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2026.10.01 | TB | Industrials | Dellner & Rail Equipment Market

原标题：Dellner & the Rail Equipment Market – Competitive Dynamics, Demand Trends & M&A Potential

#industrials #transport

Third Bridge · 2026-10-01

Analyst-led • 24 Sep 2026

Companies: WAB US, ALO FR, SIE DE, KBX DE

Raj Gupta (RG) Independent Consultant.

Georgia Beattie (GB) — Third Bridge Sector Analyst

Agenda

Key Insights

Introduction

GB [00:00:02]: Welcome to Third Bridge's Interview entitled Dellner & the Rail Equipment Market – Competitive Dynamics, Demand Trends & M&A Potential. My name is Georgia Beattie, and I'm fortunate to be joined today by Raj Gupta, former President and CEO of Maintenance of Way at Wabtec.

Before we start today's Interview, please state I agree or I disagree to the following statement: You understand the definition of material non-public information and agree not to disclose any such information, or any other information which is confidential, during this Interview.

RG [00:00:35]: Yes, I agree.

GB [00:00:37]: Could you please kick things off with a brief introduction to your background and your time in the space?

RG [00:00:45]: Yes, absolutely. Overall, I have been in the industry for 30-plus years. My experience has been in transportation, automotive, aerospace, defence and rail. Since we are talking about rail, I think I will just focus there. I have been in the rail industry for the last 11-plus years. Three major companies I worked for. One was TrinityRail. They are the leading North American railcar design and manufacturing company. This is where I had the most exposure to different couplers because we used to deal with them all the time. Then the second experience I had was with Canadian National. This is a major Class 1 railroad that we have in North America. I was their VP of Engineering, which is Maintenance of Way, responsible for their infrastructure, both in US and Canada, had more than 6,400 employees and another 4,000-5,000 contractors at any given time. Then my last tenure was with Wabtec, where I was their CEO and President of Maintenance of Way business here, which is also really rail related. I had more than six or seven different entities that I was responsible for in that space.

Questions

00:02:27] What do you think have been the 2-3 key changes in the rail industry across the US and Europe over the last couple of years?

RG [00:02:45]: I think that's a very good question that you have. My view is that the rail industry itself is going through a major consolidation at this time. Rail industry is a very traditional industry, as you know. I think many of these designs and products and the way the infrastructure is, it is 100-150 years old. It is highly fragmented. Depending on which segment of rail you want to talk about, except locomotive, which I think you can name some of those players on your fingertips. Outside that, it is highly, highly fragmented. There is lot of M&A, I think, that is going to go in place. I have seen many private equity firms are interested in consolidating and building platforms depending on where they want to focus on. Then from an OEM and from an aftermarket perspective, there is a huge focus on aftermarket as well. I'm considering aftermarket, not only in the parts sale, but also in the service. I'm combining those two together. We can maybe segregate that later as we go through the discussion here. Since it has been a traditional industry, and this has not been very much a focus of investors and private equity and M&A in the past, the margins in certain areas are very healthy at this point. Everybody is trying to leverage those.

The third thing that I would say is the regulation and safety aspect. Lately, I think if you have seen some of the derailments at least in North America, they have received a lot of attention, not for good reasons. That has triggered a tremendous focus on safety of people, communities that these trains go through. That is another trend, I think, that is emerging. The third trend that I see here is road vs rail. That competition has always been there for years. With autonomous cars that are out there now, and there has been a lot of talk about how that will change the trucking industry, at least for the short haul. If they go into the long haul, at least on the freight side, there is going to be a tremendous competition here between rail and the trucking side in North America. Then if you look outside North America, there has been tremendous push on the passenger side. This is passenger and transit is not much of a play in North America, but outside North America, in Europe or in Asia, I think there is a tremendous effort on the passenger side. There is another element there of electrification, more passenger trains, more tracks and the infrastructure, I think that is out there. There are so many things that we can talk about. There's no end in sight here.

00:06:14] What do you think was the likely rationale behind Wabtec's [Westinghouse Air Brake Technologies'] acquisition of Dellner in February 2026?

RG [00:06:33]: I think if you look at from a Wabtec perspective, in 2019, when they merged, there were three companies they got merged. GE Transportation, Faiveley and Wabtec. That was done in 2019, and it became like an 800-pound gorilla at that timeframe. If you look at GE Transportation, they were mainly in locomotives, as you very well know. Faiveley, I think that was a European play, and it was more into transit business. The third one is Wabtec, which was, I think, a diversified industrial group, mainly in different type of componentry. Those three things combined together. Over the last 6-7 years, I think they have been looking to expand based on where they see the market potential. Now if you look at their businesses today, they had freight businesses, they had component businesses, they have digital business and now they have transit businesses. Those are at a very high level, those are the main businesses, the business pillars they have.

They have, of course, acquired a few companies in digital space. When I say digital, it's more about technology, AI, the vision systems, sensors because they really believe that, that is very much aligned with their locomotive space. If they can combine those entities together, I think they can offer a strong value proposition to their customers. Then if Faiveley, which is a transit business, I think that is very much aligned with the subject that we are talking about, which is Dellner and the coupling. Those things are very much aligned with that segment to help them create a bigger market share as well as, I think, improve their margins. That is, I think, one element from a strategy perspective, what I see. The second is the improvement of margins. Everything that you see here, I think if you look at their earnings call for last many quarters, you will find that, I think, every time they acquire a company, it has to get better on overall EBITDA for Wabtec. Their freight segment is very, very good. Their transit business is not as great as freight. Anything that can help them increase that margin can help their overall EBITDA as well. There is a financial play, there is a strategic play. Of course, they are trying to be a dominant player in the rail industry across the globe.

00:09:48] What's the cross-selling opportunity across freight or passenger rail for Dellner to expand its offering? Are there separate products and offerings?

RG [00:10:04]: I'm going to talk about maybe different layers of cross-selling. I was one of their customers at CN. I know how that works. When you have a critical mass like Wabtec has now, a lot of the selling that happens is at the C-suite level. It's about building relationships. I'm going to segregate that in a few segments here, which I think is very important for our discussion here. If you go traditionally, the way I think the rail industry has been, it has been selling at the relationship level at, I would say, a mid-management level. I know the titles are cheap, but for our discussion here, I would say they are being selling everything at the director level, manager level. If you look at many of those components that they sell, they are being sold at the engineering level or they are being sold at the field level. There has been a huge trust that has been built at that level, but when you sell at that working level, you cannot get synergies at a higher level from a procurement perspective.

As a customer, I'm always looking for ways to save money and if I can bundle those things together, even though there may not be any product synergies as such, but if I can get a bundle buy from a supplier and I can potentially save some money, that is a better option for me. As a supplier, if I can create a platform where I can sell them as a bundle at a C-suite level, I think it is beneficial for the organisation as well. If you look at from a procurement and buying behaviour perspective, even though those products that you see from a cross-selling perspective, it could be a transit door, it could be a locomotive, it could be something maintenance of way. Those pieces, they don't go together to the right middle management level, but at the higher level, I can create a very strong financial bundle that can help sell me more.

00:12:43] How do you think Wabtec's acquisition of Dellner will impact the latter's relationship with train builders?

RG [00:13:00]: I think it's going to be fantastic. It's not only train builders, I think if you look at, for example, Alstom and Siemens and what is another Spanish company that they work with, CAF. They are playing a very fine line here. They're not calling Alstom and Siemens as their competitors. They're saying, hey, Alstom and Siemens, in fact, if I remember right, I think Dellner did sign a contract with both of them after they were acquired by Wabtec. I think it was last year sometime. They signed a long-term partnership with Siemens. Also, they agreed to work with Alstom and all the way to, I think, the next 20-30 years of contract. They're playing a very interesting, I think, strategy here. With Alstom and Siemens, they are working with them as partners. They are trying to bundle it. I believe there was an announcement, I think, in the last few months from their CEO about a programme that they won from Kawasaki.

