General Electric Co. (NYSE: GE) has reached an agreement to sell 1,000 diesel locomotives to India’s railroads, which has to be the largest such order in history. India has struggled with transportation infrastructure problems, and the deal is a step toward solving those problems.
According to a GE press release:
GE announced today it will invest $200 million to develop and supply Indian Railways with 1,000 diesel locomotives. The company received a Letter of Award from the Ministry of Railways for a locomotive supply and maintenance contract, worth approximately $2.6 billion over 11 years. The deal advances the ‘Make in India’ initiative and reinforces India’s position as a global manufacturing destination.
The largest deal in GE’s 100-year history in India, the company will build a diesel locomotive manufacturing facility in Marhowra district in the Indian state of Bihar, as well as maintenance sheds at Bhatinda in Punjab and Gandhidham in Gujarat. This effort is a major boost to India’s railway modernization efforts, and will provide skill development opportunities for local talent.
The “Make in India” is a PR effort to get companies outside India to do business in the second largest country by population. It is considered to be a hostile business environment for global corporations that want to mine the huge market. One order with GE will not reverse an impression that is nearly universally held.
The deal is also a benefit for GE that goes beyond a revenue one. GE is seen by Wall Street as a company that cannot find its way. GE’s shares are down 15% over the past decade, while the S&P is 66% higher. GE has divested itself of many of its financial divisions. And it has tried to brand itself as one of the world’s most innovative companies. The sale of locomotives will not promote that public perception, but it is a huge financial win.