What happens when two financial juggernauts in the same industry combine? It seems we are about to find out. Just a few weeks ago, it was confirmed that Wabtec Corporation is entering a definitive agreement to merge with GE Transportation, a branch of General Electric Company. This major transaction will not only boost Wabtec into a Fortune 500, global transportation leader in rail equipment, software, and services, but it will significantly influence the direction of 3D printing with regard to the railway industry as well.
3D printing has cemented itself as a core component in the evolution of railway manufacturing and equipment over the last several years, with several agencies and companies investing research and development resources into exploring further applications for the technology. The Dubai Roads and Transport Authority (RTA) has integrated 3D printing technology as a cost-effective method of creating and developing parts for the train system, including the ticket gates, ticket vending machines, and even the railways themselves as well as other assets across the metro network. In 2013, rail freight operator Union Pacific (UP) began experimenting with 3D printing to create handheld automatic equipment identification (AEI) devices to ensure that rolling stock is properly tracked and assembled. UP has also implemented 3D printing processes to greatly accelerate their production cycles, with parts now able to be 3D printed within mere hours.
However, by far the most prominent railway equipment specialists have been Wabtec Corporation and GE Transportation. Both of these commercial giants have committed substantial resources into exploring applications of 3D printing for the benefit of the industry. With the merger of these two powerhouses, the course of the entire railway industry will be significantly influenced as 3D printing continues to plant itself firmly at the forefront of the industry’s progress.
The Research & Development Tax Credit
Enacted in 1981, the now permanent Federal Research and Development (R&D) Tax Credit allows a credit that typically ranges from 4%-7% of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:
- Must be technological in nature
- Must be a component of the taxpayer’s business
- Must represent R&D in the experimental sense and generally includes all such costs related to the development or improvement of a product or process
- Must eliminate uncertainty through a process of experimentation that considers one or more alternatives
Eligible costs include US employee wages, cost of supplies consumed in the R&D process, cost of pre-production testing, US contract research expenses, and certain costs associated with developing a patent.
On December 18, 2015, President Obama signed the PATH Act, making the R&D Tax Credit permanent. Beginning in 2016, the R&D credit can be used to offset Alternative Minimum tax for companies with revenue below $50MM and for the first time, pre-profitable and pre-revenue startup businesses can obtain up to $250,000 per year in payroll taxes and cash rebates.
Through its subsidiaries, the company manufactures a broad range of products for end markets such as locomotives, freight cars, passenger transit vehicles, and power generation equipment, for both original equipment and aftermarket applications. Wabtec also builds new locomotives up to 5,400 horsepower, and provides aftermarket maintenance and services for locomotives and passenger transit vehicles.
Fulmer Company, one of Wabtec’s business units in the locomotive section, is currently the largest North American manufacturer of brush holders and specialty-machined parts for DC/AC motors, generators, and alternators. The company hosts a precision CNC machine shop with fabrication capabilities that include a spring shop and assembly department. Fulmer Company boasts a vast amount of engineering and technical expertise in addition to MasterCam, SOLIDWORKS, and 3D printing capabilities that have been cornerstones of the firm for years. 3D printing has been an integral piece of their success, especially for their precision manufacturing and non-ferrous permanent mold foundry, Perma-Cast.
Perma-Cast has become one of the top producers of non-ferrous permanent mold castings in the country. They have been committed to quality and engineering design capability by applying electrolytic copper, brass, and aluminum bronze. Their unique chill cast, gravity-free process features a myriad of benefits over other casting methods. Perma-Cast’s in-house design and engineering capabilities allow custom solutions to design challenges and reduce lead times, and their computer controlled induction melting and resistance furnaces provide precise temperature control. 3D printing has been a centerpiece of Perma-Cast’s success in their ability to provide significant benefits through their products and manufacturing techniques, as well as the impeccable consistency of their quality in the initial manufacturing stage.
GE has already invested over $2 billion into the implementation of 3D printing in recent years, with their acquisitions of some of the leading European metal 3D printer manufacturers, Concept Laser and Arcam, in addition to the inception of their own branch dedicated to supplying 3D printers, GE Additive. They have widened their expertise in the additive manufacturing arena to rival even the leading 3D printing manufacturers such as 3D Systems, Stratasys, and HP Inc.
In late 2016, GE Additive initiated development on the world’s largest laser-powered 3D printer that can print aviation parts from metal powder. The device will be capable of 3D printing structural components for jet engines and single-aisle aircraft, and will provide substantial applications for manufacturers in the automotive, power, and oil and gas industries as well. In late 2017, GE Additive also introduced a new binder jetting system.
The Deal and Implications
On May 21, 2018, the executive boards of General Electric and Wabtec Corporation officially approved an $11.1 billion merger between Wabtec and GE Transportation. The merged company will feature revenues of $8 billion with over 23,000 locomotives in its global installed base and components on virtually all North American locomotives and freight cars. Under the terms of the deal, GE will receive $2.9 billion for a 9.9% stake in the new entity, while its shareholders will receive a 40.2% stake, and Wabtec shareholders will take possession of the remaining 49.9%. Following the completion of the transaction, Wabtec will feature a more diversified business mix and higher margins, and GE Transportation is poised for a substantial rebound in its projected adjusted EBITDA growing from $750 million in 2018 to between $900 million and $1 billion in 2019.
This transaction marks a monumental shift in the direction of the railway manufacturing industry, as both of these corporate giants have already demonstrated the potential of 3D printing as a significant player in the industry. 3D printing has become a focal point in the manufacturing of railway parts themselves as well as components that are related to the rail network directly or indirectly. As the technology evolves alongside the railway industry, more manufacturers will follow in the footsteps of GE and Wabtec and integrate 3D printing as a core piece of their manufacturing repertoire.
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Charles Goulding and Tyler Gianchetta of R&D Tax Savers discuss the merger of GE Transportation and Wabtec Corporation.
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