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Hunter and I talked to Antonio and Nora at Talgo yesterday and it was well timed after Hunter's lunch with Stephen Gardner at Amtrak who was able to give Hunter some good .

The short of it is they want to hire us at $15K a month for a year. If after a year, we are both happy with the relationship and are able to position them to compete in the U.S. market, we can discuss an expanded "success" and "partnership" related relationship.

They have two main issues. 1) The 100% Buy American provisions of ARRA which would not allow their trains assembled in WI to be eligible for purchase for HSR projects. Their trains are 60% American. We believe that the FRA will ultimately rule that the 100% buy American provisions will be on a graduated scale - starting now at the 60% for Talgo and allowing companies 10 years to get to 100%. We need to help Talgo position themselves and develop a strategy for them to make sure this graduated "compromise" is implemented by FRA. We made it clear we won't be lobbying at all though. We can talk to Amtrak, labor unions, and others as part of the process though and gather intelligence. 2) They need to work to get to a place where they comply with PRIIA Sec. 305 which in essence mandates interoperability and "interserviceability" of HSR trains in the U.S. Similar to Europe. This is really the most important thing to Talgo's prospects in the U.S. - more important than #1, although they believe #1 is more important than #2.

We think the prospects of being successful on #1 are pretty good assuming we can manage Talgo and not allow them to get too far off the reservation. If so, Talgo will be better positioned than most foreign train manufacturers to compete for HSR contracts as they already have the U.S. facility, have already sold to Amtrak and are a known quantity. From our information gathering, the other manufacturers either already have a stable of high-priced consultants/equity partners or stand very little chance of competing and winning contracts down the road. Talgo offers us money on the table now with the chance of being successful down the road and being their only partner in this effort should we mutually decide to move forward in more of a partnership type arrangement after the year-long contract is over.

As we have all discussed will take a lot of work to manage the client relationship and while we emphasized that there is a larger team beyond Hunter, in reality if we are only focusing on the two issues above, the work for the larger team will be minimal in this first year of the relationship.

Given all of the above, we think we should accept their proposal.

We should get back to them fairly quickly, so let us know your thoughts.

Best,

Eric


Eric D. Schwerin
Rosemont Seneca Partners, LLC
1010 Wisconsin Ave., NW
Suite 705
Washington, DC 20007
(202) 333-1880
eschwerin@rosemontseneca.com
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