France: A Decade of Profound Change for Alstom

 Patrick Kron was appointed Chairman & CEO of Alstom on 11 March 2003. In the decade between 2003 and 2013, the company battled for survival from 2003 to 2005, then enjoyed strong growth in the years between 2006 and 2009, and finally coped with the global financial and economic crisis from 2010 onwards.

On 21 January 2013, the start of the construction of four new plants to make offshore wind turbines in Saint-Nazaire — Alstom’s first new factories in France in over 30 years, was an impressive milestone, the symbol of a solid company at the forefront of the world’s power generation, power transmission and rail transport industries, with an order backlog of nearly €50 billion; a company firmly determined to meet the challenges of the new world that will emerge after the crisis, with the industrial tools and technologies of tomorrow at its disposal.

When Patrick Kron is appointed Chairman & CEO of Alstom, he takes the helm of a company in a critical situation, whose very survival is at stake. The drastic decisions which will be taken and the considerable efforts implemented in the following years will have a profound effect on Alstom.

 “Never give up”

The downward spiral in which Alstom finds itself in 2003 dates back to the turn of the 21st century, when serious design flaws affecting the gas turbines recently acquired from ABB led to considerable commercial and financial difficulties. Problems in contract execution, notably in rail transport, and the bankruptcy of a major customer of the company’s shipyards worsen the financial drain. This is compounded by a lack of confidence among customers, suppliers and bankers, and even among employees, as to the company’s ability to stay the course — a disastrous situation for a long-term business like Alstom’s. In 2003/2004, the Group’s order book shrinks to one year of sales, far below the usual backlog of two to three years. Net losses total over €1 billion in FY 2002/03, followed by a loss of €1.8 billion in 2003/04. Debt reaches €5 billion and the losses wipe out the company’s capital. Alstom is on the edge of the abyss. Most observers feel its fate is sealed.

However, Patrick Kron and the fully renewed management team he put in place stand firm in a “never give up” policy and, disappointing the expectations of many observers, turn things around in under three years — a recovery made possible by the considerable commitment of employees, bankers and shareholders. Alstom cuts its workforce from 110,000 in 2003 to 65,000 in 2006. Many assets are divested, such as the industrial turbine business in 2003, the transmission & distribution division in 2004, the electric motors and converters activity (Power Conversion) in 2005 and the shipbuilding sector (Alstom Marine) in 2006. Factories are shut down. At the same time, Patrick Kron must overcome a crisis of confidence among investors and convince customers that the company is viable in the long term: he presses ahead with two consecutive capital increases, giving Alstom the financial resources to turn things around and stabilise the shareholder base, with the French government temporarily taking a minority interest at the request of shareholders in 2004. Meanwhile, the unrelenting efforts of Alstom’s engineering and technical staff successfully resolve the technical issues affecting gas turbines once and for all.

 In pursuit of growth

Alstom emerges from this recovery plan focused on its core businesses: power generation and rail transport infrastructures. With a simplified organisation, Alstom prioritises manufacturing quality and successful contract execution, reaping the rewards of more than 2,000 quality improvement initiatives launched during the crisis. The company regains the confidence of customers and gets orders back on track. In 2005/06, the Group announces net gains of €178 million after four successive years of losses. Order backlog once again tops €30 billion the following year.

On 26 April 2006, the French government sells its 21% stake in Alstom to Bouygues, with a capital gain of €1 billion. Alstom shares — demoted to penny stock on the Paris stock exchange at the core of the crisis — return to the CAC 40 three months later. Debts have almost been cleared. As Patrick Kron notes in 2006, Alstom is “back on track” and in a position to look to the future.

The company thus embarks on an ambitious strategy of profitable growth, implemented on every front and backed by strong demand in its worldwide markets. Alstom develops the widest range of products and services in power generation infrastructure, covering every source of energy: coal, gas, nuclear, oil, hydroelectricity, geothermal and biomass — an offering that would be expanded over the next few years through Alstom’s expansion into wind power and tidal energy.

Some achievements during this period illustrate the successes of the company, such as the equipment of the Three Gorges Dam in China, the world’s largest hydro power plant, the sale of 60 gas turbines worldwide and an order for the most powerful steam turbine on the market (1,750 MW) for the Flamanville nuclear power plant in France.

In rail transport, Alstom Transport enlarges its portfolio by developing signalling, infrastructure and maintenance businesses, strengthening its leading position in the high-speed and very high-speed train market. The Group also scores other notable successes, delivering, for instance, a fully automated metro in Singapore and booking an order to supply the world’s most powerful freight locomotives in China. The Citadis range of modern trams becomes an Alstom flagship product, winning orders in many cities around the world.

Even at the height of the crisis, the company never ceased to invest in upgrading and expanding its industrial resources and developing its technology. Alstom increased its annual R&D budget which eventually reaches €800 million. This gave it assets vital to its future, leading to ground-breaking innovations. Alstom Power, for instance, achieves a world first in 2008 when it commissions the first carbon-capture system using oxycombustion technology at the SchwarzePumpe power plant in Germany. Alstom Transport, meanwhile, showcases its capacity for innovation by setting a new world rail speed record of 574.8 km/h with the V150 trainset on 3 April 2007. Most of the innovations used to set the record will be found later in the AGV, Alstom’s fourth-generation of very high-speed trains unveiled in early 2008. These successes were followed by other milestones, including powerful offshore wind turbines and power transmission technologies such as HVDC and smart grids.

The evolution of Alstom’s workforce reflects this renewed growth, rising from 67,000 in 2006 to 82,000 employees in 2009. The Group now employs over 90,000 people.

In 2012 Alstom made a strategic breakthrough in offshore wind with an order of 240 x 6 MW wind turbines in France, following the launch of construction works of its first two offshore wind turbine factories in Saint-Nazaire (France) in 2013.

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Press release, March 11, 2013; Image: alstom