Downer EDI Limited has signed a new five-year agreement with Electro-Motive Diesel (EMD) which will see locomotive manufacturing move away from Australian soil.
Under the new agreement, EMD will manufacture all locomotives for the Australian market at a new low-cost facility overseas.
Downer will continue to sell EMD locomotives and after-market products, including spare parts, but Downer Rail employees working on locomotive projects will now be transferred to other rail projects, with a small number facing redundancy.
The chief executive of Downer, Grant Fenn, said: “Downer and EMD have taken action to ensure we have a sustainable business model that will give our customers an advantage.
“The demand for locomotives in Australia remains strong and this new agreement with EMD means Downer will be better positioned to meet our customers’ demands for better value and shorter lead times.”
During the transition period, which is expected to take between 12 months and two years, Downer will continue to manufacture locomotives in Australia.
Downer and EMD, which is owned by Progress Rail, a Caterpillar company, have worked together for more than six decades supplying and maintaining locomotives in Australia.
Downer currently uses locomotive components manufactured by EMD – including diesel engines, traction motors, turbo chargers, generators and related software – to manufacture Downer-designed locomotives for sale to customers in Australia.
Although demand for new locomotives is high due to growth in the mining industry and an ageing Australian fleet, the company said it faces offshore competition, customer requirements for lower capital costs and shorter lead times for delivery.
Billy Ainsworth, chief executive of Electro-Motive Diesel, said: “This agreement is yet another example of our continued responsiveness to rail customers globally. We are proud to work with Downer on delivering the highest quality products and services, with the best life cycle cost, to our customers in Australia.”