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Trouble nags city rail bid winner

Financial and managerial problems beset Ansaldo Honolulu's parent firm

By Gene Park

POSTED:
LAST UPDATED: 09:14 a.m. HST, Jul 30, 2011



The parent company of Ansaldo Honolulu, which won a major city transit system contract, says its rail car business needs "urgent restructuring," or it may be sold because of financial and managerial problems.

Finmeccanica, a conglomerate that specializes in defense systems and is partially owned by the Italian government, is facing "structural problems" stemming from two of its business units — aeronautics and rolling stock, or rail cars, Chief Executive Officer Giuseppe Orsi said in a webcast on Finmeccanica's site during an investors' presentation Thursday in London.

AnsaldoBreda and Ansaldo STS, both companies under Finmeccanica, form Ansaldo Honolulu, which won a $1.45 billion city contract to design, build, operate and maintain the rail car system.

Orsi said during the presentation that AnsaldoBreda has had difficulty producing rail cars for its customers, and "in consequence have difficult relations with the customer."

"For rolling stock, I know this has been said many times, but I will make a decision on AnsaldoBreda one way or another in respective of selling or restructuring it by the year's end," Orsi said.

The Honolulu Authority for Rapid Transportation doesn't expect that restructuring will affect its plans to build a $5.3 billion, 20-mile rail project here, said Toru Hamayasu, the agency's interim executive director, who responded to a request for comment from the Carlisle administration.

"But we will be watching the situation closely," Hamayasu said.

AnsaldoBreda's past performance has been a sticking point for transit officials in other cities, including Los Angeles, citing late train deliveries and cars that didn't meet specifications.

Alessandro Pansa, Finmeccanica's chief operating officer and chief financial officer, said in the presentation that AnsaldoBreda has "at least three or four main contracts" with "significant problems." The value of the contracts might be up to 500 million euros, or $718 million, Pansa said.

An analyst at the presentation described AnsaldoBreda as a "complete and utter waste of time" that's "racked up losses and provisions," and asked Orsi why he has not shut down the company.

Orsi defended AnsaldoBreda, saying it can still deliver good products and that he is not interested in shuttering the company's doors.

"The work force is good, the technology is good," Orsi said. "It's really much more a management issue and organizational issue. ... It's really a matter to give to somebody who believes in that kind of product more than we do."

Orsi has said in the past that building rail cars is not among the conglomerate's "strategic pillars." The company will work on a restructuring plan in the next three to four months.

"But whatever we keep, we will make them certainly appealing to the market and very efficient," Orsi said of AnsaldoBreda and Finmeccanica's troubled aeronautics unit. "If not, we will dispose."

City Council member Breene Harimoto, chairman of the Council's Transportation Committee, told the Star-Advertiser that AnsaldoBreda's restructuring is a concern.

"I think time will tell," Harimoto said. "We'll need to see if they really do sell it and, if they do, what the new owner's plans are."

Ansaldo Honolulu and the city are trying to bat off an appeal filed by Sumitomo Corp. of America, one of two losing bidders for the lucrative rail car contract.

Sumitomo filed an appeal with the state Department of Commerce and Consumer Affairs and is in the midst of an evidentiary hearing for the contract. Evidentiary hearings are similar to trials, overseen by a senior hearings officer who acts as a judge.

On Thursday a Sumitomo attorney questioned Simon Zweighaft, who was one of the six judges who selected Ansaldo Honolulu as the winning bidder. He also works for contractor InfraConsult as the rail system's chief project officer.

During questioning, Zweighaft said he did not make any requests for reference checks on Ansaldo's past performances, according to transcripts of the hearing.

Zweighaft said he did not take into account past performance when scoring price realism and price reasonableness while evaluating the company, "because it wasn't a factor in those evaluation criteria," he told the Sumitomo attorney.

Zweighaft testified that he had only a "general industry view" of Ansaldo's past performance.

"It was not as positive as some of the other major suppliers, but certainly they had a record of performance in the industry," he said.

The evidentiary hearing continues Monday.

The other losing bidder, Bombardier Transportation, also filed an appeal, but it was dismissed earlier this month. A Bombardier executive said the company is waiting for the written decision before it decides whether to file an appeal in Circuit Court.

Finmeccanica's planned restructuring and the appeals process only add to evidence that the contract should be re-examined, said Panos Prevedouros, a University of Hawaii civil engineering professor and a rail critic.

"We have not committed anything. We're still in the paperwork phase," Prevedouros said. No contract has been signed since the procurement process has been stalled due to the appeals.

"Now is the right time for them to make the right steps."






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