The recent departure of Sigrid Nikutta as CEO of DB Cargo marked the culmination of a long period of financial problems at the German rail freight operator. The emphasis here is on the word long, because the process that is forcing the company to take difficult measures started over seven years ago. This explainer tells you all about it.
Whereas Deutsche Bahn (DB) has not publicly explained why Nikutta was released from her position, her departure was preceded by heavy criticism of her restructuring plans. DB Cargo was planning to downscale significantly in various business segments in pursuit of a return to profitability. That led trade union EVG, for example, to call for her to be fired from the company.
The question of Nikutta’s responsibility for DB Cargo’s situation aside, the rail freight operator has unquestionably fallen into a rather challenging position throughout the past years.
How it started
The story starts on 19 April 2018. A supposedly Belgian party filed a complaint with the European Commission (EC) on alleged state aid granted to DB Cargo. The identity of the complainant is confidential.
In the following years, an information exchange took place between the complainant and the European Commission and Germany and the Commission. On 31 January 2022, the EC informed Germany that it was starting a formal investigation procedure into the state aid allegations.
The allegations of state aid
The complainant accused DB Cargo of receiving competition distorting state aid through four mechanisms. First is the profit and loss transfer agreement (PLTA) concluded in 2012 between DB Cargo and its state-owned parent company Deutsche Bahn. The agreement obliged DB Cargo to transfer any profits at the end of the year to DB, and it obliged DB to cover any losses made by DB Cargo.
In practice, the European Commission said in 2024, DB Cargo never generated a profit during the years when the PLTA was in force. “As all losses generated have been transferred, DB Cargo has been shielded from having its losses affect its balance sheet, and hence from any negative financial impact of the accumulated losses”, it explained.
Since DB is a fully state-owned company, the complainant argued that it amounted to state aid that gives DB Cargo an unfair advantage over its competitors on the market.
Besides the PLTA, the complainant also argued that the provision of intra-group service at DB amounted to state aid. Those include analytics, accounting, real estate, IT services, personnel services and training that took place at the cost of the group, not the freight operator. The third point concerned alleged advantageous financing conditions of loans provided to DB Cargo by DB Treasury. Those intra-group loans were not collateralised, because DB, as the only shareholder of DB Cargo, operated as both the equity provider and lender. “Consequently, DB Cargo has been able to sign loans without using its assets as collateral”, the EC explained in 2024.
The fourth and last accusation of state aid concerns the partial remuneration of civil-servant staff that is assigned to DB Cargo by the Federal Railway Fund. DB has only paid a part of their costs since the introduction of the system, following Germany’ railway liberalisation reform in 1994.
DB Cargo realises that it needs to change
The European Commission notified Germany of its decision to launch a formal investigation into the matter on 31 January 2022. DB Cargo and Sigrid Nikutta, who joined the company in 2020, must have seen the writing on the wall: a couple of months later, in July 2022, they started working on a restructuring plan to become profitable. Consultancy Roland Berger was hired to help in creating such a plan, and in the following months, it was set in motion.
Germany submitted DB Cargo’s restructuring plan to the European Commission for an assessment for compliance with the Rescue and Restructuring Guidelines. It explained that the transformation plan for the freight operator aimed at creating smaller, more focused and autonomous business units, instead of the previously existing single wagonload, block train and combined transport segments.
The restructuring plan not only envisaged a different structure for DB Cargo. In October 2024, the company took the decision to reduce its workforce by 27% by December 2029 compared to December 2023. That meant that nearly 5,000 people would have to leave the company.
The decision
On 29 November 2024, the European Commission issued a conditional decision on the state aid question. It sided with Germany on issues two, three and four. On the topic of profit and loss sharing, it found that the agreement – most of the time – was a legal financial instrument in line with what a private shareholder would have done, according to the EC. As such, there was no question of illegal state aid.
That changed at the end of 2021. By that point, DB Cargo’s financial performance had deteriorated so much that a private investor would have annulled the PLTA. “In the present case, de facto operating losses in 2021 and projected results for 2022 and thereafter that would have caused a market shareholder to give to DB Cargo notice of termination of the PLTA on 30 September 2021”, argued the Commission.
“In such case and as from that moment, DB Cargo would have almost certainly been condemned to going out of business in the short or medium term, with the predictable increasing depletion of its equity base”, from that moment onwards, the PLTA effectively amounted to illegal state aid.
Germany and the EU strike a deal
The PLTA continued, because the EC only decided towards the end of 2024 that the money transferred to DB Cargo after 2021 amounted to unlawfully granted state aid. Ultimately, Germany and the Commission came to an agreement: the European Commission approved the 1,9 billion euros of state aid granted after 2021, on the condition that DB Cargo would continue implementing its restructuring plan.
Despite initially having been unlawful, the aid was found to be compatible with the EU’s restructuring guidelines, considering that it now aimed at supporting DB Cargo’s transformation.
Germany proposed a number of additional conditions for DB Cargo, on top of the obligation to implement the restructuring plan: the operator would not be allowed to acquire any shares or exceed its domestic volume of 2023 in terms of tonne-kilometres. DB Cargo would also have to sell part of its locomotive fleet and purchase block train services from external parties, among some other measures.
The restructuring period lasts until 31 December 2026, during which period Germany can provide the company with financial aid. DB Cargo is therefore on a strict deadline to improve its financial performance.
Then comes 2025
With another 357 million euro operating loss in 2024, DB Cargo headed into 2025 with a gigantic task in front of it. One of the main loss-making business segments are the single wagonload operations, which consultants reportedly proposed to eliminate altogether. Many in the rail freight industry responded furiously to that idea, because it would cut off many companies from rail transportation services.
Ultimately, DB Cargo’s path to financial success resulted in the departure of former CEO Sigrid Nikutta. Many, including trade union EVG, blamed her for the problems at the freight operator.
The restructuring plan was drawn up under her watch, but the Commission’s decision and Berlin’s additional conditions tied DB Cargo’s hands. The idea is to make the rail freight market fairer and more competitive, but it also locked the German freight operator onto a path without much room for flexibility – only the Commission can approve changes to the key elements of the restructuring plan.