Does Rebuilding Locomotives Beat Buying New?

Written by Jim Blaze, Contributing Editor

Ever check out the list prices of brand-new main line diesel-electric locomotives? They are expensive, about $3 million each. Are you mesmerized by the horsepower quoted? Nah! You want tractive effort. Hauling heavy, long freight trains is the North American business model. You need to purchase tractive effort.

There are cheaper capital outlay ways to buy locomotives. The lower-cost option involves stripping down older units that have good frames and rebuilding them as upgrades. It usually begins by selecting a locomotive that is about 20 years old. 

Here are the simple economics that drive the program. This modernization business model started to evolve about a decade ago:

Locomotive rebuilding is no small task. A typical six-axle locomotive is more than 73 feet long, about 16 feet tall and weighs more than 200 tons. There may be as many as 210,000 internal parts, including more than six miles of wiring.

One critical aspect of rebuilding is to use modular construction techniques. Most rebuilding involves five main sub-assembly modules. Each is pre-assembled and tested on its own assembly line. and then moved around the factory with a network of heavy-duty overhead cranes. (New locomotive manufacturing typically flows in one direction on the final assembly line.)

The remanufacturing process begins with a complete teardown of the older carbody and its components. Overhaul activity takes place in the same general plant assembly area as where some of the original equipment manufacturers (OEMs) build new locomotives. However, there is some floor reconfiguration.

For a modernization, arriving locomotives are initially washed and drained of fluid. Then they are completely stripped.  Even the wiring is removed. Skilled crews remove the cab, the truck assemblies, the prime-mover (diesel engine), traction alternator and other parts. Employees then sand off old paint and check for and repair any signs of corrosion.

If possible, the modernization process tries to retain the original locomotive platform (think of it as a chassis), which is fabricated from about 80,000 pounds of structural steel and also holds under-slung fuel tanks.

Before sub-assemblies begin coming together, they are checked and rechecked to ensure that components fit properly.

For comparison, here are several different baseline OEM locomotive types that may be candidates for modernization:

Rebuilding a locomotive can take as many as eight to nine weeks.

There are regulatory rules that determine how a unit is rebuilt. Specifically, U.S. Environmental Protection Agency federal pollution rules apply. The EPA also mandates that locomotive upgrades can’t exceed more than 50% of a locomotive’s value. Therefore, most locomotive rebuilds are fitted with a remanufactured engine instead of a new one.

Engine remanufacturing is a specialty for companies like NRE. The old engine is removed, and everything is remanufactured or replaced—power assemblies, cylinder heads, crankshaft, etc. NRE remanufacturing to “essentially like new” helps meet EPA parts content standards.

Here are the environmental rules that are important, based upon a Rail Equipment Finance 2020 rail equipment presentation by NRE experts:

Which railroads have used locomotives in good condition for rebuilding?

Another critical part of an upgrade involves upgrading the traction motors. One of the ways to obtain higher productivity is to replace direct current (DC) traction motors with alternating current (AC) technology. AC traction motors, which have fewer moving parts, improve rail adhesion and reduce wheel slip. Also, AC technology is heat-resistant, and has a much longer service life before failure or repair. The DC-to-AC modernization also usually involves digital technology. This can include upgraded Positive Train Control (PTC) in-cab units and communications modules that connect with a rail company’s remote train dispatching centers.

The mid-May outlook for 2020: New locomotive orders will be depressed. It’s possible that fewer than 100 new units will be delivered. However, selective rebuilding/modernization will continue, albeit at perhaps a 25% lower rate than budgeted for the year as railroad boards of directors approved Class I capital budgets at year-end 2019.

Remanufacturing costs are about 50% to 60% of the cost of a new locomotive. Those savings are meaningful. The end result is a lower capital recovery cost and an improved operating ratio.

This capital approach supports the return on asset goals of today’s Precision Scheduled Railroading (PSR) business model: “Save more than one-third of the investment cost.”

Here are a few recent rebuild examples:

The BNSF AC44C4M is a GE (now Wabtec) C44-9 rebuilt with AC traction motors. The internal controls are like those of the newer ES44C4, at a lower price.

Norfolk Southern now has about 160 of its AC44C6M, a GE Dash-9 upgraded to AC traction. This program is expected to continue into 2023. But, check the second-quarter NS investment report for an update sometime in July.

Independent railway economist, Railway Age Contributing Editor and FreightWaves author Jim Blaze has been in the railroad industry for more than 40 years. Trained in logistics, he served seven years with the Illinois DOT as a Chicago long-range freight planner and almost two years with the USRA technical staff in Washington, D.C. Jim then spent 21 years with Conrail in cross-functional strategic roles from branch line economics to mergers, IT, logistics, and corporate change. He followed this with 20 years of international consulting at rail engineering firm Zeta-Tech Associated. Jim is a Magna cum Laude Graduate of St Anselm’s College with a master’s degree from the University of Chicago. Married with six children, he lives outside of Philadelphia. “This column reflects my continued passion for the future of railroading as a competitive industry,” says Jim. “Only by occasionally challenging our institutions can we probe for better quality and performance. My opinions are my own, independent of Railway Age and FreightWaves. As always, contrary business opinions are welcome.”

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