Eurotunnel PLC

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Eurotunnel PLC

Victoria Plaza
Buckingham Palace Road
London SW1W OST
United Kingdom
(71) 8347575
Fax: (71) 8215242

Public Company
Incorporated: 1985 as Eurotunnel Ltd.
Employees: 1,300
Sales: $7.36 billion
Stock Exchanges: London
SICs: 1622 Bridge, Tunnel, & Elevated Highway Construction; 4011 Railroads, Line-Haul Operating; 4013 Switching and Terminal Services; 4789 Transportation Services Not Elsewhere Classified

Eurotunnel PLC, through its Eurotunnel subsidiaries, was established to design, finance, construct, and operate a 31-mile tunnel that links France and England beneath the English Channel. The tunnel, or chunnel, was completed in 1993 and opened to passenger traffic in 1994. Although the ambitious tunnel project was beset from the start with cost overruns, construction problems, and delays, the finished product stands as an impressive monument to mankinds technological and engineering prowess.

On June 20, 1993, the first passenger train traveled through the tunnel beneath the English Channel, marking the completion of the largest private engineering project in history. The 31-mile tunnel, 23.5 miles of which is under 150 feet of water, linked for the first time the countries of England and France. The completed tunnel was the culmination of seven years of business problems, controversial political disputes, and engineering setbacks. For example, many U.K. citizens resented the fact that England would no longer be an island. Further, investors and contractors argued about who would pay for the major cost overruns even as the chunnel opened for business. Nevertheless, many Eurotunnel employees, contractors, and associates involved in building and financing the tunnel looked back on the project as the achievement of a lifetime.

While Eurotunnel was incorporated in 1985 for the purpose of building a fixed link between England and France, the concept of bridging the English channel was an old one. In 1751, for example, the Amiens Academy in France conducted a competition which awarded participants for offering innovative ways to cross the English Channel. Since that time, engineers and politicians presented numerous alternatives to the traditional ferry system, but none of the ideas ever progressed to the construction phase due to enormous financial and complicated engineering hurdles. One ambitious construction program actually advanced to the tunneling stage in 1974, but the initiative was abandoned soon after it had begun.

Despite the failure of this construction program, support for the idea continued to mount. In 1978, a group of British and French contractors revisited the 1974 effort to see where the project had failed. Further, in September of 1981 English Prime Minister Margaret Thatcher and French President Mitterand announced that they would join forces to finance new studies for a fixed link across the English Channel. Subsequently, a consortium of five French and five British contractors, along with five banks, proposed a scheme to finance and construct a tunnel connecting Paris and London. That group, which was initially headed by former diplomat Sir Nicholas Henderson, was the start of Eurotunnel. The French contractors involved in the project included Bouygues SA, Dumes SA, Societe, Auxiliaire dEntrepreses SA, Societe Genérale dEntrepreses, and Spie Batignolles SA. The English contractors included Balfour Beatty Construction Ltd., Costain Civil Engineering Ltd., Tarmac Construction Ltd., Taylor Woodrow Construction Ltd., and Wimpey International Ltd.

While the original Channel Tunnel Group, as it called itself, was not the only consortium interested in building the tunnel across the English Channel, they were perhaps the most organized. Because the consortium comprised an experienced team of contractors and financiers, such as National Westminister Bank, they easily won the contract when the French and British governments invited groups to bid on the massive project in April 1985. The Channel Tunnel Group was selected to head the project the following January; in addition, the two governments signed an agreement that authorized the company to operate the tunnel for 55 years. After the Channel Tunnel Group was awarded the project, the contractors joined to form Trans-manche-Link (TML), the company that would actually build the tunnel. Likewise, the group that would oversee the completion and operation of the chunnel formed Eurotunnel PLC, which became a public company in July of 1986. Lord Pennock served as chairman of Eurotunnel until February of 1987, when Alastair Morton assumed control of the consortium.

The chief purpose of separating the construction from the management aspects of the chunnel project was to restrict the contractors access to the banks financial resources, forming a sort of checks and balances arrangement designed to avoid conflicts of interest. Unfortunately, this effort was less than successful. Before the arrangement was finalized, all members agreed on the terms of a contract which effectively allowed TMLwhich constituted the contractorsto circumvent the restrictions imposed by its financiers. Further, the agreement failed to provide Eurotunnelwhich was supposed to oversee the operationsrepresentation by independent management. In the files of the French Treasury is a memorandum that argues with passion ... that in no circumstances should the contract for the construction ... be signed while the contractors were still majority shareholders and Eurotunnel did not have independent management, Morton explained in the May 2, 1994, Engineering News Record. But it did happen, and there was trouble ever after that.

One of the high points of the chunnel project came in July 1987, when England and France signed an historic treaty approving the connection between the two countries. Despite this diplomatic triumph, Eurotunnel lacked the cash necessary to fund the massive US $7-billion-plus project. In fact, the group of financiers involved in the project had only raised about US $500 million in 1986 and they had planned to make a second public stock offering in November of 1987. To their dismay, the U.S. stock market crashed in October of that year; nevertheless, they went ahead with the offering. In what one Eurotunnel executive called a miracle, the project collected more than 100,000 shareholders almost overnight and boosted Eurotunnels coffers by about US $1.5 billion.

