1993 financial guide to equipment leasing - includes leasing resource directory - A Railway Age special section

Railway Age, June, 1993 by Anthony D. Kruglinski, Michael Downey Rice

What are the orders of magnitude here? Several years ago, it wasn't unusual to use a 50% premium in pricing a new aluminum coal car over a steel one for the same service. After all, aluminum cars could carry as much as 12 tons more product due to the weight differences in the material from which the car was fabricated. What's the difference today? In most cases, there isn't one. About $45,000 to $46,000 can buy you a very nice steel framed, aluminum bodied western coal car. Same price for steel. Not surprisingly, fewer steel cars are being built relative to their aluminum cousins.

What has this done to the price of used steel coal cars? We've seen examples of 15-year-old steel cars that have not seen high sulphur coal service going for as little as $10,000 to $12,000 each. The price a year or two ago: $15,000 to $18,000 and up. If you have residual interests in steel coal cars, we suggest you pray for a renewal at some reasonable rate and for a renewal term long enough to take you to a scrap point for the car. On the other hand, if you are an end-user that can use these cars for coal, rock, or whatever, you're in good shape with more sellers than buyers.

Are things likely to change? Not as far as we can see. Interest in aluminum equipment from utilities remains high due to the increased capacity possible and the fact that many railroad freight rates are skewed to provide additional savings to shippers that acquire their own aluminum cars and to help the operating railroads utilize their plant and equipment more efficiently (more tons per train-mile).

The challenge of a.c. power

Again, regular readers of our financial columns will recognize the term "a.c." as connotative of the latest revolution to reach locomotive manufacture. Quite simply, despite the fact that alternating current technology has been in the home for many decades, its viability as an option for diesel-electric locomotive operation in the U.S. has just recently been demonstrated. With its first big order (from Burlington Northern) under its belt, General Motors' Electro-Motive Division expects to begin delivering new a.c. units in volume during 1994. Test units in service since the Fall of 1992 have reportedly been performing up to and beyond expectations.

The advent of these new $1.9 million units, three of which are reported to be able to replace up to five SD40-2 d.c. 1ocos, is likely to have a revolutionary impact on the value of all six-axle high-horsepower units now in service. The a.c. locomotive's enhanced tractive effort seems best suited--for the added expense--for heavy-haul, six-axle applications rather than four-axle jobs.

What impact?

Although there is presently no surplus of modern six-axle, high-horsepower locomotives, the BN transaction has the potential to create a surplus of between 500 and 600 units. Since there are few regionals that can use six-axle power, the traditional cascading of power downward may be problematic due to the number of units that BN is likely to seek to return at the end of long-term finance leases. And even if other Class I's and regionals soak up these extra units, what happens when (not if) other major roads switch to a.c. power from EMD or (soon, we'd suspect) from GE Transportation Systems?