Deutsche Bahn Ag Business Information, Profile, and History

Company Perspectives:

If you want to experience the true Germany, travelling by rail offers a lot of attractive possibilities. Whether you are on a business trip or on holiday you are connected with nearly every town in Germany and you can reach every region comfortably and quickly.

History of Deutsche Bahn Ag

Headquartered in Berlin, Deutsche Bahn AG (DB) is Germany's state-owned railway company. DB operates passenger and freight transport services, carrying some 1.7 billion passengers and hauling some 300 million tons of freight a year within Germany and to other countries. The company operates five business divisions: the passenger transport division consists of DB Regio AG, which operates commuter trains in Germany's urban centers, and DB Reise & Touristik AG, which manages mid-and long distance passenger transport and the company's tourism business; DB Cargo AG, the company's division for freight transport; DB Station & Service AG, which maintains the company's 5,794 train stations and related services; DB Netz AG, which is responsible for DB's 36,588 kilometers of railroad tracks; and DB Immobilien GmbH, which oversees the company's real estate. In addition, DB is involved in numerous other activities, including catering services on trains through its MITROPA subsidiary; local bus service in the western part of Germany; trucking, bridge, and tunnel construction; and power generation and advertising. DB also has a 18 percent stake in the phone company it uses, Mannesmann Arcor AG & Co, which ranks second in Germany's telecommunication market.

United in 1920 and Split Up in 1945

The history of Germany's railway is closely connected with the history of the country. As a part of the strengthening of central government during the Weimar Republic, the railways of the different German states were centralized in 1920 under the umbrella of Deutsche Reichsbahn, which in 1924 became Deutsche Reichsbahn-Gesellschaft. The Reichsbahn emerged as Germany's single largest employer. Including pensioners and the employees' families, some three million people belonged to the "Reichsbahn-family"--about five percent of the population. Reichsbahn was not merely their employer, it was their way of life. They lived in Reichsbahn-owned neighborhoods and joined Reichsbahn's many leisure clubs.

During the Nazi administration and throughout World War II, the Reichsbahn submitted to the government's criminal plans and had a crucial function in transporting Jews bound for death in the concentration camps, soldiers and war supplies to the front, and slave laborers and prisoners of war back to the homeland. In 1945, after the war had ended, Germany was divided into four occupied zones, each with an independent railroad network. The railroad company in the zone occupied by Soviet troops, which in 1949 became the German Democratic Republic (GDR), took over the old name Deutsche Reichsbahn. Beginning October 1, 1946, the Reichsbahn railroad lines in the American and British zones were placed under the control of a common central administration, based in Bielefeld. By September 7, 1949, the name Deutsche Reichsbahn was changed in the American and British occupied zones to Deutsche Bundesbahn (DB). In January 1951, the railroad in the French occupied zone was merged with DB. The formal merger of the DB took place when the Federal Railroad Act came into effect on December 18, 1951. The integration of the railroads of the Saar began in 1957 and was concluded in 1959 when the Saarland joined the Federal Republic of Germany.

Because of war damage, DB and Deutsche Reichsbahn began operating under extremely adverse conditions. Not only had buildings, permanent ways--tracks, points, bridges, and signal boxes--and fleets suffered badly during the war. As had happened at the end of World War I, the railway assets were used as reparation payments and numerous railroad tracks and other installations were dismantled, especially by the Soviets. DB had to carry out repairs and reconstruction predominantly by itself and had to bear the costs of paying maintenance and interim payments--grants to cover refugees' losses and help them to resettle--to railway workers expelled from central and eastern Germany and to their surviving dependants, as well as to those entitled to war maintenance. These and similar non-operating overheads were later transferred to the state budget. Furthermore, the alignment of the network, which before the war had run predominantly in an east to west direction, no longer corresponded to the traffic flows and now ran mainly in a north to south direction. The realignment of the network through building new stretches of track required much time and expenditure.

Struggling Against Competition

When the railroad first emerged in the 19th century, it had no competition and soon dominated cross-country transportation. However, especially after World War II, the automobile evolved as the new preferred means of transport for passengers as well as for freight. In the GDR, Deutsche Reichsbahn was granted a quasi- monopoly by the state, and freight transport on the road was limited and regulated by the government. In West Germany the picture was somewhat different. Beginning in 1950, largely owing to the increasing popularity of road transport, but also due to the declining significance of the coal and steel industry, DB's relative importance in the transport markets began to lessen. The company's market share of freight transport declined from over 60 percent in 1950 to about 40 percent in 1970 and 29 percent in 1990. In passenger business, DB had 6 percent of the total riders in 1990 as compared with 36 percent in 1950. In passenger transport, the motor car dominated the market with a market share of around 82 percent.