Once the investment capital had been secured, TML began boring the tunnel from an existing service tunnel in the United Kingdom. About three months later a French tunnel-boring machine began grinding its way toward England. The concept was to bore a 31-mile link 150 feet below the English Channel that consisted of three tunnelstwo rail tunnels and a smaller service tunnel. When completed, passenger shuttles and trains would be able to travel through the tunnels at speeds of 90 miles per hour and higher. Instead of boarding a ferry for a one-and-one-half-hour ride across the channel, passengers could make the trip in about 30 minutes. The project would offer new opportunities to commuters living in either England or France. For example, a sales representative in Britain could also cover a territory in France. Similarly, a resident of Calais, where the tunnel emerges in France, could go to dinner and a movie in London and return home by late evening. Further, freight carriers, including over-the-road trucking companies, could benefit from the underwater tunnel.

Despite all of these high hopes for the completed project, fundamental construction problems arose early. As a result, tunneling fell behind schedule, particularly from the United Kingdoms end, and bitter disputes over money and project control erupted between several different parties. Most early differences were eventually smoothed out through renegotiation of contract payments and management changes. In May of 1989, American Jack Lemley was hired as the chief executive of TML. When he arrived in Europe, he was surprised to find virtually independent construction teams operating on each side of the channel. Under his direction, TML gradually unified its contractors on either side of the English Channel, reduced several unnecessary project costs, and reaffirmed their plan to meet the original construction schedule. Despite these significant gains in management, setbacks continued to plague Eurotunnel throughout the construction phase.

A particularly disastrous setback involved the complications caused by a 5.4-meter-wide tunnel boring machine striking bad ground, in spite of the fact that decades of soil studies found the area stable. The state-of-the-art, computer-controlled machine, which was specially designed for the tunnel project, was only capable of boring through compact chalk. The bad patch of ground into which it drilled caused moisture to seep into the machines electrical systems and devastated its specialized concrete lining system. Eurotunnel was forced to invest heavily to compensate for the mishap, and this and other setbacks contributed to another major dispute regarding the method of payment that Eurotunnel had agreed to use to compensate TML contractors who fixed equipment. The end result was a US $2.5 billion lawsuit filed by TML against Eurotunnel and a lengthy court battle that raged through most of the construction phase in the late 1980s and early 1990s.

In addition to disputes with its sister company, Eurotunnel was also burdened by frustrating intervention from government agencies. Leading the bureaucratic assault was the Intergovernmental Commission (IGC), an oversight body focusing on safety requirements made up of civil servants from both France and the United Kingdom. In one instance, early in the project TML had asked for the IGCs approval to install standard 600-millimeter doors in the passenger car trains. The request became mired in red tape at the IGC, so TML went ahead and ordered the doors in an effort to keep up with its construction schedule. After the doors had been built, the IGC decided to mandate 700-millimeter doors. This changed caused a nearly nine-month delay in the project and cost Eurotunnel a staggering US $70 million to rectify. Similarly, although the chunnel was designed using seismic criteria used for nuclear power plants, the IGC decided midway through construction process to increase the relevant design factor fourfold. Furthermore, the IGC decided in the final stages of the project to require the installation of an advanced electronic anti-terrorist system.

Such poorly executed mandates contributed to huge cost overruns and construction delays on the tunnel project. Whereas in 1988 Eurotunnel had set a target opening date of May 1993, one year later the completion date was pushed back to June. By February 1992, TML, mired in uncontrollable delays, abandoned the May projection altogether. Later that year, TML estimated that the tunnel would be in operation by December, although that date was eventually postponed as well. As bureaucratic and engineering setbacks proliferated, the relationship between TML and Eurotunnel became more strained. For its part, Eurotunnel was in a double bind because it was trying to facilitate cooperation between a demanding consortium of contractors at TML on one side and a powerful group of financiers on the other, while at the same time struggling to overcome bureaucratic hurdles. Suspicion and mistrust gradually permeated the entire business relationship, to the point that Eurotunnel unsuccessfully sought an injunction to stop TMLs work on the tunnel.

In Mortons estimation, much, of the problem stemmed from TMLs heavy influence that it had negotiated in the original agreement with Eurotunnel. [Eurotunnel] had to wrest control of the project from the contractor [TML] ... without intervening in its responsibility ... for the design-build commission and guarantee, Morton recalled in the May 2, 1994, Engineering News Record. The continuous dilemma of what exactly was the contractors position [relating to] the client ... and what exactly was both the capability and responsibility of the client has been the drama of the tunnel. While Eurotunnel took exception to TMLs grab for power, TML executives blamed construction difficulties in part on Eurotunnels inexperience in overseeing large construction projects. Despite these internal disputes, Eurotunnel and TML rose to the challenge of finding the money to pay for cost overruns and completing the tunnel on a reasonable time table.

