Europe View: Transport runs, but can't hide

Europe View: Transport runs, but can't hide

LONDON -- A glance at recent headlines suggests transport still can't shake off its image as the laggard sector stubbornly resisting a wave of deregulation that is rapidly reshaping European industry.

Alitalia, the state-owned Italian airline, is lurching from crisis to crisis, a sorely needed restructuring program held hostage by a strike-happy intransigent workforce. Spain's new socialist government is preparing to unravel a sorely needed port reform program inherited from the ousted conservative administration.

The privatization of Germany's Deutsche Bahn, Europe's largest railroad, seems to have hit the rocks after Morgan Stanley, the investment bank advising the government, raised doubts about the feasibility of a stock market flotation.

Alstom, the French engineering group, owner of the Chantiers de l'Atlantique shipyard that recently delivered the Queen Mary 2 luxury liner and builder of France's bullet train, is to receive a $3.9 government handout to stay in business. Izar, Spain's struggling state-owned shipbuilding group, has just been ordered by the European Commission to pay back $610 million of illegal state subsidies. And Eurotunnel, the operator of the cross-channel undersea link between France and Britain seems as far away as ever from getting a grip on its $11.8 billion debt mountain.

But the good news story behind the headlines is that the companies involved are not representative of Europe's transport sector, but a throwback to the past when most of the sector was dominated by state-owned monopolies protected from market realities by indulgent government paymasters.

Alitalia sticks out in an industry that has long moved away from pervasive state tutelage that ensured survival of even the most badly run carrier. Sabena and Swissair collapsed because Belgian and Swiss taxpayers didn't foot the bill for failure and a handful of other European carriers could yet suffer the same fate as the European Union strictly enforces rules outlawing subsidies. Alitalia could go the same way too -- it's burned more than $600 million of cash since January and a shrunken $250 million nest egg won't last beyond the fall. To survive it has to emulate other vulnerable small- and medium-sized carriers like SAS, Austrian Airlines and Ireland's Aer Lingus which are prospering after savage restructuring programs. And the Italian government has to take a tougher stance towards the unions than it did in May when it reacted to an employee walkout by deferring plans to cut 5,000 jobs and ousting the management instead.

Europe's airlines are also finally breaking down historic barriers to cross-border consolidation which weakened their ability to compete effectively with larger U.S. and Asian rivals. The recent merger between Air France and KLM Royal Dutch Airlines, creating the world's biggest airline by revenue, was the first tie-up between major EU flag carriers and is sure to tempt others to follow suit.

Following a decade of privatization, deregulation and a clamp down on state handouts, the EU can justifiably claim it has a more open airline market than the U.S.. While their American counterparts benefited from a multi-billion dollar government-funded aid package to weather the slump in traffic after the attacks of September 11, European carriers received only a pittance. And it is Brussels, not Washington, that is taking a much more market-driven approach in current "open skies" talks, calling for the eventual end to foreign ownership curbs and the establishment of an open trans-Atlantic aviation market.

There's also an upside to the other recent headline cases. The European Commission is probing the legality of a further $1.85 billion of subsidies to Izar, and says that in return for approving the $3.9 bail out for Alstom it has obtained "crystal clear" commitments from the French government to find privately owned partners for the company's main businesses. There's no doubt the German government will press ahead with the privatization of Deutsche Bahn because it desperately needs the funds. There's no sign that the French government will lavish taxpayers' cash on troubled Eurotunnel and fear of losing traffic to Mediterranean rivals will be a powerful catalyst to reform of Spanish ports.

The combination of tough EU competition regulations and the dynamics of the single market, now covering 25 nations, is propelling change even in the most protected transport sectors. The EU's port reform program was hijacked by the European Parliament last year but working practices on the waterfront are changing with the arrival of privately owned global terminal operators. SNCF, France's state-owned railway, is facing down union protests to axe 2,500 jobs this year in its freight unit which lost $550 million on revenues of $2.3 billion in 2003. The French government also ignored union protests to award the first license to a private company to operate a UK-Italy freight service across the national network, something that would have been unthinkable a couple of years ago. European shipyards are being allowed to go to the wall if they can't balance the books during a worldwide boom in orders. The European Commission, meanwhile, is probing allegations of price-fixing by freight and passenger ferry lines.

Trouble is these stories never make the headlines but the message is getting through to the transport industry that there's no hiding place from deregulation and market forces.

Bruce Barnard is the European correspondent for The Journal of Commerce Online.