Downer EDI Limited (ASX: DOW) is the market leader in passenger and freight through EMD. The group has already created positions for light rail vehicles in Australia. Let us understand the scope of Downer’s recent moves:
Maintaining Market Leadership: For maintenance and overhaul, Downer is the market leader in both the passenger and freight as well as the market leader in the lifecycle asset performance. The company has created positions for CRRC locomotives and the performance-based solution offerings. Additionally, in the public transport operations, Downer is the market leader in light rail and building position in buses. The company has created position in the segments for buses, heavy rail and multi-modal. In addition, Downer’s Rail division has a strong national presence with over 1,200 workers employed across 20 facilities. Downer operates two fleet control centers and is focused on the monitoring and management of passenger and freight fleets on behalf of its customers, and four manufacturing plants.
Market Position in FY 16 (Source: Company Reports)
Leveraging to win major Contracts: Downer can leverage their brand for bidding and winning major contracts, to reduce costs, increase efficiency and productivity and improve the revenue management. Downer has created new positions for government outsourcing, adjacent sectors and the geographic expansion. The group gets majority of the revenue from the government infrastructure. The government is seeking value through the procurement of large orders of the passenger rolling stock and long-term maintenance contracts, the franchising of operations and the maintenance of heavy rail, light rail and bus transport networks and the development of multi-modal transport infrastructure solutions.
The latest highlight for the company is that Evolution Rail consortium has been selected as the preferred respondent to deliver the High Capacity Metro Trains (HCMT) project (65 HCMTs for about $2 billion package), the largest investment in new rolling stock in Victorian history. The Evolution Rail consortium comprises of Downer, CRRC Changchun Railway Vehicles and Plenary Group. The revenue to Downer will be finalized at the contract execution, which is expected to occur in the coming months. Downer would also be an equity investor in the project. This investment in Victorian built rolling stock is expected to create 1,100 full time Victorian jobs in high-skill, high-value sustainable fields. Moreover, Downer and its joint venture with McConnell Dowell had been awarded the contract to deliver the NZ$195million second stage of the Christchurch Southern Motorway (CSM2). Christchurch plays a critical role in the economic development of the whole South Island as it is a home to New Zealand’s second largest airport and second busiest export port. Downer in FY 16 had the work-in-hand of $4.7 billion from rail.
Asset Management Model & Strategic partnerships: Downer’s rail asset management model has a strong focus on ‘return on investment’ which is increasing the fleet availability and reliability. Moreover, Downer maintains solid strategic partnerships with the leading global transport solution providers and, through this model, they are pursuing opportunities in rolling stock manufacture and transport network operations and maintenance. The Keolis Downer joint venture is the Australia’s largest private provider of multi-modal public transport solutions, and has contracts to operate and maintain Yarra Trams in Melbourne and the Gold Coast light rail system in Queensland. Additionally, Downer’s customers include major firms like Sydney Trains, Queensland Rail, Public Transport Authority (WA), Metro Trains Melbourne, Pacific National, Aurizon, BHP Billiton, Genesee & Wyoming and SCT Logistics.
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