February 16, 2012 / 9:00 PM / 6 years ago

UPDATE 1-U.S. EPA probing Navistar diesel-engine production

* EPA says fines could be as much as $285 million

* Navistar says company cooperating with EPA

* Analyst says issue may affect many engine makers

Feb 16 (Reuters) - Navistar International Corp confirmed on Thursday it received notice the U.S. Environmental Protection Agency is investigating its diesel-engine production in a probe that could lead to as much as $285 million in fines.

In a letter dated Jan. 30, the EPA informed the Lisle, