Operail finalized the closure of the profitable wagon rental business

Added on 21.03.2023

AS Operail Leasing sold its last 1,036 rental wagons at a price of 22.7 million euros during February and March. With this, all wagons belonging to Operail Leasing have been sold and the rental business has ended. In 2017–2022, Operail’s wagon rental business earned a return on equity of 21% per year on average, which is 38% more than foreseen in the initial business plan.

The opportunity to participate in the auction of the assets of Operail Leasing, a subsidiary of Operail, the Estonian state-owned group of railway companies, was introduced to more than forty companies. Twenty interested parties made their offer at different stages of the process.

The sale took place in three sections. As the first section, last December, 522 wagons located in Ukraine were sold at a price of 6.51 million euros. As the second section, last December and this January, Operail concluded sales contracts with two buyers, who bought 807 wagons at a price of 22.1 million euros.

As the third section, during recent months, Operail sold all of the remaining 1,036 rental wagons belonging to Operail Leasing. As a result of the auction, the wagons were sold to six Estonian companies and one company from Kazakhstan. The total amount of these transactions was 22.7 million euros.

“Overall, the detailed sales process and its result can be considered a success for Operail, although it turned out to be longer than originally planned due to the war in Ukraine. It is a pleasure to note that the negotiation process with the companies that qualified as buyers in the final round went well and the quality was high. I would also like to express special thanks to the Operail Leasing team, who handled the difficult sales process well,” said Merle Kurvits, Member of the Management Board of Operail and Executive Director of Operail Leasing.

“For us, the sale of all rental wagons means that the Operail Leasing wagon rental business can be considered finished,” confirmed Kurvits.

The rental of wagons was the most profitable business area for Operail for the past six years and this is where 99% of its profits came from. In 2017–2022, the wagons of Operail and Operail Leasing earned a total of 68 million euros as rental income.

Operail started renting wagons in 2001, when the company was still part of AS Eesti Raudtee. In 2009, the rental of wagons together with freight transport moved to a separate company EVR Cargo (later Operail). In 2017, the business was expanded and more wagons were acquired. In the summer of 2021, the rental of wagons was concentrated in the subsidiary Operail Leasing.

“The reason for expanding the business was that after the events of the Bronze Night, Russian transit through Estonia decreased significantly and freight transport separately was no longer self-sustaining. As freight transport is strategically important for the country, it was necessary to find ways to remain economically viable. We were looking for alternative income until freight transport in Estonia could be optimised and reformed. The media has given the impression that the wagon rental is the ‘Russian business’ of Operail. This is not true, the business was started for the opposite reason – to reduce dependence on the transport of goods in transit from Russia,” recalls AS Operail Chairman of the Management Board Raul Toomsalu.

The business model during the entire period of operation consisted of leasing wagons to European companies who used them for freight transport on the 1,520 mm railway, both domestically and internationally.

As wagon rental is not a strategically important activity for the state and this sector is also successful in the free market, the state decided to exit the business. The idea was written into the coalition agreement in 2016 and in practice, the exit began in the spring of 2021. In the spring of 2022, due to Russian aggression, the method of sale changed – instead of partially privatising the company AS Operail Leasing, it was decided to sell its assets.