MTA chief recommends against buying Italian firm’s rail cars


Negotiations heated up Monday between Los Angeles County transportation officials and an Italian firm seeking to extend its contract so it can build 100 light-rail cars, a deal worth $300 million.

With a decision by the Metropolitan Transportation Authority board expected Thursday, agency CEO Art Leahy released a memo recommending against exercising AnsaldoBreda’s contract options for the 100 cars.

Hours later, the head of the Los Angeles County Federation of Labor countered by urging board members to back the Italian firm because of the potential for hundreds of new jobs in the Los Angeles-area in the midst of a recession.


Leahy said he was continuing to negotiate with the firm, but he favored seeking proposals from other light-rail companies for 113 new rail cars. At least one, a subsidiary of the German conglomerate Siemens with a headquarters and manufacturing facility in Sacramento, is actively lobbying the agency and has expressed interest in competing for the work.

AnsaldoBreda, which is midway through a base contract to build 50 light-rail cars for the agency, has pledged to provide hundreds of direct and indirect local jobs by building a manufacturing plant in Los Angeles if the firm lands the extended deal.

But since early this year agency staff advised seeking other bids because they say the firm’s first round of cars were 6,000 pounds too heavy and incompatible with others in the fleet -- a requirement that has since been waived by an MTA official -- and that delivery of the last of AnsaldoBreda’s 50 base cars will be three years behind schedule.

Executives attribute the delays to changes requested by the agency and to the time it has taken to test the cars, and they note that agency officials have publicly praised the cars in their promotional materials.

Outlining the status of negotiations in a letter to board members Monday, AnsaldoBreda’s lawyer and lead negotiator Jeffrey M. Capaccio said the firm has offered an “unprecedented financial guaranty” of a $50-million irrevocable letter of credit with an automatic replenishment of $25 million should it fail to perform. That is in addition to a $300-million performance bond -- insurance that the company will deliver what is promised -- and $30 million in potential damages should it fail to meet certain criteria, which are still being defined.

However, Leahy told board members in his memo that performance bonds and damages were already required under the contract.


The additional guaranty of up to $75 million, Leahy said, is “subject to a number of risks.” Those risks include “a work plan that has yet to be agreed to, AnsaldoBreda’s ability to replenish the letter of credit, uncertain and undefined draw-down triggers, and given the conditions imposed, the funds are not readily available,” he said.

The chief executive said AnsaldoBreda also had not “provided sufficient assurances that they will be able to remedy the base cars.”

Earlier this year, the L.A. County Federation of Labor, which is backing the Italian firm, commissioned a study on the number of jobs that could be created if AnsaldoBreda were to build a plant in L.A.

Assuming a brisk pace of building 75 cars annually and refurbishing 36 over the same period, the Los Angeles County Economic Development Corporation found the firm would employ 535 full-time manufacturing employees and 126 at its corporate headquarters, with hundreds of additional indirect jobs throughout the county.

The development corporation estimated construction of the proposed $70-million, energy-efficient plant in an industrial stretch of downtown Los Angeles could employ 970 people full time for a year. AnsaldoBreda has pledged to hire union workers to build the plant and the cars.

The head of the union coalition, Maria Elena Durazo, urged board members Monday afternoon to exercise AnsaldoBreda’s contract options. And she accused Siemens of trying to scramble the potential deal.

Durazo urged scrutiny of Siemens’ performance in other cities, adding that AnsaldoBreda has “gone above and beyond in demonstrating in every way possible its commitment to Los Angeles County.”

Oliver Hauck, the president of Siemens Transportation Systems Inc., said the company has “no intent to scuttle anybody’s deal, we’re just trying to make ourselves known to the customer so the customer knows there are alternative bidders interested.”