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The Canadian Press - ONLINE EDITION

Bombardier denies it faces large penalties for Swiss railway contract

By: Ross Marowits, The Canadian Press

Posted: 03/18/2013 9:09 AM | Comments: 0 | Last Modified: 03/18/2013 10:10 AM

MONTREAL - Bombardier Transportation has denied a European newspaper report that it faces large penalties for the late delivery of 59 double-decker inter-city trains ordered in 2010 by Swiss Federal Railways (SBB).

Der Sonntag, quoting unnamed sources, said Bombardier (TSX:BBD.B) faces at least US$487 million (460 million Swiss francs) in penalties for delivering the trains two years late. The penalty could rise to US$749 million if deliveries are further delayed beyond 2015, it said.

SBB placed the largest order in its history when it agreed nearly three years ago to pay US$1.6 billion for the trains.

However, Bombardier spokesman Marc Laforge denied that the manufacturer will face these large penalties, noting the delays were caused by a court challenge SBB faced from advocacy groups over the configuration of toilets and other issues for disabled passengers.

"It's total speculation and it's unwarranted," Laforge said in an interview, adding that "you cannot figure that there will be penalties" when there was a court challenge for which Bombardier had no responsibility).

He said SBB won the legal challenge before the Swiss Federal Supreme Court but still decided to made modifications to its design.

Laforge also said Bombardier didn't encounter construction problems of its own that contributed to the delay.

The new trains were scheduled to be delivered beginning in December 2013, but the railway announced last year they would be up to two years late due to the modifications that came out of the court challenge.

SBB and Bombardier announced last April that deliveries would begin in 2015 and be completed by 2019, as was originally planned.

While Laforge rejected the report of large penalties, he would not disclose terms of the contract.

"But we are stating again today that it's going to be between 2015 and 2019, so that's not an issue."

The Swiss newspaper had said the world's largest railway manufacturer would be required to pay penalties equivalent to 0.5 per cent of each train's price for each week delivery is delayed.

That would work out to 7.8 million francs or US$8.2 million for each train it delivers a year late, the newspaper said. It also said the trains may not be ready before 2017, prompting the maximum allowable penalty.

The Berlin-based railway manufacturer has said its margins have been affected by issues related to European contracts, but Laforge said each project is unique.

On the Toronto Stock Exchange, Bombardier's shares were down six cents at C$4.22 in trading early Monday.

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