The evolution of new freight structures had an adverse effect upon the railroads as changes in Germany's industrial structure led to a dramatic increase in the proportion of goods better suited to road transport. The West German government accelerated this development with policies that favored roads over the rails. Between 1960 and 1992, DM 450 billion from the federal budget fueled freeway construction, but a mere 12.5 percent of that sum was channeled into the railroad network. In the 1950s and 1960s, DB's volume of freight carried grew considerably, from 203.2 million tons in 1950 to a historic peak of 351.8 million tons in 1974. From then on, the amount of freight transported declined. By 1990, freight volume totaled 275.1 million tons. The picture was somewhat different for passenger transport. While the number of rail passengers, including those using the suburban lines, dramatically diminished, and while there was a downward trend in the number of rail passengers from the 1960s, passenger train services operated, including suburban lines, rose from 30.2 billion passenger-kilometers in 1950 to 38.5 billion in 1970, reaching 43.6 billion in 1990. The number of passengers rose from 1.28 billion in 1950 to a high of 1.47 billion in 1957, but since then tended to decline. In 1990, 1.04 billion people traveled by rail. However, riders on the state-subsidized S-Bahn rapid transit suburban services in and around densely-populated regions quintupled between the early 1970s and 1990.

DB tried in many ways to make its services more attractive in order to withstand competition from road transport. One of the most significant investments to enhance the competitiveness of the railroads was the increased electrification of the network. In 1950, it was envisaged that the electrified lines taken over from the Deutsche Reichsbahn be extended by 4,500 kilometers to a total of 6,000 kilometers. By the mid-1980s, this target projection was exceeded. The electrified network comprised around 11,700 kilometers in 1990. By then, more than four-fifths of DB's transport services operated on the electrified lines, which made up around 40 percent of the total network. Diesel trains ran on the non-electrified lines, while steam locomotives ceased to operate in spring 1977.

Apart from a few smaller stretches of new line, DB's major new construction program began as late as August 1973 with the commencement of work on the new line between Hanover and Würzburg. This line, along with the link between Mannheim and Stuttgart, were to replace the winding and heavily-used stretches through the mountain ranges of central western Germany. Work was delayed due to protracted planning and approval procedures and numerous legal proceedings. The two lines did not go into full service until the beginning of June 1991. The new Hanover-Würzburg line permitted the operation of freight traffic at maximum speeds of up to 160 kilometers per hour and InterCargoExpress services were able to cover the Hamburg to Munich corridor on night runs. The first closure of certain branch lines occurred at the end of the 1950s, but the network was not greatly reduced over the next 50 years.

Beginning in the 1970s, DB concentrated on speed and regularity of long-distance services. The Intercity (IC) system linked densely-populated areas with high rider volumes. IC trains began operation in winter 1971-72 on four lines, with trains leaving at two-hour intervals. In 1979, the interval for IC services was reduced to one hour, and in 1985 a further line was added. In freight business, too, DB reoriented its services to concentrate increasingly on the transporting of goods between industrial centers, where the high volume of traffic permitted the use of through trains. DB also reduced the number of part-load stations--terminals where freight trains carrying less than full loads are handled; reorganized the marshaling--or shunting--system, and in 1984 established the InterCargo overnight service. Since then, the eleven most important industrial centers in Germany have been connected by overnight services. For regional freight distribution, DB used trucks, of which it had between 3,000 to 4,000 under contract.

DB's involvement in inter-modal transport also helped to improve local collection and delivery services. The technology of piggyback transport and container transport, where only the transport vessel is changed, superseded the Culemeyer Strassenroller (wagon-carrying road trailer), the so-called private siding, a line leading off a main line to an industrial plant for collection and deliveries of freight. The container business was operated by DB's subsidiary Transfracht Deutsche Transportgesellschaft, founded in 1969. Despite the considerable growth rate in the volumes carried by inter-modal services, in 1989 piggyback and container traffic represented only around 8 percent of DB's total rail freight business.

Struggling Against Debt

DB had experienced financial difficulties since its foundation. In parallel with its decreasing economic importance and declining market shares, the company's revenues fell. Since its incorporation, DB made a profit only once, in 1951, and with the exception of 1955, the company's losses increased year by year. In 1960, the deficit stood at DM 13.5 million. By 1965, however, it had exceeded DM 1 billion. The company had received financial resources from the West German federal government since the beginning of the 1950s. According to the federal minister for transport, grants allocated to the DB between 1952 and 1960 amounted to DM 5.9 billion. In 1965, DB received equalization payments from the state of more than DM 1 billion. From the beginning of the 1960s, financial aid from the federal government was increasingly determined by both national and European Community (EC) legislation. This included equalization payments for the public sector, in particular to cover losses due to the imposition of cheap fares for commuter and school traffic, and equalization payments to offset losses due to the disadvantages suffered by DB in the competitive field--in particular, the enormous increases in social security payments, as DB ran its own superannuation scheme, as well as government ownership obligations such as interest payments and repayments for loans taken on by DB.

