Wabtec Corporation

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Wabtec Corporation

1001 Air Brake Avenue
Wilmerding, Pennsylvania 15148
U.S.A.
Telephone: (412) 825-1000
Fax: (412) 825-1019
Web site: http://www.wabtec.com

Public Company
Incorporated: 1869 as Westinghouse Air Brake Company
Employees: 6,500
Sales: $1.02 billion (2000)
Stock Exchanges: New York
Ticker Symbol: WAB
NAIC: 336510 Railroad Rolling Stock Manufacturing

Wabtec Corporation was created as a result of the 1999 merger of Westinghouse Air Brake Company and Mo-tivePower. With annual revenues in excess of $1 billion, it is the largest North American company providing equipment and services to the rail industry (which in addition to freight and passenger trains includes mass transit systems). Wabtec is also the world’s largest publicly traded rail equipment supply company. Conducted through its subsidiaries, Wabtec’s business covers the gamut of the rail industry. The company manufactures locomotives up to 4,000 horsepower while also offering aftermarket services such as maintenance and logistics support.

Patenting the Air Brake in 1869

Renowned American inventor and manufacturer George Westinghouse established his scientific reputation with the invention of the air brake and built an industrial empire on the foundation laid by the Westinghouse Air Brake Company. In the mid-1800s, before Westinghouse introduced his system, railroads relied on a cumbersome and ineffective method of braking each car individually. First, the brakes of each car had to be set by a brakeman using a pick handle, then in order to coordinate the braking of a train, so that the cars did not slam into one another and possibly cause a derailment, the brakemen had to turn heavy wheels in unison upon hearing the engineer’s whistle signal. Making routine stops was difficult enough, emergency stops almost impossible. Because of poor braking capabilities, trains were unable to travel at high speeds, yet accounts of train wrecks still filled the newspapers of the day.

Growing up in Schenectady, New York, a city rich in railroad tradition and host to a manufacturer of locomotives, George Westinghouse was understandably fascinated by trains. He learned about machinery and business principles in his father’s farm equipment factory. Then at the age of 15, in the midst of the Civil War, Westinghouse ran away from home to join the Union Navy, where he became a shipboard engineering officer. After the war he studied engineering at Union College in Schenectady but dropped out after just three months to pursue his life’s work. In 1865 he received his first patents, for an improved rotary steam engine and for a device that remounted derailed freight cars.

In 1866, while traveling between Troy and Schenectady, Westinghouse was delayed when two freight trains crashed head-on in the middle of the day on a smooth, level stretch of track. He was told that the engineers saw one another but were still unable to stop the trains in time. Thus the young inventor turned his attention to the development of a unified train braking system that could be controlled from the locomotive. He worked with the concept of running a chain the length of the train to coordinate the brakes of each car, powered by a steam cylinder under the locomotive. He realized that to avoid slack in the chain each car would require an independent brake cylinder, which also would need a continuous supply of steam from the locomotive. As he grappled with the problem of how to pipe steam and create flexible couplings that would be needed between each car, Westinghouse came upon a magazine article on the Mont Cenis tunnel through the Italian Alps. Engineers on the project powered rock drills by the use of compressed air pumped through a 3,000-foot pipeline. When Westinghouse read about the immense energy generated by air compressed to one-sixth its natural volume, he instantly knew how to power his braking system. If engineers could run a pipeline 3,000 feet through a mountain tunnel, he knew he could run one the length of a train.

In April 1869, at the age of 22, Westinghouse received a patent for the air brake. In September, the Westinghouse Air Brake Company was incorporated in Pennsylvania. A year later in Pittsburgh the company began operations. Within five years 2,281 locomotives and 7,254 cars would be equipped with Westinghouse air brakes. Westinghouse continued to improve his system, not only to make the brakes fail-safe but to allow for longer trains carrying heavier loads at greater speeds. The use of air brakes was a major reason why the number of miles of track in the United States doubled between 1870 and 1880, then doubled again the following decade.

While Westinghouse went on to conduct his major work in electricity and would found some 60 companies to market and manufacture his inventions, he never lost touch with his thriving air brake business. Foreign railroads quickly adopted air brakes. Westinghouse’s first overseas air brake company was established in France in 1878, followed by England in 1881, Germany in 1884, Russia in 1899, Canada in 1903, Italy in 1906, and Australia in 1907. At home, high demand for air brakes forced the company to move to a larger plant in Allegheny, Pennsylvania, in 1881. When further expansion became impractical, less than ten years later the company purchased farmland in Wilmerding, Pennsylvania, where it built a new factory as well as a company town.

