(The following story by Thomas L. Gallagher appeared on The Journal of Commerce website on December 15, 2009.)
WASHINGTON, D.C. — The Greenbrier Companies agreed with General Electric Railcar Services to modify GER’s railcar manufacturing contract by reducing the order from 11,900 to 6,000 railcars.
The shift in response to collapsing demand in North America for railcars provides benefits for the manufacturer as well as the leasing company. GER is able to reduce the size of its fleet without harming Greenbrier, which stabilizes its order book and keeps its workforce employed.
“The modified contract, which recognizes the harsh realities of the economic environment, delivers tangible benefits for both companies, enabling us to continue to meet our customers’ needs,” said Joe Lattanzio, president and chief executive officer of GE Railcar Services. “We are pleased that today’s agreements allow us to look forward and build on our long-standing business relationship with Greenbrier.”
“We are pleased to have reached an agreement that is responsive to our customer’s business needs while also delivering value to our shareholders, creating security for our North American workforce and adding visibility throughout the rail industry supply chain. By stretching out new railcar production schedules, we have stabilized our production at current levels or higher for at least the next two years,” said William A. Furman, president and chief executive officer of Greenbrier.
Under the terms of the original 2007 contract, Greenbrier was to manufacture 11,900 new tank cars and hopper cars for GER over an eight-year period. As scheduled, deliveries to GER commenced in December 2008 and to date approximately 600 railcars have been delivered and accepted under the original contract.
The modified contract includes a price increase and an extension of 27 months for delivery of the first 3,800 tank cars and hopper cars, now due by July 2013. The remaining 2,200 railcars are subject to fulfillment of contractual conditions over the next five years. In addition, Greenbrier has retained the right of first refusal, subject to certain qualifications, to manufacture all new railcar builds for GER through December 2018.
As a result of the modified contract, Greenbrier’s total firm new railcar manufacturing backlog as of Nov. 30, 2009 is 4,900 units valued at approximately $430 million. This backlog figure excludes the contingent production of 2,200 units for GER.