GE, in sales coup, to sell 300 locomotives to CSX

December 30, 1993|By Bloomberg Business News

JACKSONVILLE, FLORIDA — JACKSONVILLE, Fla. -- CSX Transportation Inc. said yesterday that it had ordered 300 locomotives from a unit of General Electric Co. The sale is a victory for GE in the competition for orders from railroads that are replacing their aging equipment with new technology.

Terms of the sale to the subsidiary of Richmond, Va.-based CSX Corp. were not disclosed. But based on industry averages, the price was estimated to be about $575 million. Whatever the figure, it was the largest locomotive order ever placed with GE.

"We appreciate the confidence CSX has placed in GE and our new technology," said David Tucker, general manager of marketing and service for locomotives at GE Transportation Systems, the Erie, Pa.-based GE unit.

GE and General Motors Corp. are vying to sell their versions of alternating-current, or AC, technology, a more powerful and efficient engine than the existing direct-current models. With growing markets, railroads nationwide plan to upgrade their aging iron steeds.

"It's a horse race between GE and GM," said Pat Dunkerley, an analyst at Edward D. Jones & Co. "And I suspect those two will continue to battle it out."

GE and GM both want desperately to win, as future orders in the multibillion-dollar industry are at stake.

In March, GM got an early lead after receiving an order for 350 AC locomotives from Burlington Northern Inc., based in Fort Worth, Texas.

In July 1992, Consolidated Rail Corp. announced a three-year program to replace 225 of its locomotives and ordered four units from GM and four from GE. The locomotives are scheduled for 1995 delivery.

The goal is "to see if one is better than the other," said Christine Wagner, a spokeswoman for Conrail. "We've tested some and think [the AC engine] is the way of the future."

Union Pacific Corp. is also considering an investment in AC locomotives but has not announced its plans. A spokesman said the company will consider products from both GE and GM.

A spokeswoman for CSX Transportation, Kathy Burns, said that the company had considered both the GE and the GM locomotives but that she could not say why the company chose GE's model. This order, she said, is an extension of an existing contract with GE to build their locomotives.

After the disappointing 1980s, rail companies are realizing the need to invest in their lines. In 1992, the United States had 18,000 locomotives operating, a 30 percent decline from 10 years before. Of those remaining on the rails, 64 percent were built before 1980, according to statistics compiled by the American Association of Railroads.

"Railroads are doing well," said Cornelius Sewell, an analyst at Argus Research. "Making more money, more profits. That probably means you are going to upgrade your equipment."

Also benefiting railroads has been a surge in intermodal transportation and a shortage of long-haul truck drivers, meaning more business for the rails. The new technology allows rail companies to use the same number of engines to pull more cars, or to use fewer engines on the same train. Either way translates into improved profitability.

GE is negotiating to sell the locomotives to other rail lines, but Mr. Tucker declined to disclose details.

The order from the Jacksonville, Fla., unit of CSX will be filled during the next four years. In 1994, 80 units will be delivered. In all, 250 alternating-current models and 50 direct current engines will be produced.

AC systems can increase a motor's horsepower by eliminating parts used in DC motors that limit the amount of electrical power. These improved engines also have lower fuel and maintenance costs.

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