Kawasaki is a big Japanese industrial group. They are into motorcycles, ships and aircraft. Then they have a US-based company called Kawasaki Rail Car. They build subway trains in New York. I believe they're in Nebraska as well. Wabtec, they announced, I think, more than USD 50m brake and coupler order with Kawasaki for New York City transit business just a few months ago. This is where I think they are combining Dellner coupler as well. This is a good example of where I think most likely they're trying to bundle things together. They're saying, "Hey, we have this wonderful coupler in Europe. We already have a manufacturing facility in US. We can build it there, and we can supply this as a bundle to you guys to New York City Transit Company." This is a good example of cross-selling, I think, that they are doing. This is one example.

The second example that I would give is they are 800-pound gorilla in the locomotives. Their locomotives are number one in the world. They can always bring all these pieces together. If you look at their organisation design, they have a sales organisation that sits at the top level reporting into their CEO. Their job is to do the cross-selling. They are dealing cross-selling across the globe, across every single customer that you can think of. They are bringing all these different businesses together. Whether or not functionally, these products make a difference or not, that doesn't mean anything, but they're saying, "Can I sell everything at the C-suite level, bringing all the pieces together as one bundle?" That has been their major, I would say, strategy. I think that is going to help them do cross-selling across the board.

GB [00:17:27]: Do you think this is unique to Dellner in the market? Is this a common strategy among the big players?

RG [00:17:34]: This is common strategy across every single player that you can think of. All the diversified industrial organisation that I have ever worked with. I worked with a company called Parker Hannifin for more than 10 years. We used to do cross-selling across different segments, not only one business. We were diversified. We would do cross-selling aerospace, defence, industrial segments. We'll bring things together. Anything that we can do together to help the customer. If I can show them a value proposition, I think I would jump on it. This is not something new.

00:18:12] Do you think there are significant operational synergies between Dellner and Wabtec? How well-placed is Wabtec to realise those synergies?

RG [00:18:31]: This is interesting here. I would address this in two different ways here. One is if we look at, maybe I'm going to mix a few subjects here. If we are going to look at North America, for example, I think with the tariff situation that we have, there is a mindset across the globe to be more nationalistic in their approach. It's about, Made in America, and I think other countries around the world are following the same routine. Now Dellner, they have everything in Europe. Now with Wabtec now, they had one manufacturing facility, and you have to excuse me, I don't remember which state that is. It must be like South Carolina or North Carolina, one of those two states. They can bring that design and bring that into North America in their own manufacturing plant. They can label that as Made in America and then they can start selling those in this market. This is not only true for North America.

I think Wabtec is a global company. They have manufacturing facilities and distribution across the globe. Any time there is a geopolitical issue where it is more nationalistic in terms of building in that specific country, I think Wabtec has a huge advantage to leverage their own manufacturing and supply chain to bring more into the market. That is one the key point, I would say that we need to think about. Now if you look at Dellner, if I remember right, they are approximately, what, 1,000 people, maybe slightly more. They have, what, 12 or 13 different plants. I will not be surprised if there is going to be a consolidation there in terms of plants and manufacturing within Europe because after Wabtec bought Faiveley, I think they also have a huge presence there and see how they can streamline those operations. Wabtec has a huge presence in India. I know that Dellner also had, I think, one or two operations in India as well. There will be, I think, a lot of opportunities there for them to expand not only in the market here, but from also from a manufacturing perspective. I think there's a huge potential there too, long story short.

GB [00:21:45]: It would be divesting sites in Europe to consolidate a bit. Are there any regions or specific sites that you think would make the most sense for that?

RG [00:22:02]: For divesting?

GB [00:22:04]: Yes, or consolidating.

RG [00:22:10]: I'm expecting consolidation to be there within the next 2-3 years, and I do. They would be, I'm sure, looking at a lot of synergies and see how they can improve their operations. I don't know the financials here, but if you look at what they paid for this Dellner acquisition, it's a very hefty price that they paid. Unless their margins, Dellner margin is around 25-30% margin, I think it looks highly very expensive acquisition from my perspective. Now the only way they can make it work is if either they are getting a lot of aftermarket and service revenue or they need to find synergies from a manufacturing and cost perspective. I assume that on the synergy side, if you look at manufacturing cost, they have to find ways to optimise their manufacturing footprint over the next few years to bring the best of best, both Faiveley and Dellner together.