Indeed, as construction costs escalated, Eurotunnel scrambled to amass the worlds largest syndicate of investors and financial institutions, which included 220 banks throughout the world. Using virtually no public funds, Eurotunnel had raised US $13.5 billion in capital by 1994 and was working to secure at least another US $1.5 billion. Meanwhile, TML shifted into high gear during the early 1990s in an effort to overcome bureaucratic and engineering hurdles and meet its ambitious construction schedule. TML eventually broke tunnel-boring speed records, advancing more than 1,400 feet in just one week. TML and Eurotunnel celebrated the official breakthrough of the service tunnel on December 1, 1990. The historic event French and English workmen punching through a rock wall to join hands below the English Channelwas televised throughout the world. The celebration was repeated in May of 1991 when the north tunnel was completed, and again in June when the south shafts were joined.

TML and Eurotunnel spent 1992 and 1993 getting the tunnels and related amenities finished. That effort entailed, among other activities, installing electrical and communications equipment, finishing 150 cross passages between the service and rail tunnels, and constructing terminals on each side of the channel. The first passenger train traveled through the tunnel in May of 1993, and the official opening was slated for May 6, 1994. As TML put the finishing touches on the chunnel and Eurotunnel scrambled to raise more funds, the two groups nevertheless continued to battle each other in the courts. Initially, TML was hesitant to give up full control of the chunnel to its sister company, but after a series of negotiations involving TML, Eurotunnel, and major investors, an agreement to transfer control from TML to Eurotunnel was reached. Eurotunnel took full control of the project beginning late in 1993 and conducted final tests on the system with the help of TML in 1994. Overall, the project had taken 99 months from start to finish, 15,000 workers were involved, and 11 giant tunnel boring machines were used.

The chunnel was officially inaugurated on May 8, 1994. It soon began providing limited passenger service and was almost fully operational after several months. The system was designed to accommodate 2,500-foot-long shuttle trains that traveled at 90 miles per hour. Cars and buses pulled onto large wagons on the train, and passengers were allowed to move about on the wagons during the ride through the chunnel. Truck drivers pulled their rigs onto more rudimentary wagons and traveled separately from their vehicles. Interspersed with those shuttles, moreover, were high-speed trains that could also run on Britains and continental Europes railway systems. The train system lived up to its promise of moving passengers between London and Paris in three hours, and between the continents in about 35 minutes. Partly because of cost overruns, Eurotunnel began charging rates of US $240 to US $460 per passenger, depending on the time of year, for a round trip. That compared to about US $90 for a one-and-one-half-hour ferry trip.

When the chunnel opened in 1994, critics condemned Eurotunnel and the other parties involved in the project for creating an expensive, undesirable, and unnecessary transport system. The project was indeed expensive; originally expected to cost US $7.5 billion, expenditures had mushroomed to US $15 billion by 1994 and then to a staggering US $23 billion by early 1995. Eurotunnel was left grappling with a cash crunch, and angry creditors began pressuring the company to pay its bills. Fortunately for Eurotunnel, by 1995 the chunnel was beginning to live up to its originators claims of being a viable system of transportation. In fact, by February of that year the chunnel had snapped up an impressive 20 to 25 percent of the cross-channel freight market. Furthermore, the service was competing aggressively with airlines serving the London/Paris and London/Belgium routes. Although the chunnels profit potential remained unproven going into the mid-1990s, its status as an engineering marvel of the 20th century was undeniable.

Principal Subsidiaries

The Channel Tunnel Group Ltd.; Eurotunnel Finance Ltd.; Eurotunnel Developments Ltd.; Eurotunnel Services Ltd.

Further Reading

The Channel Battle, Corporate Location, Channel Tunnel Region Supplement, 1994, pp. 25-31.

The Chunnels Chances, Fortune, December 21, 1987, p. 9.

Davidson, Andrew, Sir Alastair Morton, Management Today, October 1994, pp. 50-54.

Downer, Stephen, So Far, Eurotunnel a Ferry Good Thing, Advertising Age, May 2, 1994, p. 39.

EDMS Helps Channel Chunnel Project, IMC Journal, November/ December 1994, pp. 8-11.

Fairweather, Virginia, The Channel Tunnel: Larger than Life, and Late, Civil Engineering, May 1994, pp. 42-46.

Ferrabee, James, Confident Chunnel Man, Gazette, February 8, 1995, p. D7.

Healy, Tim, Kent Firm Sees Light at End of Tunnel, Seattle Times, October 31, 1990, p. 1D.

Laushway, Ester, Paris: Chunnel Vision, Europe: Magazine of the European Community, May 1994, pp. 43-45.

Levine, Joshua, Chunnel Vision, Forbes, February 14, 1990, p. 146.

Lincoln, Lori, Chunnel to Open in Late Summer 93: Tunnel Rail Service Will Link Britain, Continent, Travel Weekly, April 9, 1992, p. E3.

Nankivell, Neville, Channel Tunnel Facing Contract Dateline, Financial Post, March 27, 1993, p. 18.

Reina, Peter, After 99 Months Work Channel Tunnel Prepares for Trains, Engineering News Record, May 2, 1994, pp. 22-26.

Stewart, Toy, Luxury, Calm, and Speed: Its the Chunnel Train, Business Week, November 14, 1994, p. 143.

Dave Mote