FreightCar America says it has completed key steps in its “manufacturing repositioning and business transformation strategy,” which includes closing its Shoals facility in Cherokee, Ala., by first-quarter 2021, and starting railcar shipments from a new production facility in Castaños, Mexico, by the end of 2020.
The carbuilder has finalized early termination of its Shoals lease, accelerating the expiration date from Dec. 31, 2026, to Feb. 28, 2021. Shoals was FreightCar America’s only domestic railcar production site to have survived after earlier closures in Roanoke, Va., and Danville, Ill. It is expected to stop production at the end of this year. (With headquarters in Chicago, the company still has a parts processing facility in Johnstown, Pa., and a facility in Shanghai.)
FreightCar America has also completed Association of American Railroads (AAR) certification audits for its new Mexico facility, currently a joint venture with Fabricaciones y Servicios de México that was estimated to cost $25 million. The facility, which completed its first railcar in early September, is awaiting AAR final certification and approval to start shipping cars. The carbuilder is now readying itself for full production in 2021.
“We are pleased to announce substantial progress in our recently announced plan to reposition FreightCar America to be a much stronger player in the railcar industry,” President and CEO Jim Meyer said. “First, we have reached an agreement with the Shoals facility owner and landlord, the Retirement Systems of Alabama (“RSA”), to exit our lease as of the end of February 2021. We will exchange infrastructure-related equipment at the facility in consideration for the early termination of the lease. This agreement is consistent with our previous announcement and go forward planning. We will retain all tooling and other assets specific to manufacturing railcars, all of which will transfer to Castaños. Our agreement with the RSA solves the fundamental cost and capacity mismatch with Shoals and keeps us on track to reduce our fixed costs by approximately $20 million per year and to reduce our production breakeven to less than 2,000 cars per year when Castaños becomes fully operational.” (Under the new agreement, FreightCar America has the ability to store railcars and other rolling stock at Shoals from the end of the term through June 30, 2021, for no additional rent or other costs.)
Meyer also said that FreightCar America has “secured new asset-based financing from Siena Lending Group. This financing replaced our former ABL facility with BMO Harris Bank N.A., and now provides us greater flexibility and the ability to complete the acquisition of the remaining 50% of our JV [joint venture] partnership.” Last month, FreightCar America announced it had signed a letter of intent and was engaged in negotiations to acquire the remaining 50% ownership, and intended to complete the transaction later this year.
Meyer summed up: “We are taking aggressive and proactive actions to reposition the business for enhanced long-term success. Castaños is not only the newest purpose-built railcar manufacturing facility in North America, but also has the flexibility to scale as market demand returns. When combined with our new and very experienced workforce at building railcars, we expect to achieve our goal of becoming the lowest cost, highest quality producer of railcars in the industry. We have more hard work to do before we realize these goals, but believe strongly in the strategy and the ability of our team to execute it.”