per cent. While some help came from the depreciation of the franc against the dollar, the Anglo-French group was also able to draw on economies of scale thanks to the TGV's numbers.

Altogether 525 have been produced or ordered as opposed to 120 for the ICE. Rationalisation at the group's factories was another reason.

'We have one site for rolling stock, one for buggies, one for traction systems, one for locomotives and one for putting the train together,' Mr Darmon said. 'This is a great advantage over a conglomerate like that making the ICE, which draws its bits and pieces from all over.

'Even so, we had to go to the very limit of what was financially possible in Korea.'

Many analysts suspect that GEC-Alsthom went beyond the limit as a loss-leader in a vital market. Another big contract is looming in Taiwan, pitting the ICE and the TGV against one another again.

Not entirely banishing the suspicion that there may be less gain in the Korean contract than the company suggests, Mr Darmon said: 'These are big markets, and you have to take big risks. The firms that survive are those that can manage these risks.'

A condition of the Korean deal is that 50 per cent of the train production is done locally. 'This represents a substantial technology transfer,' Mr Darmon said. 'But we see this as more an opportunity than a risk, as it will be secured by joint ventures.'

At present negotiating with the Korean conglomerates Daewoo and Hyundai, Mr Darmon sees the potential link-ups as consolidating the company's presence in Asia. Such joint ventures, as well as fusions and takeovers, he is convinced, will shake up the rail business in the coming difficult years.

In Europe, too, this process is unavoidable. The cross- holding recently increased to just over 2 per cent between the French parent, Alcatel- Alsthom, and Fiat of Italy points in this direction.

While planning for the great upheaval, Mr Darmon is preoccupied with matters much more immediate - the Channel tunnel link, for which GEC-Alsthom is producing the Eurostar high- speed trains.

The words 'British Rail' are the cue for Mr Darmon to throw his hands in the air and roll his eyes. 'It is hard to know what they are doing,' he said.

'We do not even have a test track for the train, never mind the real thing. The signals are all still for 100kph trains. We know that it has been a great shock for British Rail, but it is time to get moving.'

Will it all be ready by June 1994? The smile clamps itself back on to Mr Darmon's face. 'For that, we can do little but hope.'

(Photograph omitted)