Growth of Locomotive Leasing
Locomotive leasing first gained popularity in the 1990s as rail operators looked to reduce capital expenditures and shift to more flexible ownership models. Instead of buying locomotives outright, operators could lease them for a fixed period and payment schedule from specialized locomotive leasing companies. This allowed railroads to right-size their fleets based on prevailing demand conditions.
The practice has grown steadily since then. According to industry reports, over 30% of the active locomotive fleet in North America is now leased. Major leasing companies like TRLI, ARL, BNSF, and Wabtec have sizable leased fleets. The availability of late-model and specialized locomotives through leasing has supported network expansion and new services for regional carriers. Leasing also provides options to utilize newer and more efficient technologies.
Benefits for Rail Operators
There are several advantages locomotive leasing provides to rail operators:
- Capital expenditure flexibility: Locomotive Leasing removes huge upfront capital requirements for fleet procurement. Payment schedules are preset, allowing predictable operating budgets.
- Fleet right-sizing: Operators can dynamically scale fleets up or down through short/long-term leases based on traffic needs. This enhances capacity utilization.
- Access to new technologies: Leasing gives access to latest models and technologies without high initial costs. Early adoption can boost fuel efficiency and train handling.
- Maintenance responsibilities: Leasing companies undertake heavy periodic maintenance, replenishing fleets and incurring capital expenses. This reduces operating burdens.
- Asset life extension: Operators return old leased locomotives before full depreciation. Lessors refurbish/remarket them, further leveraging asset life.
- Tax benefits: Interest payments on leases qualify as tax deductibles in several countries like the US. This lowers the effective cost.
Benefits for Leasing Companies
Some ways in which locomotive leasing companies also benefit:
Fleet Aggregation and Economies of Scale
By owning large fleets that are leased to multiple clients, lessors achieve scale benefits in maintenance cycles, spare parts management and fleet replenishment programs. This ensures high asset utilization.
Steady Revenue Streams
Long-term leases with fixed payments provide income visibility to leasing firms. Fleet usage data helps optimize remarketing/refurbishment programs as well.
Technological Expertise
Constant fleet upgrades and refurbishment programs help leasing specialists gain deep knowledge of the latest technologies. This creates competitive edge and supports advisory roles.
Access to Tax Benefits
Tax treatments favor investments in new assets, allowing lessors accelerated depreciation benefits. Interest payments on loans to acquire fleets are also deductible.
The Future of Leasing
Locomotive leasing is set for further growth in coming years based on attractive commercial models and technological changes. Some anticipated developments:
- Rising freight volumes will drive demand for flexible capacity options like leasing over outright ownership.
- Advent of battery and hydrogen technologies will see specialized leasing expertise required to deploy newer propulsion types.
- Data analytical skills will help leasing companies optimize utilization and predictive maintenance through IoT/telematics.
- Consolidations may happen as scale boosts competitiveness. Leasing can also enable integrated business models across manufacturing, financing and services.
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