September 23, 2023

Progress Rail wants court to order Wabtec to sell GE Transportation


Progress Rail wants a federal court to order rail equipment provider Wabtec to divest of General Electric Transportation, alleging that the 2019 acquisition has created a monopoly and hurt its ability to compete effectively with the fellow locomotive manufacturer.

In a lawsuit filed earlier this month in the U.S. District Court for the District of Delaware, locomotive manufacturer Progress Rail, a subsidiary of construction equipment manufacturer Caterpillar (NYSE: CAT), charges that Wabtec has not honored interoperability agreements that would enable both companies’ products to work together. It also alleges that Wabtec’s leadership has indicated to the broader investment community that Progress Rail is no longer a major player in locomotive manufacturing. 

“Unless stopped, Wabtec will continue to misuse its monopoly power to artificially exclude competition, stifle innovation, fortify existing and create new barriers to entry, and deprive consumers of free choice and price competition,” attorneys for Progress Rail said in the Sept. 6 filing. “Such unchecked conduct will make the freight locomotives that drive this Country’s economy more expensive, less safe, and worse for the environment. Indeed, the presence of competitive influences, such as Progress Rail, are necessary to ensure that the rail industry receives innovative, efficient, and safe products at reasonable prices.”

Progress Rail is asking the federal court to order Wabtec to divest of the GE Transportation unit to a suitable buyer, hold up its end of its two agreements with Progress Rail and correct statements that Wabtec made about Progress Rail and its tier IV locomotive manufacturing program.

Market dominance is a critical issue for Progress Rail because state and federal regulations, such as California’s push to zero-emission locomotives, are heading toward the use of low-emission-producing locomotives, of which Wabtec (NYSE: WAB) is already a major producer. Wabtec has sold approximately 75% of active diesel long-haul freight locomotives in North America and approximately 90% of new long-haul freight locomotives that comply with tier IV rail industry standards and the Environmental Protection Agency’s most recent emissions regulations, according to Progress Rail.

Wabtec is also the dominant supplier of positive train control systems as well as an energy management system known as Trip Optimizer, which is used to monitor fuel efficiency and acts like a cruise control for freight trains.  

“Wabtec uses its market power to engage in a pattern of anticompetitive conduct, the design and effect of which is to build upon and cement its monopoly by deterring customers from freely switching providers, stifling the ability of existing competitors from effectively competing and reaching scale, and stopping new competitors from entering the market,” Progress Rail said in the court documents. 

The filing also charges that Progress Rail is a “direct target of Wabtec’s anti-competitive conduct.”

In response to the lawsuit, Wabtec said in a Sept. 11 statement that the complaint “at its core is an unsupported attack on the merger of Wabtec and GE Transportation, which was completed over four years ago. The merger has provided benefits to the entire industry, as well as Progress Rail itself. Progress Rail actively participated in the U.S. Government’s review of that transaction and benefitted by entering into agreements with Wabtec that transferred Wabtec technology to it as part of the United States Department of Justice and global merger clearance process.

“We also firmly believe that Progress Rail’s assertions that Wabtec breached agreements or engaged in other illegal conduct are wrong. We intend to aggressively defend the case in court,” it said. 

Wabtec has not yet filed its response with the U.S. district court. 

Concerns about interoperability between the companies’ systems

As part of Wabtec’s acquisition of GE Transportation, a condition set by the federal government was for both parties to sign onto an interoperability agreement, in which Wabtec would create and maintain products that follow joint standards and industry specifications. The agreement had a life span of 15 years, starting in 2019.

Wabtec also has an agreement with Progress Rail, valid through February 2034, in which Wabtec’s EMS technology would be operable with Progress Rail’s equipment. 

But Wabtec has not followed either agreement, according to Progress Rail. Instead, the company has used the market dominance it gained through the GE Transportation acquisition to “reduce rail industry required cross-product compatibility with complementary products through, among other things, restricting the flow of critical data and information,” as well as “impose unnecessary costs and delays on competitors with the goal of impairing and forcing competitors out of business and obtaining even greater power to control prices.”

Progress Rail said in the legal filing: “Wabtec possesses the ability to foreclose customers from independently installing Trip Optimizer on Progress Rail locomotives. An EMS system, like Trip Optimizer, must have the ability to communicate with the host locomotive. That communication requires a degree of cooperation between the locomotive manufacturer and the EMS system manufacturer.

“Wabtec can prevent Trip Optimizer from properly functioning on Progress Rail’s locomotives by withholding Trip Optimizer’s ability to exchange and make use of information from Progress Rail’s locomotives (in other words, preventing the EMS system from being interoperable with the host locomotive),” Progress Rail said.

It also balked at claims by Wabtec CFO John Olin at a May investor conference that Progress Rail is exiting the production of tier IV locomotives. 

“Wabtec made these statements with knowledge of their falsity and with the intent to convince customers that Wabtec is the only option for Tier IV long-haul locomotives in the United States. Wabtec’s statements were not impromptu mistakes. The statements were published to an international audience, including Progress Rail’s primary domestic customers,” Progress Rail said. “Wabtec made these false statements because it knew such information would be material to Tier IV long-haul locomotive purchasing decisions. Indeed, statements from the CFO of a large, publicly traded company… would be reasonably relied upon by customers and potential customers in the market, as well as analysts covering the market.”

FreightWaves reached out to Wabtec for comment on Progress Rail’s interpretation of Olin’s remarks. Wabtec directed FreightWaves to its Sept. 11 statement.

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The second annual F3: Future of Freight Festival will be held in Chattanooga, “The Scenic City,” this November. F3 combines innovation and entertainment — featuring live demos, industry experts discussing freight market trends for 2024, afternoon networking events, and Grammy Award-winning musicians performing in the evenings amidst the cool Appalachian fall weather.

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