Union concerns as Alstom restructuring continues

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In June 2004, the management of Alstom, the French engineering group, is putting the finishing touches - with the assistance of the government - to a comprehensive funding plan aimed at getting the company out of the difficult situation it is now experiencing. The European Commission is keeping a close eye on developments to ensure that competition is not undermined. Employees and trade unions alike have voiced concerns as jobs losses mount.

In the wake of record losses in the first quarter of the year, in mid-2003 the Alstom engineering group replaced its management team and began restructuring (FR0306101N). During the summer, the government intervened in the restructuring process, indirectly at first (FR0308101N), then increasingly openly when it endorsed a rescue plan for the company in September (FR0310101N).

Alstom's annual report for the fiscal year from April 2003 to the end of March 2004 showed that the company had made a larger than expected loss of EUR 1.83 billion, up from EUR 1.4 billion the previous year. Exceptional items relating to the gas turbines division and the current restructuring and financial reorganisation processes are thought to account for approximately EUR 1 billion of the company’s losses. Asset disposals pushed turnover down by about 10%. However, by offloading assets the company has been able to cut its debt load by close to EUR 2 billion to EUR 3 billion. Lastly, the company has announced a significant increase in new orders.

Following the rescue package put together in September 2003, Alstom’s management has, with the agreement of the government, developed a comprehensive funding plan for the company. The initiative was worked out in an occasionally tense process of dialogue with the European Commission, and specifically the Commissioner responsible for competition policy, Mario Monti.

By the end of July 2004, the group plans to boost its own equity capital from EUR 1.8 billion to EUR 2.5 billion by converting debts into equity and launching a share offer. Then, as stipulated in the original rescue package, the state should convert its EUR 300 million stake in the company into shares.

In the second phase of the initiative, the company will seek to increase its capital by EUR 1.5 billion-EUR 2.2 billion, provided the general shareholder meeting on 9 July 2004 endorses this plan. Under the terms of this capital-raising initiative, the state would be entitled to subscribe for close to EUR 185 million worth of shares and convert EUR 500 million worth of loans into shares as well.

Lastly, in an attempt to meet immediate financial commitments, the comprehensive funding plan developed by Alstom’s management provides for new lines of credit (of approximately EUR 8 billion) with the lending banks to cover the company’s needs for the next two years. This is now close to being finalised (according to reports in the Le Figaro newspaper on 31 May 2004).

Once the European Commission has studied the initiative, it is expected officially to give it the green light in June 2004. The Commission is watching the process closely to ensure that the French state does not exceed a 31.5% capital stake in the company. Indeed, it is demanding that the Alstom group shed a further EUR 1.5 billion in assets. In the long term, the Commission has required the French state to give an undertaking to relinquish its holding by 2008 through the development of so far largely undefined partnerships. The German-based Siemens groups has expressed interest and the Swedish-Swiss ABB has also been mentioned. The government is leaning towards a deal with the French AREVA, though the chair of the latter, Anne Lauvergeon, is not keen on the idea. Patrick Kron, Alstom’s chief executive, is opposed to a partnership with Siemens. However, this idea interests the European Commission, since it is keen to see the emergence of a major European conglomerate in the rail sector somewhat like EADS in the aerospace industry.

The development of this funding plan has added to the social cost of the rescue initiative. The final tally of jobs to be axed has now risen from 7,000 to 8,500, half of which had already gone by 31 March 2004. The European trade union coordinator for Alstom, Francine Blanche of the General Confederation of Labour (Confédération générale du travail, CGT), is opposed to asset disposals since she believes that the process undermines the industrial integration and synergies of the group.