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To paraphrase Herbert Hoover, doctors bury their mistakes, architects advise their clients to plant trees but engineers' mistakes are made in the open, for all to see.

Unfortunately, as has so often happened throughout history, great pieces of engineering turn out to be a financial disaster for their sponsors. Investors that bought shares in Eurotunnel (Paris: FR0010533075 - news) plc when it floated in 1987 know this all too well -- they have lost virtually their entire investment. Richard Anguera, a former Strategic Rail Authority economist, has estimated that Britain would have been £10 billion better off if the tunnel had never been built!

However, buying shares in a company means that you are investing in its future, not its past. In 2007 Eurotunnel's creditors wrote off much of its debts and the company has since evolved into the now profitable Groupe Eurotunnel (Paris: FR0010452433 - news) (LSE: GETS), which currently offers an interesting chance to profit from the anticipated increase in levels of freight and passenger traffic between Britain and continental Europe.

An Investment Disaster

Eurotunnel operates and maintains the Channel Tunnel, which runs from Folkestone to the town of Coquelles, west of Calais. Eurotunnel's major problem was the difficulties in building the 'Chunnel', which caused the project to overrun its budget by almost 80%. This saddled the firm with so much debt that any operating profits were quickly swallowed up by interest payments.

Eurotunnel was hit hard when duty-free sales were abolished in 2000 and then faced increased competition with the arrival of low-cost airlines such as Ryanair (Dublin: RY4.IR - news) (LSE: RYA) and Easyjet (LSE: EZJ.L - news) (LSE: EZJ). The ferry companies had already reacted to the tunnel by savagely cutting prices, further squeezing Eurotunnel's margins. Political squabbling in Britain didn't help, and delayed the high-speed rail route from London through Kent by more than a decade.

Until the recent restructuring it looked as though Eurotunnel would tip into bankruptcy.

The Numbers

2008 was Groupe Eurotunnel's first full year of operation, during which it made a profit of some 40 million and paid a dividend of 4 eurocents per share. As part of the restructuring, Eurotunnel issued a variety of warrants and convertible debt securities to its various creditors and these are gradually being converted to ordinary shares.

Whenever I come across a complicated financial structure such as this, it deters me from investing. Not only is it a nightmare to work out the exact position, but there's always the nagging suspicion that some arrangements with creditors are not fully listed in the accounts.

Groupe Eurotunnel has currently about 317.4 million shares in issue, so in retrospect the 2008 profits could be treated as being only 12.6 eurocents per share. Using this figure and a price of 5.80 puts the valuation on a very high historic P/E ratio of 46. The dividend yield is a mere 0.7%, too.

Investors should note that Eurotunnel shares are extremely volatile and there's a huge spread -- the bid price is often as much as 25% less than the offer price. That's quite a deterrent in itself! No doubt the 2008 figures will be revised according to the terms of each conversion in time for the 2009 accounts, but this introduces an extra element of uncertainty for prospective investors.

For those who like a substantial amount of tangible assets behind their shares, Eurotunnel has 7.28 billion in assets against 4.24 billion in liabilities.

Eurotunnel made a loss of 8 million in the first half of 2009 following a substantial reduction in traffic thanks to the global recession and the fire in September 2008, which shut down most of the tunnel for several months.

The Business

This concession expires in 2086, whereupon ownership of the tunnel is transferred to Britain and France. Eurotunnel effectively has a 77-year lease to operate the tunnel.

Le Shuttle, Eurotunnel's train service, carries cars, passengers and trucks. Eurotunnel also charges the passenger train service, Eurostar, to use the tunnel for routes from London to Paris and to Brussels. Companies such as Stobart Rail, a subsidiary of Stobart Group (LSE: STOI.L - news) (LSE: STOB) and Deutsche Bahn's freight arm DB Schenker, pay for their own freight trains to use the tunnel.

Eurotunnel's main competitors are the cross-channel ferry companies P&O and Sea France as well as numerous passenger and freight airlines.

A key point in Eurotunnel's favour is that for short-haul routes in Europe, the train offers an increasingly attractive alternative to the plane. Many travellers resent time spent waiting at crowded airports and, for some, air travel has now become a chore to be avoided.

All airlines have a massive cost advantage over other forms of transportation because of the exceptionally low level of tax which is levied on aviation fuel. In today's increasing environmentally conscious world, I feel this advantage will not last forever. If or when higher taxes are levied, Eurotunnel should benefit and see a big surge in traffic.

Deutsche Bahn has, for several years, been planning to run direct trains from Cologne and Frankfurt to London. This represents another source of future growth for Eurotunnel.

One For The Future, Perhaps?

Eurotunnel is not something I'd currently invest in, with its complex debt structure, high share price and big spread. But it is a share I'd keep an eye on -- as I have for almost twenty years! -- particularly when the accounts 'settle down' and tax on aviation fuel increases.