Leasing Companies--FURX, HLCX, CEFX - Trains Magazine

When the locomotives come off lease from railroads there is still economic life in them. Some financial institution still hold the title to them and would like to get the remaining value of their investment out of them. Perhaps they can sell them to another railroad or another company. If there is a market for leased locomotives one of the companies that specialize in such transactions can either buy, lease or administer a short term lease of these units to others. The same thing happens when a customer returns their leased automobile back to the manufacturer.

Railroads used to lease locomotives amongst themselves from units the had stored. Some arrangements went on a regular basis with roads like the DM&IR who had lots of units to spare in the winter when the Great Lakes were frozen. Other roads might have units stored during a business slump while another railroad in another part of the country was seeing record traffic levels. Now railroads have better uses for their capital and are not likely to keep spare units around when not needed. So they sell these units or do not renew the leases when the expire. There is still a need for a fluid pool of units to move around the country according to market conditions and leasing companies have taken up that opportunity. It makes sense for them to used older locomotives for that purpose but CEFX has brand new units for this purpose since they are leased long term 100% of the year to CP and UP. It is sort of like CP and UP trading their suplus units but with a third party acting as an intermediary. UP and CP can use their capital elsewhere.

Some of the early leasing companies like Precision National were just taking units they had bought for parts and scrap into running condition to earn leasing revenues. The railroads didn't want to dilute their management focus by doing the same themselves.

The leasing situation as it has evolved, the leasing companies take on the risk and the railroads pay a higher cost over doing it themselves but end up with more capital available for other needs. It seems to work pretty well for now.