Downer EDI has signed a five-year agreement with Electro-Motive Diesel (EMD) for the production of Australian-market locomotives at one of its new low-cost overseas facilities.
EMD will manufacture all locomotives for the Australian market, while Downer will continue to sell the products, as well as concentrate on repairs and maintenance.
During the transition period, which could take up to two years to complete, Downer will continue to produce locomotives in Australia.
Downer chief executive officer Grant Fenn said that under the new agreement both companies would adapt a competitive locomotive supply model that will provide significant benefits for their customers.
"Downer and EMD have taken action to ensure we have a sustainable business model that will give our customers an advantage," Fenn said.
"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."
Currently Downer 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.
Downer is a provider of outsourced freight maintenance services, with a national network of over 20 maintenance centres.
It produces two standard designs, the 3.21MW standard-gauge GT46C-ACe model in Newcastle, New South Wales and the 2.26MW 1067mm-gauge GT42CU-AC model at Maryborough in Queensland.
Earlier in June 2012, Downer won a A$73m ($73.4m) rolling-stock supply and support contract from iron ore miner Fortescue Metals Group (Fortescue) in the Pilbara region of Western Australia.
Under the deal, Downer will collaborate with Electro-Motive Diesel (EMD) to design, build and deliver 19 new SD70ACe/LCi locomotives to Fortescue.
According to the company, the first new locomotives are scheduled to be delivered in August 2012.