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Business

Taking Stock of Deutsche Bahn 10 Years On

Germany's railway celebrates a decade as a private company on Wednesday. The Deutsche Bahn chairman hopes it will be ready to go public in 2005 -- but meanwhile, it continues accruing debt.

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Deutsche Bahn wants to go public next year, but it's bottom line is sagging.

Just days after opening, Berlin's newest five-star hotel, the Ritz-Carlton, is warming up for a bash in honor of the 10th anniversary of Germany's state railway system going private.

Its host, Deutsche Bahn Chairman Hartmut Mehdorn, predictably lauds the reform as "a huge success."

"After (the fall of the Berlin Wall) we had two train companies that were on their last legs economically," Mehdorn told the newspaper Die Welt on the eve of the celebration. "We know we're not done, but what this company and its employees have done is unparalleled."

But that hasn't put a stop to harsh criticism of DB from politicians, economists and passengers.

A mountain of debt

The trip to where the Bahn stands today has been a long one. Based on the recommendations of a government-appointed commission in late 1991, parliament decided it was time to reform the railway -- and it promptly began amending around 130 laws to change its status.

In January 1994, the West and East German railway companies were merged into a stock corporation called Deutsche Bahn, with the federal government retaining full ownership.

By that time, West Germany's railway alone had amassed €34 billion ($43.5 billion) in debt. Its enormous losses -- €7.9 billion during its last year as a state agency -- were paid for by taxpayers.

Germany could afford either the national train system or the army but not both, former Chancellor Helmut Schmidt was quoted as saying at the time.

But the government nonetheless assumed the mountain of debt, giving DB a fresh start.

Since then, the government has taken a less hands-on approach to Deutsche Bahn. DB, after all, became a private company that was expected to generate a profit. While politicians no longer dictate the Bahn's day-to-day actions, the government does have a say in strategic decisions through infrastructural funding and members on the company's supervisory board.

Hartmut Mehdorn Deutsche Bahn

Deutsche Bahn CEO Hartmut Mehdorn

"The numbers speak for themselves," Mehdorn told the Frankfurter Allgemeine Sonntagszeitung. "We have saved German taxpayers around €108 billion (since 1994), more than €44 billion more than what independent experts forecasted at the time" for what the government would save if it made Deutsche Bahn an independent, self-sufficient company. But Mehdorn's calculations are based on the assumption that the catastrophic pre-reform situation would have continued without change.

No more clean slate

Mehdorn, Deutsche Bahn CEO since 1999, can brag that DB doesn't pocket subsidies to cover its operating costs. But it still receives around €10 billion annually from federal and state sources to pay for commuter traffic and infrastructure development.

And it's incurring debts again. In the first half of 2003, operating loss after interest stood at €143 million. That was down from €235 million a year earlier -- and Mehdorn has said he plans to get the company back into the black in 2004.

Those plans precede Tuesday's news that Mehdorn and co. are considering cost-cutting measures, including abandoning costly refurbishment and expansion plans for 2004. For example, the long-awaited high-speed rail line between Erfurt and Nuremburg that would reduce total travel time between Berlin and Munich but would cost up to €244 million to build could become the first victim of the cuts.

Deutsche Bahn Bahncard Preise

Worse yet, DB appears to be one of the businesses German consumers most love to hate, along with Deutsche Post and Deutsche Telekom, which were also privatized in the 1990s. Last year, DB introduced fare reforms that drew so many complaints that the railway gave in after about half a year and reinstated the old fare structure.

The company's byzantine new fare system -- modeled after the airlines, with discounts for advance purchases but maximum fares for those purchased at the time of journey -- remains not only confusing but often significantly more expensive than other forms of transportation. Indeed, a recent report claimed that as many as 25 percent of the flights by budget airlines within Germany, like Germanwings or Hapag Lloyd Express, are taking customers away from Deutsche Bahn with lower prices and faster travel times.

DB announced drastic cuts in service personnel in late 2003, including the closure of ticket counters that has led to longer lines at ticket and information counters. Only 85 percent of the trains are on time, which DB defines as being no more than five minutes late -- well below the company's stated goal of 95 percent.

Going public

Bahn sammelt Verspätungen an

Late trains abound

But Mehdorn, known for claiming that passenger lobbyists are whiners and even seeking to take legal action against them, is apparently not entirely oblivious to customers' irritations. "We have to get better at punctuality and information for our customers when there are irregularities," he told Die Welt. This is of special concern, since Mehdorn has made it clear that he's trying to get DB in shape for an initial public offering by 2005.

He has his work cut out for him. Besides improving DB's image among passengers, Mehdorn is faced with stiff competition from budget airlines in the passenger division and from trucking firms in the cargo field. DB's cargo transport has been hit especially hard, with its market share dropping from 21 to 15.6 percent between 1990 and 2002. It's also hindered by its lack of punctuality and weak rail infrastructures in eastern Europe.

The company has also seen significant drops in its passenger traffic. In a recent report, the European Commission stated that since 1995 passenger rail traffic across Europe rose 12 percent. In Germany, however, it fell by 7.6 percent -- a sharp contrast to the 30 percent growth experienced in France.

Ten years after privatization the consensus seems to be that reforming the railways was the right thing to do. Nonetheless, critics still have plenty of fodder to fuel their anti-Bahn arguments.

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