Colin Walton: Railway man trying to keep Bombardier on track

The Business Interview: The boss of the UK's last remaining builder of locomotives and rolling stock tells Sarah Arnott of its struggle to survive

Colin Walton is a life-long railway man. He started out as an apprentice at the age of 15 and is now chairman of the UK division of Bombardier, the world's biggest train company. He is also the champion of a new approach to the business of rail. "The decisions made now will determine our course for the next 15 years," Mr Walton says. And it is not only the railway industry that is at stake.

Its parent company may be a vast Canadian conglomerate but Bombardier UK is as British as the plain-speaking Yorkshireman at its helm. Bombardier is not only Britain's sole surviving builder of locomotives and rolling stock, it is also the lynchpin of the £2.5bn railway industry in the East Midlands. It turns over up to £1bn a year, supports a 250-strong supply chain and retains all the intellectual property of its 650-odd high-end engineers for the UK.

"Derby is the largest cluster of railway companies in the world," says Mr Walton, who is also chairman of the 80-strong Derby and Derbyshire Rail Forum. "This used to be British Rail's centre of excellence for research and it is still here – it's just that now it is a string of different companies."

Bombardier first came to Britain in 1990 when it bought Procor, to which Mr Walton was recruited the following year. Then in May 2001, the group bought Adtranz, catapulting it from fourth to first place in the world league of rolling stock manufacturers and taking on an 80-acre site in Derby that is now its main headquarters.

Trains have been made at Litchurch Lane since 1839. It is unexpectedly attractive for a factory complex – its testing track snakes like a giant train set around red-brick Victorian buildings – but the old-world charm stops firmly at the door. Inside, the facilities are ultra-modern, super-quiet and currently running an unprecedented five production lines, churning out two different types of carriage for London Underground, and others for Chiltern Railways, the London Overground network and the Stansted Express.

But for all the activity now, there are tricky times ahead. The majority of Bombardier's current contracts will be completed within a year, and only one runs further, until 2014. While politicians talk up plans to re-balance the economy away from financial services, looming public spending cuts threaten to tip the cyclical train-building industry into a slump. "We are going up a peak now, and the worrying thing is we end up with a trough," Mr Walton says.

The signs are not good. The coalition's newly-appointed Transport Secretary, Philip Hammond, has all major contracts under review, putting a question mark over the £7.5bn Intercity Express Programme (IEP) agreed with Hitachi last year, the £1.4bn Thameslink scheme due to be signed in the autumn, and plans to replace 1,300 commuter trains.

Mr Walton refuses to be drawn on individual contracts because Bombardier is the reserve bidder for the IEP and on the shortlist for the Thameslink upgrade. But he does not shy away from spelling out the dangers if too much railway work falls under Chancellor George Obsorne's axe. Mr Walton says: "We have a world-class industry here. It's not all doom and gloom, but we are at a crossroads, and we need to make sure we go onwards and upwards not into a downward spiral."

This is no call to plough on blindly. Mr Walton may be eloquent about all the possible benefits of rail. But he is also aware of the need for retrenchment and Bombardier is closely involved with Sir Roy McNulty's value-for-money review. "It is right that each project stands on its own merit," Mr Walton says.

Recession has already wrought massive changes in the rail industry. As credit dried up, Bombardier ended up as a "bank of last resort" for some of its critical suppliers, putting more than 100 of its managers inside supply companies, placing an extra £30m of orders and buying three companies, just to protect the integrity of its supply lines. But even this strengthened supply chain will not be able to withstand three years with no orders.

What is needed is a change in approach. If the rail industry is clever, Mr Walton says, the choice need not have to be between either feast or famine. In fact, Sir Roy's rigorous scrutiny may even be an opportunity to force the industry out of the peaks and troughs that have bedevilled it for so long. "We can't do everything, so let's see if we can do things a bit smarter," Mr Walton says. "Yes, the situation may have been forced on us by the recession – but let's make the right decisions, because the choices made in the next six months will be crucial."

One example is electrification. An alternative to the £1bn electrification of the entire Midland main line, for example, would be to use "intermediate cars" that allow a train to use an overhead power supply where available and revert to diesel once out of range. Such a move would help to cut pollution in London because it would leave Euston and St Pancras stations diesel-free. Better still, it would allow incremental electrification, mile by mile, as funding became available. "We have to think differently as an industry, rather than the traditional mindset of doing the whole lot or nothing at all," Mr Walton explains.

There are similar opportunities on Bombardier's rail services side, such as using more monitoring technology to spot faults with rolling stock and to order parts in advance, so that fewer trains fail while in service. Contract structures, risk allocation and financing arrangements should also face scrutiny. But the most important thing is for decisions to be made quickly. "The value-for-money survey is an important step, but we need to go through it as quickly as we possibly can because in the meantime we a rabbit frozen in the headlights," Mr Walton says.

The potential prize is not just a vibrant, domestic railway industry; it is the retention of engineering excellence, and with it the intellectual property of technologies that can be sold worldwide. The high-speed Gautrain – launched with much fanfare in South Africa earlier this month – is a case in point. The 80km mass transit railway system linking Johannesburg, Pretoria and the OR Tambo International Airport was designed in Derby. The first 15 of the 96 cars ordered were built in Bombardier's Victorian worksheds at Litchurch Lane. The rest were flat-packed and assembled in Johannesburg by Bombardier's South African partner. "The knowledge economy is alive and well," Mr Walton says. "And if we keep the engineering here, then we have the technology is here."

But without clever compromises in the domestic rail market to keep orders ticking over, such skills may be either lost or never acquired. Mr Walton was one of 1,500 apprentices when he started at the Derby rail works 40 years ago. Bombardier now has just 60 trainees, not because the demand is lacking but because the company cannot be sure that it will have work for its graduates in future That, of course, means there will be fewer engineers to rebalance the economy and help Britain to compete on the world stage. Decisions made now will have far-reaching consequences, Mr Walton says, adding: "As UK plc, I don't want to think about what happens if we get it wrong."

The CV: Colin Walton

* Mr Walton started in the rail industry as an apprentice at the age of 15

* His early ambition was to be in the technical office and not have to work shifts – a target he reached by age 21

* He left school with no qualifications but trained as an electrical engineer, subsequently taking a degree and a Master's degree in management studies

* Mr Walton was hired by Bombardier in 1991 as its director of new projects, charged with turning its newly-acquired Prorail division into a key player in the British railway market

* He says the highlight of his career was the period from 1992 to 1997, when Bombardier doubled in size and Mr Walton was involved in vetting potential acquisitions and doing multiple deals. "I had no idea what I would be doing on any given day," he says.

* In 2002, he was named UK chairman and chief country representative for Bombardier Transportation UK

* Mr Walton's daughter says he is an adrenaline junkie. He is a keen skier, an indifferent golfer and loves to travel