Saudi railway operator could execute extension of contract for AVE to Mecca, potential benefit for Talgo


Banc Sabadell | The Saudi Arabian rail operator (SAR) has reportedly sent a letter to the AVE to Mecca consortium, of which Talgo (TLGO) is the member in charge of the manufacture and maintenance of the trains, indicating that it could soon execute the option to purchase an additional 20 Talgo trains (part of the original 36-unit contract), a contract that could amount to ~€700 million (~16% of Talgo’s portfolio). The article highlights that internal negotiation within the consortium (at the time there was some technical problem for which the whole consortium had to answer) and with the Saudi operator will mean it will be necessary to adjust the potential new contract to the current pricing scenario.

Assessment: Positive news although of limited impact insofar as although the size of the contract is significant, the possibility of the contract extension was already known and it was expected that it could be a reality by the end of 2023 or early 2024. However, as mentioned in the article, there are still important aspects to be negotiated in order for the contract to go ahead in a profitable way for Talgo.

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