German Railways on the Brink of Collapse: DB's Mounting Debts Threaten Infrastructure Projects

Deutsche Bahn (DB), Germany's national railway company, is facing one of its worst financial crises in decades. Record-breaking debts and the looming threat of halting critical investments have left the future of Germany's railway system hanging by a thread.

According to Reuters, citing internal sources within DB, the company will fall short of its planned 2024 pre-tax earnings and interest payment target of EUR 1 billion. Instead, the profit is expected to reach just EUR 700 million due to persistent issues in long-distance rail services, which could not be offset even by the strong performance of its logistics subsidiary, DB Schenker.

After covering interest payments, Deutsche Bahn’s debt remains at a staggering EUR 33 billion. Under a three-year reorganization plan, the company aims to improve its financial position, projecting profits of EUR 1 billion annually from 2027 onward. However, this projection excludes DB Schenker, which DB sold to the Danish logistics giant DSV this year for EUR 14 billion.

Deutsche Bahn, in existential crisis //t.co/hUAvfL9R2d

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Restructuring, the Sale of DB Schenker, and Government Instability

The proceeds from the sale of DB Schenker will be used strictly to reduce DB's net financial debt, thereby lowering its interest costs. Given the broader economic stagnation or recession in Germany and across Europe, 2025 and 2026 are expected to be DB's worst years in terms of financial performance. Full results of the restructuring are only anticipated by 2027.

Adding to DB's troubles is the political turmoil following the collapse of Germany's government. DB’s subsidiary responsible for rail infrastructure, DB InfraGO, has yet to receive critical funding. The opposition CDU/CSU has tied the release of these funds to a formal motion of no confidence in the government, scheduled for December 16, 2024, which would pave the way for early elections in February 2025.

If Deutsche Bahn does not receive the funding, it may be forced to rely on short-term loans from the capital market, which would significantly increase the costs of its ongoing projects. In the worst-case scenario, this could lead to a halt in railway construction and modernization efforts. However, representatives of all political parties in the Bundestag have so far ruled out this possibility.

Source: RAILTARGET; Reuters