An October 2005 hurricane that damaged 175 miles of Ferrocarriles Chiapas-Mayab S.A. de C.V.’s (FCCM) track turned out to be too much for the Mexican short line to overcome.
Owned by Genesee & Wyoming Inc. (GWI) since 1999, the 1,119-mile FCCM last month notified the Mexican transportation secretary that the railroad planned to cease operations and terminate its 30-year concession with the government.
The railroad expects to wind down operations and discontinue service by July’s end.
Since Hurricane Stan destroyed or damaged about 70 bridges and washed out track segments between Tonala and the Guatemalan border nearly two years ago, FCCM has been working to develop a reconstruction plan.
Too hard to swallow
But the railroad, which employs 407 people, hasn’t been financially viable and rail traffic has continued to decrease since the storm, according to GWI.
“The uncertainty of the Chiapas reconstruction combined with the deterioration of our rail traffic means that we can no longer justify absorbing financial losses or making incremental investments,” said GWI President and Chief Executive Officer John Hellmann in a prepared statement.
The short-line holding company likely will record FCCM-related 2007 charges of about $12 million, or 30 cents per share, mostly in the second quarter. Charges will include severance costs, wind-down expenses, non-cash write-offs of currency translation accounts and tax impacts.
In third-quarter 2006, GWI recorded a non-cash after-tax impairment charge of $34.1 million.
The holding company plans to complete FCCM’s liquidation by year’s end.
As of March 31, the railroad retained $17.5 million worth of assets, including non-current assets (primarily locomotives and rail cars) totaling $6.6 million and current assets (mostly receivables and inventory) totaling $10.9 million.
Under terms of FCCM’s concession, the Mexican government could acquire or lease the railroad’s equipment based on fair market value.
GWI owns and operates 48 regionals and short lines in Mexico, the United States, Canada, Australia and Bolivia.
Source: Progressive Railroading Magazine, July 2007