00:23:32] If Dellner were looking to adjust its production capacity, how easy would it be to do so without taking on excessive fixed-cost overheads?

RG [00:23:49]: Help me understand with this question more. I mean, you're saying if the demand is higher or if you want to expand capacity?

GB [00:23:59]: Yes. How easy would it be to do that without expanding into brand-new sites, for example?

RG [00:24:07]: I don't think they will be expanding into brand-new sites. I think Wabtec itself has enough manufacturing footprint across the globe that they can expand within their own existing footprint at this time, okay, if there is a capacity issue. First of all, I don't know if there will be a capacity issue, but if they do, I don't think they would need to build new greenfield sites at all.

GB [00:24:34]: Do you think it's easy to expand, based on what it already…

RG [00:24:38]: Yes. I think Wabtec is very strong operationally. They understand the manufacturing processes. They have very strong organisation design and the great people to make this happen.

00:25:15] How are global supply chain disruptions and tariffs changing Dellner's localised manufacturing strategies?

RG [00:25:25]: A couple of things here. I think like I said just a few minutes ago, one major issue is going to be this geopolitical issue. Then I think if there is a nationalistic approach across the globe, I think that will change how the supply chain is being viewed. For example, in North America, I think there's a huge push for everything that is built in America. I think that's going to change the supply chain. If they are building something in Europe, in eastern Europe, I think it's much easier for western Europe supply chain to get something from eastern Europe than having something in America coming from eastern or western Europe because of all the issues that we have with tariff and the geopolitical changes that are happening as we speak. That is going to be a significant element. The second is, I think, the low cost. I think if you go through the low cost here over the years, those countries keep changing. I think 25 years ago, it was Brazil, then it became China, then it became India. It became eastern Europe. Those things will continue to evolve depending on what the political ramifications are and what kind of cost element and cost factors are there. That is going to be a significant issue here.

The third, of course, is if you look at the European market, for example, which is mainly the passenger traffic or passenger trains. Most of those programmes that you have here, they are driven by either the government itself or the private entities, and many of those projects that you know are all pushed out. I think they get delayed because of the funding issues or it could be other infrastructure challenges here. Now having said that, even though infrastructure is not impacting Dellner, but the more infrastructure they have, the more rolling stock or the more passenger trains they will run. The more passenger trains they run, the more business Dellner will have. It's an indirect impact to the transit business that Dellner and Wabtec are there. Even though it's not one-to-one impact on infrastructure projects delay, but it does impact their outlook for the long term. Also keeping in mind that the Dellner coupler in the passenger side, I think they get serviced more often than the freight side, so there is a service revenue impact as well. I think I'm drifting here from your original question on supply chain, but supply chain, I think those are the three things, geopolitical issue, the low-cost element here and how the projects are being handled.

GB [00:28:39]: Do you think that Dellner is well-positioned to prevent too much margin erosion from all of these issues?

RG [00:28:52]: It depends what the issue is. I think in the long term, yes, they are capable of doing this. On the short term, depending on how the wind blows, I think there may be some short-term impact, but it will not be for long. I think they have the capability to tackle those issues in the long term without any doubt.

00:29:22] How easily can Dellner pass issues such as rising costs of material and energy on to customers to prevent margin erosion?

RG [00:29:35]: I'm going to take this in two ways. I think one is it all depends what contract that they have with their customers. Now I dealt with the European customers quite a bit in my life. If you look at for the last five years, I think most of the rail industry, I think they bled quite a bit because they signed fixed-price contracts with all the major rail customers in Europe. If they have any fixed-price contracts, I think they will suffer. On the other hand, I think if you look at Wabtec, on the freight side in North America, they had many contracts that they were able to renegotiate. Again, this is all public knowledge. They have that C-suite relationships that is helping them negotiate those things in a much better way.

Overall, I think if I look at your question, there are two aspects, I think, that is going in Dellner's favour. Number one, they are part of this now big group called Wabtec, and they will leverage their C-suite relationships at its best to negotiate those prices if they can. The second is, which is a negative, if Dellner is also signed up the contracts like other suppliers that I know that they signed up and they bled, I think it's going to be very, very difficult for them to pass that increases to the customer. Would we know that for sure? I don't think we will know that because Dellner has already rolled into like two levels below what the reporting structure is for Wabtec, so we will never know what happened to those contracts.

