Deutsche Bahn

Changing Track

Bahn imago
Rüdiger Grube and Deutsche Bahn's HQ in Berlin.
  • Why it matters

    Why it matters

    Deutsche Bahn is facing increasing competition both in passenger and rail traffic and from long-distance bus services, just as it needs to invest in its crumbling infrastructure.

  • Facts

    Facts

    • Mr. Grube wants to cut the number of positions on the company’s board.
    • Deutsche Bahn will struggle to meet its financial targets this year.
    • Logistics division Schenker makes no money, but accounts for half of total turnover.
  • Audio

    Audio

  • Pdf

Facing the prospect of no longer being able to finance important investments in its rail network and trains, Deutsche Bahn is facing a radical restructuring from the top down.

Handelsblatt has learned that chairman Rüdiger Grube is considering axing several senior management posts in an effort to save costs and streamline Germany’s national railway company.

Mr. Grube originally intended to make Deutsche Bahn the most profitable rail operator in Europe, with turnover topping €70 billion ($78.5 billion) and earnings hitting €4 billion by 2020. But now he’s fighting to keep profits above €2 billion and has decided to go on the offensive to pre-empt his critics on the company’s supervisory board.

Critics said DB’s poor performance couldn’t be blamed solely on strikes and bad weather.

Earlier this month, the board demanded a “coherent overall concept” to get Deutsche Bahn back on track. But a recently announced investment in long-distance passenger routes did little to satisfy critics, who said the company’s poor performance couldn’t be blamed solely on strikes and bad weather – even if they have cost the company €370 million this year.

Mr. Grube reacted quickly and announced “deeper reaching reforms” at a regular supervisory board meeting, according to board sources. Details haven’t been released, but Mr. Grube clearly is putting both holdings and personnel up for discussion.

Already it appears as if Deutsche Bahn’s management could end up being trimmed first, with two from eight executive board positions falling under the ax. The company refused to comment on the matter.

The entire corporate structure, set up with an eye towards listing Deutsche Bahn on the stock market, is now up for debate. The holding division DB Mobility Logistics, which bundles passenger and freight traffic, was once set to be privatized, but those plans were shelved long ago. This now makes it superfluous.

Karl-Friedrich Rausch, responsible for transport and logistics at DB ML, is retiring at the end of 2015. Passenger services head Ulrich Homburg has long been under pressure for underestimating the competition from new long-distance bus services in Germany.

He is also responsible for regional routes, where Deutsche Bahn has lost tenders to new rail rivals. His contract runs through 2019, but Mr. Homburg and Mr. Rausch aren’t board members. Their duties might simply melt away if DB ML was absorbed into the rest of the company.

Personnel director Ulrich Weber, whose contract runs until 2017, apparently wants to leave sooner, according to company sources. But not due to criticism; Mr. Weber, who is faced with difficult wage negotiations, is considered an elder statesman among senior management.

The situation isn’t easy for the only woman on the board, Heike Hanagarth. She has only been there for two years and was hired to run a new technology portfolio to tackle the railway’s massive delivery problems. But she has no “visibility,” said sources. And some question if her post is really necessary.

 

Deutsche Bahn net profit dividend 2010-20182-01

 

Handelsblatt information also points to changes below the top management level. Alexander Hedderich, head of the freight unit Schenker Rail, is under fire for missing targets in cargo traffic for years. Schenker Rail essentially makes no money. The top post at Schenker AG is already empty after a manager was fired this spring for involvement in a Russian corruption affair.

If Mr. Grube decides to sell divisions in order to concentrate on Deutsche Bahn’s core business, he will have to think about Arriva and Schenker Logistics. Arriva bundles foreign bus and rail passenger traffic. Schenker Logistics handles freight traffic via roads, water and air. Both divisions have growth through acquisitions.

Deutsche Bahn bought Arriva, a British firm, in 2010 for €2.8 billion amid heavy criticism. And the takeover of Stinnes for €2.5 billion and the following merger with DB Schenker in 2002 turned Deutsche Bahn into one of Europe’s biggest logistics concerns beyond the railways. Today, Schenker Logistics accounts for 40 percent of the company’s overall business, with €40 billion.

Insider say that Schenker has remained a “foreign entity” within the company and Mr. Grube’s restructuring could spark speculation about its future.

Mr. Grube, whose contract runs till 2017, will have to hurry, however, as the financial planning to 2019 was already irrelevant at the latest board meeting. Even Mr. Grube didn’t believe the figures.

For example, €2.2 billion operating profit is pure fantasy. Only with luck will Deutsche Bahn stay above €2 billion – half of what Mr. Grube planned to make in three years’ time.

“The age of big and successful results are gone,” said one supervisory board member. But Mr. Grube clearly wants to remain optimistic with his latest reforms plans.

 

Deutsche Bahn 1-01 by division

 

Dieter Fockenbrock is Handelsblatt’s chief correspondent for the companies and markets desk and covers news about the railways. To contact the author: fockenbrock@handelsblatt.com

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