DB's deficits and the state's subsidies added up to almost DM 14 billion annually. It was not surprising, therefore, that DB came to be described as a drain on the budget. In 1974, Hans-Otto Lenel wrote in volume 25 of the ORDO-Jahrbuch that "the Deutsche Bundesbahn has been one of the biggest headaches in transport policy for more than one and a half decades." This statement has lost none of its relevance.

From the beginning of the 1980s, DB's statement of accounts made a distinction between the commercial sector, the public sector, and the state-financed sector. The commercial sector included particularly long-distance passenger and freight services. The public sector, subsidized by the government, included those services operated by DB which were unprofitable to run but had to be provided in the interest of the general public. This sector included short-distance passenger services. The state-financed sector included the provision of infrastructure.

An inheritance from its early history, DB's main financial challenge was its excessive personnel--not only the company's sheer number of workers, but the fact that many of them were civil servants who could not be laid off and who were eligible for high retirement benefits. To bring about DB's financial recovery, the company focused on the reduction of its workforce, which had reached a historic peak in 1948 at 602,000. Soon afterward, strategies to eliminate redundancy decreased DB's average annual work force to 530,000 in 1950, after which the number of employees diminished further. Until 1969, the number of employees fell to 398,000. The beginning of the 1980s brought an accelerated reduction in staff to 246,000 by the end of 1990. Expenditure on personnel represented around 70 percent of DB's total outlay. On the other hand, the railway had a chance to compete with road and air-based transport only if it invested considerably in its infrastructure, which was financed by loans. The interest payments on DB's huge debt consumed 15 to 18 percent of its revenues. As a result, the railway's debt more than tripled between 1970 and 1990.

DB's Struggle for Independence until 1990

Since 1920, the German railway had traditionally been a state-owned institution--a government agency and at the same time an economic enterprise. Thus, its ability to compete on equal terms with other carriers and its adjustment to economic developments and changes in structure were considerably restricted. The 1951 Federal Railroad Act stipulated that DB was to carry out its public service duties within the framework of a commercially run company. In general, the duties of operation, transportation, and fares were included under the generic term of public services. DB was obliged to provide rail transport, even on unprofitable sections of its network. The closure of lines required formal procedures in which various political bodies were involved. DB was also obliged to adjust its capacities to take account of transport demand at peak times. DB's fares were set by the minister for transport until the 1961 amendment of the transport laws--the so-called minor transport policy reform--gave DB greater freedom to set prices. However, fare changes still required the approval of the minister for transport. Until this change in the law, DB's freight rates had to be in line with those for long-distance road haulage and inland shipping. DB's freight rates were governed by the Reichskraftwagentarif, from 1989 known as the long-distance road haulage tariff, which hindered DB's competitiveness in the road haulage market.

The deterioration in DB's financial situation could not be prevented even by various plans for reform and restructuring. As early as 1958, the DB board of directors requested that DB be given more leeway to adapt to commercial market requirements. Prerequisites for this were equality in conditions after reform and restructuring in the transport field and the relaxation of the legal and financial relations between the state and the federal railroad. In 1960, the Brand Commission, established by the government to examine the state of affairs at DB, advocated a stronger commercial orientation in the field of transport; the discontinuation of the policy whereby only civil servants could be board members, managers of the business divisions at the DB headquarters, or presidents of the regional headquarters; and clarification of the financial relations between the railroad and the state.

In 1967, the government put forward the Leber Plan, its transport program for 1968 to 1972 which gave special attention to road haulage, planned line closures, and managed reductions in staffing. In 1969, the advisory committee to the minister for transport proposed that financial responsibility for the public service sector be imposed on the regional administrations requiring the provision of DB services. In the 1970s, the minister for transport set various objectives, the government commissioned projects, and the DB board put forward its conception for an optimum commercial network. These plans envisaged, amongst other things, the closure of lines leading to a halving of the network, DB's concentration on long-distance traffic, and staff reductions. In 1983, the government agreed to the guidelines presented by the minister for transport for DB's consolidation, according to which increases in productivity, investments, the closure of lines, and reductions in personnel were to lead to a 40 percent reduction in overall expenditure by 1990. In addition, a ceiling was set on government grants which were already authorized and running.

Beginning in the 1980s, managers from the private sector could be appointed to DB's board. Despite all these measures, government policy still did not allow DB the necessary freedom of action. As a result, DB's commitments toward public service duties were dominant until the end of the 1980s. Altogether there were no less than 16 initiatives for railway reform between 1949 and 1990, none of which was able to yield the desired results.