GB [00:31:39]: How much of Dellner's customer base would you expect to have those fluctuations built into their contracts?

RG [00:31:54]: How much of the price increase they can get relieved on? Is that what your question is?

GB [00:32:03]: No. You mentioned the contracts that have those mechanisms in there rather than those that don't have. Could you estimate how much of Dellner's customer base has those mechanisms built into their contracts?

RG [00:32:22]: I don't have that know-how, but I would say that if you look at their MSAs, which is their service contracts, I think that will be the major thing for me. I don't have those numbers. I can't even guess what that might be.

00:32:44] How do you see demand trends across Dellner's customer base differing across aftermarket servicing and OEM offerings?

RG [00:33:00]: I think Dellner demand is huge. I think they are winning on the… If you look at this company called CAF, I think they acquired, I think, a few years ago, it was 5-6 years ago. That is a great entity there. They have this contract with Siemens, I think they signed up last year sometime, which I think is huge for them as well. They created this overhaul agreement, which I'm sure is going to go into aftermarket and service with Alstom. That is also, I think, locked in for decades here. Overall, I think on the service side, I think they are signing some great deals here. The one thing that I would say is a concern, and I don't know enough about the internal product development here is this electric coupler. I think whether they're working on something like that to compete with the Voith or not, I think that's something that I would say is a question mark in my head, but I don't know enough about their product development pipeline and technology if they're working on something like that. I think that is something to my concern here, but overall, outside that, I think it looks pretty good.

GB [00:34:46]: How do profit margins differ between aftermarket servicing and original equipment sales?

RG [00:35:01]: That's a good point here. I think if you look at the margins here, on the aftermarket side, this is my estimation here. I think it would be easily north of 20-30% EBITDA. Operating margin could be much higher, it could be in 45-50%. The OEM side would be, I would say, between 15% and 20%.

GB [00:35:39]: Okay, so quite different.

RG [00:35:43]: Yes, it is going to be huge. Yes, it is going to be hugely different.

00:35:47] How much of Dellner's customer base do you think is under long-term rolling service contracts vs buying parts as needed?

RG [00:36:01]: I don't know if I can give you that number here, but what I can tell you is on the service and aftermarket side, most of their contracts, I'm sure they need to go and check their couplers every 3-4 months, for every single coupler. I believe that there is a regulation on the passenger side. Then every few years, they need to go in and refurbish them and replace them. That itself is a very strong revenue stream. When I'm talking about this contract with Alstom that they had, the overhaul contract for the next 20-30 years, same thing with Siemens and others, I think those contracts are going to be very, very healthy for them.

00:36:50] What do you see in customers' movement from low-cost country sourcing towards nearshoring?

RG [00:37:15]: I think, again, the low cost and nearshoring, I think it's going to be all dependent on the geopolitical issue. The nearshoring, this is what I'm calling it more nationalistic approach, where I think I'm coming from… I don't need to build something in Mexico or India or China because I want to build something in my own country. That will change how I see the nearshoring as well. With Wabtec, the advantage you have is that they are a global player. They have manufacturing facilities in almost a lot of different countries. In case there is a geopolitical push here, there's a push for nearshoring, I think they can make that happen. Now having said that, would that be as cost effective as low cost? Maybe not at the same time, but at least they won't lose the business to start with.

GB [00:38:09]: Is there an element of ease if supply chains are more complicated?

RG [00:38:18]: I think if you look at from a global supply chain perspective, we all go through these phases every few years. Sometimes we go for low-cost countries, and then it comes to nearshore and then next generation, then they will go back to low cost. I think it's just a cycle that we go through as countries and as human beings.

00:38:43] How dependent do you think Dellner is on public infrastructure projects and public infrastructure funding cycles?