Westinghouse Air Brake was known to be one of the most enlightened employers of its time. In 1871 it became one of the first companies in American industry to adopt the Saturday half-day of work. During the periodic financial panics of the late 1800s, Westinghouse instructed the company to keep the men employed. In the early 1900s it created a pension plan and established group life insurance policies. Later the company offered veteran employees two-week annual vacations, disability payments, and medical services, long before such benefits became standard.

Death of George Westinghouse in 1914

During the financial panic of 1907, Westinghouse lost control of much of his financial empire, but retained control of the air brake company, which was unfettered by debt. By 1911 he severed ties with all of the companies he founded, then died in 1914. For many years Westinghouse Air Brake would be run by men who came up through the ranks: one started in the foundry, another went to work at the company as a 12-year-old office boy. Three of the five men who followed Westinghouse had been with the company for 40 years before becoming president.

For the most part, Westinghouse Air Brake expanded its business by adapting air brakes to other forms of transportation, not only to other rail systems such as street cars, subway trains, and high-speed metropolitan transit lines but to automotive vehicles as well. In 1921 Westinghouse Air Brake introduced pneumatic brakes for cars and buses. The company also made use of its pneumatic technology for other purposes. Westing-house had used compressed air to develop a signaling system for the railroads, creating Union Switch & Signal Company to handle the business. In 1917 the company was acquired by Westinghouse Air Brake and incorporated into its operations. Westinghouse Air Brake engineers used its compressed air technology for the U.S. Navy during World War II to develop pneumatic controls that allowed a ship to quickly reverse course in an emergency. The company would subsequently apply its pneumatic remote control systems to the commercial marine industry as well as to other uses, such as drilling and pumping operations in oil fields, and earth-moving equipment. During both world wars, Westinghouse Air Brake also produced a great deal of munitions and electronic products.

Despite diversification, Westinghouse Air Brake was still very much dependent on the volume of rail traffic. After World War II the railroad industry lost a great deal of intercity freight traffic to trucks, and passengers to automobiles, buses, and airplanes. When the Interstate Highway System was completed in the 1960s, the decline in rail usage only accelerated. Nevertheless, Westinghouse Air Brake continued to be in the forefront of technology, developing the first true electronically controlled brakes, which would be used on the original Metroliner cars and rapid transit cars. In 1968 Westinghouse Air Brake also lost its independence, when it was acquired by American Standard—a maker of air conditioning and transportation equipment and building products, but better known for its bathroom and kitchen fixtures—and folded into the company’s Railway Products Group as a division called WABCO Railway.

In 1984 the management of Westinghouse Air Brake fell to William E. Kassling, an American Standard vice-president in charge of the Railway Products Group. American Standard was taken private in 1988 by an investment group, which then looked to sell off assets to pay down some of the debt incurred from the $2.3 billion leveraged buyout. In 1990 Kassling led a management buyout of the North American operations of the railway braking products group for $160 million, renaming it Westinghouse Air Brake Co. The non-North American railway assets, based mostly in Europe, were sold to Cardo, a Swedish investment and industrial holding company. At the time of the sell-off, the North American operations that comprised the reconstituted Westinghouse Air Brake Company posted annual sales of about $200 million.

Company Perspectives:

The Wabtec mission is to help its customers achieve higher levels of quality, safety and productivity so they can compete more effectively.

Under Kassling, Westinghouse Air Brake set a number of goals: international growth, expanded aftermarket services, and the acquisition of companies with an entrepreneurial culture. Kassling was also quick to incorporate the Japanese technique known as kaizen, or “continuous improvement,” to realize as much performance as possible in some of the company’s older plants. In theory, kaizen streamlined processes and choreographed workers’ every move to boost productivity. In reality, accommodations to American culture were allowed and a hybrid system evolved. More than just establishing efficient movements, kaizen introduced a spirit of collaboration in the company. Shop floor employees, management, and sometimes customers would hold sessions together. Kassling himself not only toured factories but also spent time working on the floor to gain a firsthand view of operations. Management credited the steady rise in productivity to the kaizen approach.

Going Public: 1995

Westinghouse Air Brake went public in 1995 and began trading on the New York Stock Exchange. Its earnings were lower than expected, attributed in large part to a new braking system that proved faulty and required an investment to upgrade reliability; more importantly, the company faced a weak domestic market in some core businesses. Rail freight was dropping, and the number of freight cars and locomotives was expected to decline significantly. Diversification in product offerings and foreign expansion, especially in the developing markets of China, Russia, India, and South Africa, took on even greater importance.

To this point under Kassling, Westinghouse Air Brake had acquired some domestic assets and established an electronics products division. In 1996 it purchased Australian Futuris Industrial Products for $15 million, as well as Vapor Corp. (a leading American maker of subway car doors) for approximately $65 million. The following year, Westinghouse Air Brake purchased Stone Safety Service Corporation and Stone U.K. Limited, which manufactured air conditioning units for passenger transit in both the United States and England. It then acquired the heavy rail air conditioning business of Thermo King Corporation from Westinghouse Electric. Also in 1997, the company acquired an Italian company, H.P.S.r.l, a leading supplier of door controls for transit railcars and buses in the Italian market.