Reunited in 1994--the New Railway Reform

Two German railways co-existed for some 50 years--and started cooperating when tensions between the two governments relaxed somewhat in the 1980s--until the unexpected fall of the Berlin Wall in November 1989 gave way to the re-unification of the two German states. The treaty for the reunification of Germany included the takeover of the Deutsche Reichsbahn (DR) by the federal government and called for the ultimate technical and organizational merging of the two railways. In February 1993, the German government enacted new legislation which became known as the Bahnreform, and in December of the same year the necessary changes in the Grundgesetz, Germany's constitution, passed the governing bodies. In 1994, Deutsche Bundesbahn and Deutsche Reichsbahn were merged to Deutsche Bahn AG (DB) which was again owned solely by the state. The new entity got a fresh start, since the federal government took over DM 67 billion in debt and pledged to reimburse DB for the investments necessary to upgrade the former East German railroad to the Western standard. In addition, DB's public service obligations, in particular the obligation to provide affordable regional passenger transport, were transferred to the German states. A new agency, the Eisenbahnbundesamt (EBA) was established to oversee all railway activities. DB was first split into five subdivisions and later organized into five business divisions.

However, the railway's problems did not disappear. Although its workforce was reduced by about one third, DB still had 203,615 employees on its payroll in 2000, and roughly a quarter of them were civil servants. Eastern European trucking companies which charged significantly less than established firms intensified competition in the freight transport market, and some of DB's biggest clients, such as the Post Office and large automakers, started moving their freight transports to the road. Half of all bridges in the railroad network were more than 75 years old, and two-thirds of the tunnels were over 100 years old. Between 1994 and 1998, DB invested DM 72 billion but was criticized for channeling much of the money into prestigious projects favored by politicians, instead of securing and improving the functioning of the existing infrastructure.

Throughout the 1990s, DB's chairmen demanded more entrepreneurial freedom--and wore themselves out in the task. Heinz Dürr, chairman of DB's board since 1991 and a driving force behind the new railway reform, was succeeded by a former civil servant at the Chancellor's Office, Johannes Ludewig, in 1997. By then, DB was again heavily in debt. In June 1998, the worst catastrophe in DB's history happened when a defective wheel caused an ICE to crash into a bridge at high speed near the German town of Eschede, killing 101 passengers. Besides the serious damage of DB's image, insiders estimated the long-term cost of the accident in the hundreds of millions. Ludewig was replaced by Hartmut Mehdorn, a manager from the private sector, in December 1999.

In the second half of the 1990s, new guidelines from the European Union required that railroads be independent of the state, that their infrastructure and use be separated, and that the use of the railroad tracks be made available to outside companies. While German politics seemed to go along with these guidelines, DB's management stressed the importance of an integrated railway system under its control. In 2000, DB's top management was united under one roof in the new "Bahn Tower" headquarters in Berlin. In that year, passenger transport accounted for roughly 70 percent of DB's revenues while freight transport contributed one quarter of the total. The new CEO described the state of affairs in the company's 2000 Annual Report: "The situation assessment showed that--at halftime of the rail reform program--we still have tremendous deficits to overcome in infrastructure, our rolling stock, and our railway stations. It also showed us that the most difficult years of rail reform and restructuring are still to come." When he presented new prognoses of potential losses in the billions, it became clear that the initially planned IPO was not realistic. The German government initiated a "future of the rail" task force in December 2000, and management consultants from Arthur Andersen started to investigate DB's balance sheets for past sins. In early 2002, the establishment of an additional government agency to ensure fair competition on Germany's railroads was still pending.

Principal Subsidiaries: DB Regio AG; DB Cargo AG; DB Netz AG; DB Reise & Touristik AG; DB Station & Service AG; DB Energie GmbH; S-Bahn Berlin GmbH; DB Anlagen und Haus Service GmbH; Deutsche Gleis- und Tiefbau GmbH; Deutsche Eisenbahn-Reklame GmbH; Deutsche Bahn Immobiliengesellschaft mbH.

Principal Competitors: Société Nationale des Chemins de Fer Français; Preussag AG; Vivendi Environnement SA.

Chronology

• Key Dates:
• 1920: Deutsche Reichsbahn is founded.
• 1924: The company becomes Deutsche Reichsbahn-Gesellschaft.
• 1937: Deutsche Reichsbahn-Gesellschaft is dissolved by the Nazis.
• 1949: The Deutsche Bundesbahn is founded in West Germany.
• 1990: The treaty for the reunification of Germany calls for the technical and organizational merging of the two railways.
• 1994: Deutsche Bundesbahn and Deutsche Reichsbahn are merged to Deutsche Bahn AG.
• 2000: The German government initiates a "future of the rail" task force.