ALO Alstom

PARIS—Alstom SA has entered talks with the French government over how to boost the train maker's domestic market after the firm announced plans to shutter production of locomotives at a historic plant.

The move places Alstom in the driver's seat as it presses the government to revive domestic demand for the train maker and limit competition from rivals in neighboring Germany and beyond. In coming to the table, Alstom said Tuesday it had made no promises to keep the plant operating.

"No decision will be made before (the talks) are finished," the company said.

Last week Alstom sent shivers through France's political establishment—just as the 2017 presidential campaigns are getting underway—by saying domestic demand was too weak to sustain its plant in Belfort, a French town near the border of Germany and Switzerland that produced many of the country's first iconic high-speed trains. Under the closure plan, Alstom intends to stop producing trains at Belfort by 2018 and transfer the activities to another site located in Reichshoffen, 200 kilometers north. Alstom said the current level of orders for locomotives for freight and high-speed trains made in Belfort doesn't justify keeping the factory open.

On Tuesday, Alstom CEO Henri Poupart-Lafarge reiterated the point in a letter to employees.

"We kept production in Belfort for as long as we could and for as long as we hoped the activity loss was only temporary," Mr. Poupart-Lafarge wrote. "Despite everybody's efforts it seems now it is impossible to ensure future for the activities of the Belfort site."

Prime Minister Manuel Valls rushed to contain the political fallout, saying his government was working hard to find new orders for Alstom's Belfort factory in France and in Italy.

The government will have to tread carefully in helping Alstom as the European Commission prohibits direct or indirect state aid to private companies.

The sprawling Belfort industrial site near the German and Swiss borders has been regularly threatened by closure, making it a battleground for politicians hoping to show they have a solution to France's industrial decline.

This week President Francois Hollande publicly reminded the company of the role his government had played in drumming up sales for the firm in foreign markets, demanding the train-maker retrench at home. He said Belfort should remain a hub for train-making and keep its 470 workers employed.

Several of Mr. Hollande's rivals for reelection in 2017 have built reputations as protectors of Alstom and the Belfort site, which became a home for French train makers fleeing the Alsace-Lorraine territory when it was annexed by Germany in 1871.

They include former economy minister Arnaud Montebourg, a left-wing Socialist who led a high-profile battle in 2014 against General Electric's ultimately successful bid for Alstom's power-turbine activities. The French government still holds 20% of voting rights in Alstom as part of the takeover deal.

Emmanuel Macron—Mr. Montebourg's replacement who resigned last month to prepare his own run for president—last year visited Belfort to pledge the government was striving to save jobs there. And former President Nicolas Sarkozy, a conservative who is also in the running in 2017, was finance minister when the government rescued the company.

Two months ago, the French state-owned train operator SNCF picked an Alstom rival, Germany-based Vossloh, to fill a EUR140 million ($157 million) order for 44 freight locomotives starting in 2018. Alstom was counting on getting that order to keep the activity at Belfort going, a spokeswoman for the company said.

The train maker has pledged to find jobs for all the 470 employees at Belfort. A group of 80 workers will remain in the city to service French trains, and the others will be offered work at one of the company's 11 other sites in France.

Write to Inti Landauro at inti.landauro@wsj.com and Stacy Meichtry at stacy.meichtry@wsj.com

(END) Dow Jones Newswires

September 13, 2016 14:15 ET (18:15 GMT)

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