BROOKVILLE, Pa.—Workers in a rural warehouse here are restoring
four machines: a locomotive for coal miner Consol Energy Inc., and
three 1947 San Francisco streetcars.
By this time next year, the coal-mining equipment could be gone,
and the workers at Brookville Equipment Corp. left repairing just
streetcars.
So it goes in coal country, which has been bruised by
competition from natural gas, regulation of coal's heavy carbon
footprint, and economic forces like the strong dollar. As big coal
miners struggle, their equipment suppliers—thousands of firms
sprinkled throughout Pennsylvania, West Virginia, Ohio and
Kentucky—are scrambling to find new customers anywhere they can,
from gun shops to the San Francisco Municipal Transportation
Agency.
For most, nothing will replace the massive scale of the
coal-mining sector, and as the generational coal crisis ripples
throughout the hamlets and hollows of Appalachia, economists are
debating the region's most viable path for growth.
The plight of big coal is particularly bleak in Central
Appalachia, where coal seams are thinner and costs have increased,
and where the oil-price collapse has hurt natural-gas drilling and
steelmaking. Alpha Natural Resources Inc., one of the nation's
biggest miners, declared bankruptcy on Aug. 3, and other filings
are expected.
"A lot of these mines that are closing—particularly the smaller
ones—I think are gone for good," Paul Lang, president of another
Appalachian miner, Arch Coal Inc., told analysts in late July.
The modern coal industry is heavily mechanized, and miners
depend on a broad web of equipment makers and tool shops. The West
Virginia Center on Budget and Policy estimates that four subsidiary
jobs depend on every coal-mining job. "Coal mining requires tons of
machinery and equipment," says Ted Boettner, the center's executive
director. "And the problem is that coal companies tend to not be
diversified. They're not also into solar panels."
Petra Industrial Services Inc. a small Lochgelly, W.Va.-based
machine shop, has supplied Alpha, Arch Coal, Murray Energy Corp.
and other big miners in the region with machine replacement parts
for 30 years. But as many downsize furiously to cope with cheap
natural gas, a global coal glut and tougher environmental rules,
Petra is trying to adapt.
"It's been catastrophic," says Jerry Fredericks, whose family
owns the business, and who recently laid off two of his 12 workers.
"And there's nothing we can do about it; we're just part of the
supply chain."
Mr. Fredericks says his business is looking at other potential
customers. "We're looking at components for the ATV industry, gun
accessories and some custom tooling for gas," he says. "But
geographically, coal is just what makes this area run."
Princeton Machinery Services Inc., in Princeton, W.Va., which
makes hydraulic pump parts, has already diversified. Owner Joe
Stafford says coal miners account for 10% of his customers, down
from half 10 years ago. "We saw the writing on the wall," he says.
"When you live this close to the coalfields, everything revolves
around it, so we started looking elsewhere a few years ago."
Brookville Equipment Corp. was started in 1918 by one of the
nation's first Ford dealers. The firm built up an expertise in gas-
and diesel-powered locomotives and railbuses, which it sold as far
afield as Colombia. The McNeil family bought Brookville in 1975 and
in the 1980s made a push into coal.
"Appalachian coal has low seams, which is perfect for embedded
rail," says Joel McNeil, vice president of business development.
"If the ceilings are higher, there's enough room to drive a jeep
with tires in there, and you don't need rail."
Brookville pioneered battery technology that allows electrically
powered rail vehicles to detach themselves from power cables and
travel alone for short stretches. By 2011, with coal still going
strong, 60% of the company's business was selling low-slung
locomotive cars for coal miners to ferry people and equipment down
into the mines.
But the coal crisis this decade has hit Brookville hard.
One of Brookville's biggest customers is Consol, which has been
focusing more on natural gas and two years ago sold off five coal
mines to Murray Energy. The Pittsburgh firm lost $603 million in
the second quarter, and the amount of money it spent on running its
coal business, which includes paying suppliers like Brookville,
fell 20% from a year earlier to $393.7 million. A spokesman for
Consol said the company was "continuing to successfully navigate
the current market conditions" and its mines would "capitalize when
prices begin to rebound."
Marion Van Fosson, president of Brookville, estimates the
company has lost revenue of around $30 million a year, a
significant part of its total revenue. The company now employs 200,
down from a high of 300 in 2012. By next year, mining will only be
a quarter of its business. "Coal is still an important part of our
business, and we'd like it to come back, but we have to realistic,"
he says.
The company decided to expand into restoring and building new
streetcars because it had in-house expertise in the public transit
business, and because it saw growth in that sector.
"There's a huge move back to cities," Mr. Van Fosson says. "A
lot of young folks don't even want driver's licenses, so that's an
opportunity for us."
The number of Americans riding light-rail systems annually rose
to 537 million in 2014, up 56% from 341 million in 2004, according
to the American Public Transportation Association.
And thanks to its work for the coal business, Brookville had
something extra to offer. The battery technology useful in coal
mines also helps streetcars get over bridges in Dallas.
"Brookville's the first to develop a car that can go some distance
on battery power, and they're willing to fill a market niche," says
Jeffrey Boothe, president of Boothe Transit Consulting LLC, a
Washington consultancy.
Brookville, which has secured contracts for projects in Dallas,
Detroit, San Francisco, Montreal and other cities, says it can
compete with giants like Alstom SA and Siemens AG because it can
more easily respond to niche requests, like restoring 16 old San
Francisco street cars. That contract, which will add 20 years to
the cars, is worth about $34.5 million.
Kenneth Troske at the University of Kentucky says that unless
more companies can replicate Brookville's success at finding an
alternative business, "the best thing to do would be to provide
people with education and let them relocate."
Write to John W. Miller at john.miller@wsj.com
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(END) Dow Jones Newswires
August 31, 2015 07:05 ET (11:05 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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