RG [00:38:57]: A couple of things, like I said here, on the infrastructure side, even the infrastructure funding does not impact them directly, it will impact them indirectly in the long run. If there is an infrastructure project that is being pushed out by a few years for any major programme, it doesn't impact Dellner at all because they don't supply couplers to those rails because those railcars are not in production yet, but the delay they have in infrastructure, that means the demand for those railcars is going to be also pushed out. When that demand is pushed out, whatever they were projecting for their growth is going to be impacted. It's not one-to-one, but there is an indirect impact to their demand cycle in the long run.

00:39:50] How do you think Dellner can go about shielding its business from project delays across Europe and Asia?

RG [00:40:02]: This is where I think Wabtec comes in play here, because there are multiple angles to this question here. First of all, they need to start diversifying their portfolio, which they are. I think if you look at, like I said, this Kawasaki business that they announced with the New York Transit, they were not in that business before Wabtec acquired them. That is a good example of how they are diversifying their market from Europe to North America. Now with major player like New York Transit, I think they can get some business that they never had before. It can help them mitigate some of their cyclicality, that you will see in the business itself. I think that is one way to look at it.

The second way is I would go back to this contract that they signed with Alstom and Siemens for overhaul for next 20-30 years. Those kind of master service agreement and contracts can help them take some of that headwind out, because then they know that if the project is delayed, they also have something equally in terms of long-term contract with these companies that can bring that revenue back. Aftermarket, service, geographic expansion or diversification, I think that will help. Then another thing that, again, I want to talk about is this electric coupler, which I don't know whether they're working on that or not. I think they should be thinking about, okay, how they can get into that market in the future here because if they… Are they positioned to compete with Voith or not, I think that's something they need to look internally.

00:42:03] Where are you seeing the biggest demand for digital electronic couplers?

RG [00:42:18]: Yes, electrical couplers, okay. If you look at it from a technology perspective, I think that's where the world is going. If you look at the coupler itself that we have here, right now, I think it's all digital automatic coupling here. If you look at from a future perspective, the more electricity you can go through the coupler here, the more data I can get from the coupler here at any given time, if I can mitigate all the safety concerns I have, if I can increase the speed of engagement here, if I can also make sure that it can absorb the energy from a technical perspective. All those things are going to help. The question is, this is where the future is. I'm not saying the future is going to be the next five years, but I would say next 10-20 years, this is where I think they need to play.

GB [00:43:24]: Where do you see this starting in terms of geography or region?

RG [00:43:32]: Europe. I think Europe is number one here. Don't quote me the date here, but I thought there was some discussion almost one year or two years ago that they competed with a company called Voith, and they lost that business, they lost that design. I think you can do some research there. I don't remember exactly, but it was almost one year or two years ago.

GB [00:44:04]: Do you see this as the biggest opportunity for Dellner going forwards?

RG [00:44:15]: From a technology perspective, yes.

00:44:18] What do you see as the biggest competitive threat to Dellner's current product growth in the European market?

RG [00:44:47]: I think the biggest competitive threat would be their cost. I think that will be the biggest threat there. If you look at, in the rail industry, what we call is TOC, total ownership cost. I think they need to start thinking about that as a key KPI in my view. It's not only that how much I can get margin on my OEM, new product here, but what it will take for me to maintain that product over the next 20-30 years. For example, like I said a few minutes ago, these couplers, I think they need to be looked at every 3-4 months. There's a cost for people to look at it, make sure everything is good to go, and there's a lot of labour cost associated with it. Then every few years, they need to be replaced. I think they need to start thinking about the life cycle cost of that product. If they can reduce that cost to minimum. Now this is counterproductive to when they are making money because they're making money on the service side than OEM, but they also need to figure out how to minimise that if they want to be a long-term sustainable player in the world here because every customer, I know that every customer is looking for total cost of ownership.

00:46:31] Where do you see Dellner winning or losing market share against other European competitors?

RG [00:46:42]: I think there are two major competitors that I can think of. I think the one is called Knorr-Bremse and the second one is Voith. I think those are the two ones that I would say are the major competitors for them. I think after Wabtec bought Dellner, I think they are in a much better situation now than they ever before because Wabtec has the financial strength here and they have the brand. I think that can really help them in the long run. Both Voith and Knorr-Bremse, I would consider them number two and three in terms of their power to make things happen. Now I think Voith can potentially beat them on the technology side because of they have electrical coupler. I think they need to be very astute about how they want to go about doing that. Then Knorr-Bremse, I think they have very strong relationships with some of the European countries, also some of the customers like Hitachi and Alstom, which I think can potentially go against Dellner. Those are some of the things I think they need to keep this fine balance here.

