This week, one of the more significant business headlines that may be of interest to the Supply Chain Matters reading audience is the announcement by General Electric indicating that it will merge its locomotive focused transportation business with Wabtec Corp.

For us, the looking glass is focused on potential impacts and/or added opportunities related to GE’s ongoing Industrial Internet and Connected Things strategies.

In terms of details, the GE announcement indicates that the company will merge its railroad locomotive manufacturing business with Wabtec in a deal valued at approximately $11 billion. When the merger is completed, GE and its shareholders will own 50.1 percent of combined operations and will receive an up-front payment of $2.9 billion. GE is reportedly required to sell its stake in the combined company within three years.  Motive Power MP33

Wall Street has applauded this strategic move, characterizing it as the first in probably other moves to-come. CEO John Flannery has openly indicated that in the midst of an ongoing strategic review, GE will have no “sacred cows” in order to revive the company’s growth and profitability. The company has pledged to sell at least $20 billion in assets while focusing on key markets.

Background

GE Transportation itself has been challenged with falling revenues due to an ongoing cyclical decline in North America rail-shipping volumes. Despite such challenges, the division has routinely delivered profitability, amounting to $824 million last year with a reported profit margin of 20 percent. According to reporting by The Wall Street Journal, GE had explored a possible sale of GE Transportation to private-equity interests, but instead elected to go with Wabtec due to business model synergies.

Wabtec designs and manufactures equipment for transit systems and freight railroads. The company’s stated goal is to become one of the world’s largest public rail equipment companies. With this merger with GE Transportation, Wabtec stands to double its revenues.

In relation to railroad locomotive design and manufacturing, MotivePower, Inc. (MPI), based in Boise, Idaho, is a wholly owned subsidiary of Wabtec Corporation which was formed in November 1999 when Westinghouse Air Brake Company merged with MotivePower Industries, Inc. According to its web site, Wabtec Corporation claims to be North America’s largest provider of value-added, technology-based products and services for the rail industry. Products extend to a wide variety of train control and hardware control systems.

Of further note is that Wabtec, in the notions of MPI, is deep into delivery of service management, spanning routine maintenance and repair to complete locomotive rebuilds. Thus, the company has the basis and opportunity to be able to leverage an Internet-of-Things (IoT) enabled service management models that links operational performance data and information with timely maintenance and service parts delivery.

Opportunity

Many readers may recall the GE television commercials depicting a locomotive communicating operational and train status. Both GE Transportation and GE Aviation have been the foundation of GE’s IoT enabled Industrial Internet and connected equipment strategies. They represented the notions of the Brilliant Machines marketing campaign. As a result of the current ongoing strategic review of GE, there remains speculation as to what will become of the GE Digital business unit along with its ongoing strategies and plans for broadened technology deployments.

Supply Chain Matters would suggest that this merger could well provide a broader opportunity, the ability to demonstrate all of the capabilities of a digitally-enabled service management supply network related to transportation capital equipment. All of the elements of locomotive and controls equipment are present along with actual physical service management services.

This opportunity window is now focused on Wabtec, since in the post-merger, it will own both the assets and services management capabilities to deliver on the vision of virtually connected equipment delivering added services and reduced operational costs for private and public rail customers. GE will eventually have to transition away from train transportation but can deliver the inherent connected machine technology capabilities.

While the rail industry is in a current cyclical downturn in terms of volume loads, global supply chain activity is on the increase and trucking capacity in the U.S. is considerably capacity-constrained. The opportunity in the next equipment-buying cycle may well be inter-modal train transport of containers and where the ability to report on train status, train composition as well as maintain optimal operational up-time may well be a new attraction for train operators.

 

Bob Ferrari

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