page 34 Bombardier Inc. Annual Report 2003-04 BOMBARDIER Transportation Bombardier Transportation is the acknowledged global leader in the rail equipment, manufacturing and servicing industry. Its wide range of products includes passenger rail vehicles and total transit systems. It also manufactures locomotives, freight cars, propulsion and control systems and sig- nalling equipment for a worldwide customer base. Some tough decisions have been made in recent months to ensure that the group’s market leadership will be better reflected in its bottom-line performance, through improved margins and enhanced earnings power. There is a new senior management team in place. The group has adopt- ed a simplified organizational structure that will facilitate improved accountability. And, subse- quent to the fiscal year end, plans were unveiled for a major restructuring that will include stream- lining the underutilized European manufacturing network, significantly reducing the global work- force and refining the procurement and project management processes. With respect to leadership, André Navarri, widely known and respected in the global transportation industry, joined Bombardier Transportation as group President effective February 22, 2004.  Mr. Navarri’s demonstrated ability to formulate— and successfully execute—a strategic plan com- plements his strong project management skills and keen appreciation for the importance of  cost effectiveness. Wolfgang Toelsner, who pre- viously headed the group’s Locomotives and Freight division, was appointed Chief Operating Officer—a role that formerly was part of the president’s responsibilities. The comprehensive restructuring initiative announced March 17, 2004 was designed to address excess capacity and drive performance improvements. Sites identified for closure in 2004 are Amadora, Portugal; and Doncaster and Derby Pride Park, United Kingdom. Closures of facilities in Ammendorf, Germany; Kalmar, Sweden; Pratteln, Switzerland; and Wakefield, United Kingdom are envisioned for 2005. None of the seven plants intended for closure has work  scheduled beyond 2005.  Five additional sites: in Crespin, France; Aachen and Siegen, Germany; Bruges, Belgium; and Crewe, United Kingdom, will be part of the initial phase of a global site improvement program that over time will be rolled out to all the group’s man- ufacturing facilities. This program will focus on trimming inventory levels, reducing production overheads, enhancing manufacturing time esti- mation processes and increasing efficiency with regard to site configuration.  The proposed European site closings and  additional global workforce reductions will  impact 6,600 positions and bring Bombardier Transportation’s industrial footprint into better  balance with projected market demand. Earlier in the year, the Industrial division, which had been responsible for the group’s manufacturing network in Europe, was disbanded. Manufacturing facilities have been integrated into the relevant  divisions, enabling each one to have direct respon- sibility not only for marketing, sales and engineering, but also for production.  Management is also targeting the group’s pro- curement and supply chain as an area that offers significant opportunities for cost savings and  efficiency improvements, given that materials  represent approximately 65% of Bombardier Transportation’s cost base. A procurement  integration initiative launched in early 2004 is  aimed at rationalizing the number of suppliers, increasing parts standardization and centralizing negotiation processes to achieve economies of scale wherever possible. As part of the overall focus on margin improve- ment, the group has adopted a more rigorous “bid for results” approach to contract tendering. This entails making certain that contingencies  and risks are properly identified and adequately accounted for in the price calculation. If a bid does not meet strict margin criteria, it will be dropped. The group is also striving for flawless execution of contracts through tighter project management. All contracts will be subject to ongoing scrutiny that will include periodic reviews of the overall project, regular adjustments to estimated costs and enhanced claim management. As well, there will be further training and empowerment of  project managers. Bombardier Transportation also is working to make more use of common platforms and exist- ing, proven technologies, an approach that stands to benefit both the Corporation and the customer. The group launched two new vehicle brands  during the year—Bombardier * FLEXITY * for light  rail vehicles and Bombardier * TRAXX * for loco- motives. Both product families offer customers significant platform synergies, including increased standardization and modularization, savings on capital costs, on life-cycle costs and on spares. Bombardier * Talent * and AGC continue to be among the most successful regional train  product families. Together, such initiatives will lead to reduced overheads, increased competitiveness and an enhanced capability to deliver on commitments to customers. The result will be a revamped group, better suited to a market environment that has been experiencing rapid change under the influ- ences of increased liberalization, closer scrutiny of