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Friday, December 14, 2007
Burlington Northern Santa Fe - High Speed Trains and North America

France's High Speed Train - The TGV

When Warren Buffett's Berkshire Hathaway Inc. (Symbol: BRKA, BRKB) indicated in an SEC filing in August this year that it had acquired a 15% holding (52.98 million shares) in Burlington Northern Santa Fe railroad company (Symbol: BNI) and that it could increase its holding to 25% of the company, it was a sign of the coming revival of the railway industry.

Throughout North America, there is a market for high quality passenger railway service and investors like Warren Buffett have seen the trend and are taking positions in the industry. Railways are efficient at moving passengers over short to medium distances and markets like San Francisco to Los Angeles, New York to Washington, DC, and Toronto to Montreal will become high speed railway corridors with the highest technology of fast rail transport installed.

In Japan, the first high speed passenger train started service in the month of October 1964 called the Tokaido Shinkansen (built by Kawasaki Heavy Industries) and it hit speeds as high as 200 kph (125 mph) on the Tokyo to Osaka route. In France, the TGV (train á grande vitesse) commenced service in 1981 between Paris and Lyon, and today there are multiple efficient TGV routes covering all of France. The TGV holds the highest wheeled train speed record of 574.8 kph (357 mph) and the manufacturer of it is Alstom (Symbol: ALO Euronext). In France, high-speed rail travel between major French cities is becoming more popular than flying, because the trains arrive directly into the centre of the major cities. You can travel first or second class on the TGV, and there are no boarding delays.

In the United States in California, a State backed High Speed Rail Authority has been working since 1996 to install a high speed railway service between San Francisco and San Diego. A $9.95 billion dollar bond measure is on the ballot for 2008 that needs majority approval in order to commence the project. This will provide low emissions efficient transport at speeds of up to 220 mph up and down the west coast of California.

There could be as much as $75 to $125 billion worth of high-speed train system contracts signed in North America in the next ten years as there are 20 potential urban rail system projects of this type to be built. One other company that will benefit from this is Bombardier (Symbols: BBD-A.TO and BBD-B.TO) as they have the North American rights to the TGV through an agreement with Alstom. There may be more demand for rail projects in the next ten years than there is capability to build them and Bombardier is well positioned for this demand.

Between major North American cities for distances less than 1000 miles (1600 km), much like in Europe, high-speed railway infrastructures will save energy, reduce CO2 emissions, and bring a new level of quality to railway travel. Additionally, the installation of high-speed commuter railways that carry people across major cities within the U.S. and Canada, where currently there are only cars, will provide an energy efficient infrastructure for daily transport of the inhabitants. The key decision making to launch these railway projects really needs to occur now, before rising energy prices cause negative impacts to the functioning of city economies.

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