00:48:16] How successfully do you see Dellner penetrating the North American transit market?

RG [00:48:27]: I think Kawasaki is a good example here. I think Wabtec is going to leverage Dellner to bring that into North American market. Once again, I don't know the details about Kawasaki contract here. They announced it just a few months ago. The key here is that Wabtec is going to do cross-selling, and they're going to bring all these things into one package as much as they can. Once they start doing that, I think it will be a huge win for them in North America. Having said that, the transit market in North America is not that big. Most of the market that we have here is North American market. Whatever little we have, I think in North America, I think they have now a huge advantage because of Wabtec.

GB [00:49:19]: What risks do you see from lower-cost Asian manufacturers who are selling in either North American or European coupler markets?

RG [00:49:36]: I think the biggest issue that they will have is the cost. I think that is going to be something they need to really think about here. In North America here, you have McConway & Torley, which was part of Trinity where I worked for. Then we have Amsted here, which is also an 800-pound gorilla here. Most of those manufacturing are done in US and Mexico here, but if they bring somebody from China or India here, I think that would be very difficult for them to compete. Now having said that, with geopolitical issues we have here, I mean, none of those players are supposed to come and sell their product here unless they're built in the US, so that can potentially mitigate some of the risk on the cost side, but as and when that changes, that threat becomes real.

00:50:47] Do you think the threat from low-cost Asian manufacturers is more prominent in Europe or in the US?

RG [00:51:00]: I think it's more threat in US than anything else because US, people make a lot of money when they sell anything in US. Any time there is a low-cost product here, I think that can be a huge threat to people who are building everything in US itself. In terms of the cost, I think that could be huge. Now having said that, like I said, total cost of ownership makes a huge difference. In Europe, I think the total cost of ownership is going to play a much bigger role than you will see in North America.

00:51:39] On the flip side, how easy is it for western coupler suppliers to win business with domestic train builders in Asia? Are there any specific barriers to entry here?

RG [00:51:54]: I think the major barrier they have is the localisation content that they have in Asia requirement, because I know the Indian market very well. I think good thing about Dellner is that I think they did have some contract with their new train or what is called Vande Bharat that they got some business with. I think the major issue that most of the western companies have is to start building everything in that own country for localisation content. That is a major hurdle. Unless you have your own manufacturing plants there, it's not practical for them to build something in the US, for example, or Europe and then ship it there. They would love to get the design, you can always transfer technology and design itself to those countries, but they need to be built locally to be more cost effective.

00:52:56] Do you think there is an opportunity for western suppliers to build sites in Asia?

RG [00:53:07]: Yes, absolutely. Absolutely, yes, there's a huge opportunity here, but they need to build everything there.

00:53:13] You mentioned that the new safety and crash regulations are changing the market. How is this affecting product designs for couplers?

RG [00:53:43]: That is huge. That is huge. Coupler is one of the most critical component that you have from a crash and safety perspective. When there is an impact, the coupler absorb that energy by design, by definition, that's what it is. Then on the passenger side, it has all this electrical stuff that goes in there. They have a lot of data that is coming into it. Every time I think there is an issue with the safety, the coupler is the most important thing that you have in the entire train system that can make or break things for any train. I'm not going to talk specifics here, but you can look at some of the derailments that we had in North America over the last few years, and you will find that some of them, I think the couplers were highlighted in some of those derailments. The design matter, the quality matters, reliability matters. I think those are highly critical for couplers.

00:55:00] What level of investment do you expect Dellner to make in its sites to potentially change the design of the company's couplers or at least bring them up to standards?

RG [00:55:17]: I don't think they need anything more than what they have been because they have been in the business for a long time. They're already investing in that portfolio. If you don't have that investment to start with, you will not be able to play in this market. I'm not expecting that there will be some additional investment. Now there will be some additional investment if they need to go into the electric coupler that we talked about and also looking at the technologies where I think they are merging a lot of data, a lot of sensors and a lot of data intelligence that we need from the coupler. I don't know how much they're investing today, but if they are not, I think that's something they should be thinking about.