Domestically, business looked to improve as America’s largest railways announced plans to invest billions of dollars to improve their systems. Westinghouse Air Brake looked to expand even more aggressively in 1998. To broaden its aftermar-ket support it acquired three railroad service centers for equipment upgrades from Comet Industries for $13 million. Westinghouse Air Brake now had eight strategically located service centers across the United States, as well as Canada and Mexico. The company acquired Lokring Corporation, makers of technically advanced pipe connectors that were now being used as couplers in air brake lines, and provided Westinghouse Air Brake with a product that could penetrate into other industrial markets. The transit coupler product line of Hadady Corporation also was purchased for $4.5 million in cash. In one of its largest transactions, the company purchased the railroad electronics division of Rockwell International for $80 million to augment its train brake and communications product lines.

To expand its foreign business, Westinghouse Air Brake in 1998 entered into a joint venture with an Indian company to sell low friction composite brake shoes to the large India railroad market, which included some 7,000 locomotives, 330,000 freight cars, and 70,000 passenger cars. India was converting from cast iron to composition brake shoes. For $10 million and the assumption of debt, Westinghouse Air Brake acquired RFS(E) Limited of England, a 150-year-old provider of vehicle overhaul, conversion, and maintenance services for the English, Welsh, and Scottish railways. Also in 1998, Westinghouse Air Brake established a relationship with MotivePower, a leading maker of components for locomotives, as well as for the power, marine, and industrial markets. The two companies formed a joint venture in Mexico to build locomotive and railcar components, operating out of a facility owned by a MotivePower Mexican subsidiary. Rebuilding brake shoes at first, the joint venture quickly expanded to include the repair and maintenance of railway electronics equipment.

In 1999 Westinghouse Air Brake and MotivePower began to discuss the possibility of merging the two companies. North American railroads had undergone a period of consolidation in which the top ten railroads merged into five, and they were now looking for bigger, and fewer, suppliers. The $25 billion rail-parts industry was highly fragmented, divided among 800 suppliers, with only 13 large enough to generate more than $200 million in annual sales. Westinghouse Air Brake posted $670 million in 1998. Because the businesses of the two companies complemented one another, investors reacted positively when a $557 million stock swap was announced in June 1999. The merger of equals, which was slated to retain the MotivePower name, would create the largest U.S. company in the rail-parts industry. John C. Pope, chairman of MotivePower, would serve as chairman of the new company, and Kassling would become chief executive officer.

In August 1999, however, the deal with MotivePower underwent a reversal of fortune, when the companies announced that combined 1999 earnings would fall short of the forecast made in June. Stocks of both companies fell, Motivepower’s more so than Westinghouse’s, making the deal less attractive to the latter’s shareholders. The merger was renegotiated and under the new terms roles were reversed. The company would now be called Wabtec and Kassling would serve as both chairman and chief executive officer. Pope would leave after the transaction was completed in November.

During 2000, Wabtec consolidated its new operations. Nine facilities were closed and ten product lines were moved to lower-cost plants. Overall, employment was cut by 11 percent. In February 2001, Kassling announced that because the company was well positioned financially and strategically for the future he decided to turn over the job of chief executive to Gregory T.H. Davies, who had led the restructuring program. Kassling would remain as chairman of the board.

Key Dates:

1869:: George Westinghouse establishes company after receiving patent on the air brake.
1878:: French plant becomes first overseas operation.
1914:: George Westinghouse dies.
1917:: Company acquires Union Switch & Signal Company.
1968:: Company is sold to American Standard.
1984:: William E. Kassling takes over American Standard’s Railway Products Group.
1988:: Kassling-led management buyout gains control of company.
1995:: Company goes public.
1999:: Westinghouse Air Brake and MotivePower merge to form Wabtec Corporation.

Going forward, Wabtec looked to benefit from a rail industry that had undergone something of a revitalization. Railroad traffic increased significantly in the 1990s. A shortage of truck drivers and the cost of trucking freight had caused many shippers to turn to railway intermodal services. Rather than the 1950s’ and 1960s’ system that used trailers on flatcars, which deserved its poor reputation for damaged goods and tardiness, modern intermodal transport involved specially designed cars hauled by dedicated trains on specific traffic lanes. For long hauls intermodal offered a significant price break over highway transport. Railroad began to make conceited efforts to reintroduce intermodal to many shippers with ingrained misgivings about it. Foreign rail markets, in particular China, Australia, and India, also looked promising. Wabtec, with its variety of products and services, as well as its size, appeared as well suited as any company in the industry to take advantage of future opportunities in rail transport.