The domestic freight car market picture just became a bit clearer with today’s announcement that The Greenbrier Companies and GE Capital subsidiary General Electric Railcar Services Corp. (GER) have settled their drawn-out, often bitter and public contract dispute over the manufacture of some 12,000 railcars. The two companies have modified their original contract from 2007, essentially halving the number of railcars Greenbrier will build for GE Rail, and extending delivery times by about two years, subject to certain conditions.
Greenbrier noted that the original contract called for “the manufacture 11,900 new tank cars and hopper cars for GER over an eight-year period, of which the final 8,500 units would be delivered subject to Greenbrier's fulfillment of certain contractual conditions.”
“As scheduled,” said Greenbrier, “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 reduces the quantities by up to 6,000 railcars, with the first 3,800 tank cars and hopper cars to be built by July 2013. The purchase price is subject to adjustments for changes in material costs. “The blended purchase price on these 3,800 units represents a price increase from the original contract, and delivery of these units has been extended by 27 months from the original contract,” said Greenbrier. “The remaining 2,200 tank and hopper cars are subject to fulfillment of certain contractual conditions by both parties at their sole discretion and would occur over the next five-year period. 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.”
Greenbrier said the new contract contains benefits for both parties: Greenbrier will become a Preferred Railcar Maintenance Provider for GER’s railcar fleet and will perform railcar maintenance and refurbishment work for GER under a new five-year agreement, with a minimum contract value of approximately $25 million. Under this contract, Greenbrier will, in the first calendar quarter of 2010, begin to reduce 485 doublestack intermodal platforms from 48 feet in length to 40 feet at its Gunderson facility in Portland, Ore. In certain situations, Greenbrier has also obtained a right of first refusal, subject to certain qualifications, to perform railcar refurbishment and program work through March 7, 2015.
Greenbrier said its total firm new railcar manufacturing backlog as of Nov. 30 is 4,900 units valued at approximately $430 million. This figure excludes the contingent production of 2,200 units for GER.
Based on current production plans, 2,000 units in backlog are scheduled for delivery in Greenbrier’s fiscal year ending Aug. 31, 2010. Greenbrier delivered 350 new railcars during its first fiscal quarter ended Nov. 30, 2009.
“While the modified terms of the contract do not materially change our previously stated business outlook for the 2010 fiscal year, they resolve significant uncertainty within our manufacturing segment and improve the outlook and visibility of our refurbishment and parts segment,” said Greenbrier President and CEO William A. Furman. “With the contract modification, we estimate Greenbrier currently possesses about 40% of total new railcar industry backlog in North America. Given the current environment, we believe this outcome is not only favorable to Greenbrier, but also to the overall new railcar supply industry in North America.”