00:56:02] My understanding is that there are different standards for couplers across the globe, from the US to Europe. To what extent does this limit Dellner's ability to scale globally?

RG [00:56:23]: There are different standards, and I think there are different standards from North America to Europe. They have EU standard. They have AAR and FRA standards here. Canada has Transport Canada standards. Then there are different standards between freight and transit here. Freight has a different type of coupler and passenger trains have a different type of couplers. Depending on which market they want to play in or they are playing in, there will be different standards and different regulations.

00:56:55] How well-placed do you think Dellner is to cross-sell in different markets if there are different standards?

RG [00:57:06]: I think they are good with the transit side. I think transit side, I think with a few changes here and there, they can easily sell that in different markets geographically. If they want to get into the freight side, I think then it's a slightly different animal. I think they need to start investing more on the freight side if they want to get into that market across the globe.

GB [00:57:32]: Would that require new sites or any changes to the existing manufacturing capabilities?

RG [00:57:40]: That might require a different type of manufacturing processes. It's a different type of steel, different type of configuration. I don't know what kind of plants they have. They may be able to accommodate depending on what kind of presses they have and what kind of machines they have, but it might be slightly different.

00:58:02] If the market is shifting towards other types of rail propulsion systems, ie, battery- or hydrogen-powered train designs, how would this change the design requirements for couplers?

RG [00:58:26]: That could be huge. I wish I had the crystal ball to tell you that answer, but I don't. Everything that you just talked about here can change everything about how they go about the couplers. There could be some electrical signals that can go over. There are so many ways. I'm not even going to speculate as to what technology can bring, but it may have a huge impact on the future.

00:59:02] You mentioned the opportunity for consolidation in the space, given that it's currently quite a fragmented market. Which players do you think are best-placed to become the first movers in terms of that consolidation?

RG [00:59:29]: I think Dellner was first, I think, one. I think, like I said, I think Voith is there, Knorr-Bremse is there. Amsted is there. We have McConway & Torley, which is part of Trinity products here. All those players, I think they are in the ball game here.

GB [00:59:49]: In terms of being the consolidators or targets for acquisition?

RG [00:59:54]: It could be either way. It could be either way. If you look at Wabtec, for example, in 2019, there were three companies, they merged together. All of them, they were almost the same size. It's difficult to say that who is on the table, who's eating the lunch and who's getting eaten. It could be either way, depending on what their own internal strategies are.

GB [01:00:21]: Would you expect mergers to be the main play then?

RG [01:00:29]: I think so. I think the mergers will continue over the next few years. Yes.

01:00:34] What are the main aspects that companies are looking to expand on? Are they looking to expand product offerings or geographical reach and production sites?

RG [01:00:49]: I think what they're looking for is higher-margin service business. I think they will be less interested in creating synergies where they are just selling OEM parts, but if they find that there is a 45-50% or 55% of their business is related to services and aftermarket, and they have long-term contracts that they can capture, I think that would be much more intriguing.

01:01:18] What do you think Dellner would be targeting for bolt-on acquisitions?

RG [01:01:27]: I think right now, my gut feeling is that I think they're going to stay put. They're not going to make any more acquisition for next at least 2-3 years. Once they do that, I think their next phase would be is to get into North American freight side. The reason I say that is because Wabtec is very, very heavy on the freight businesses here in the US and North America. This is where Dellner is not playing. If they want to continue to strengthen their, actually not to strengthen, but if they want to leverage their existing C-suite relationships with the freight market, I think this will be a very natural move for them to get into it.

GB [01:02:15]: Is there anything else that you would want to add before we wrap up?

RG [01:02:26]: No, I think it was a good discussion here. I think we covered a lot of different subjects here. I don't know how many of your questions I was able to answer, but hopefully, it was good for the discussion.

GB [01:02:36]: Thank you so much for helping today. I really enjoyed the Interview, and really appreciate your time as well.

RG [01:02:44]: Thank you. It was great talking to you.

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