(The following story by John D. Boyd appeared on The Journal of Commerce website on September 8, 2010.)
WASHINGTON, D.C. — Railcar manufacturer FreightCar America signed a definitive agreement to buy the business assets of DTE Rail Services, a railcar repair and management firm, from parent DTE Energy for about $23.2 million.
FCA said the acquisition “furthers the company’s strategic growth initiative to expand its presence in the railcar services sector” and “will bolster FreightCar America’s existing parts and repair service capabilities.”
The transaction is expected to close early in this year’s fourth quarter, when the acquired unit will become FreightCar Rail Services LLC. That unit will offer repair, maintenance, inspection and fleet management for all types of freight railcars.
Detroit-based DTE Energy owns the Detroit Edison electrical utility and MichCon natural gas utility, with non-utility businesses in 26 states including coal transportation and more than 8,000 railcars. DTE Rail Services operates out of Grand Island, Neb., generates about $25 million in current annualized revenue and will bring about 130 more workers to FreightCar who service unit coal trains and other freight operations.
FCA, based in Chicago, builds various car types but specializes in coal-carrying railcars.
Recent consolidations within the railroad supply industry signal what is likely to be the weakest year yet for railcar production because leasing fleets, railroads and shippers continue to keep many types of existing cars idled as they wait for demand to bring them back online.
Until that happens, owners are calling on builders for only limited amounts and types of railcars that are already in high demand, and car makers as well as other types of equipment suppliers are diversifying their operations to get more revenue from non-manufacturing activity or to build products for customers outside of freight operations.
Ed Whalen, FreightCar’s president and CEO, said “the expansion of our railcar services activities will diversify our revenue sources and will serve to lessen the cyclicality of our earnings.”
Whalen said the move should also “expand our customer base and strengthen existing relationships by significantly enhancing the company’s involvement in the entire railcar life cycle.”
In particular, he said FreightCar “will be well positioned to service coal-carrying railcars moving through the Powder River Basin,” source of the largest U.S. coal mining operations. FreightCar built most of the PRB’s railcars, he said.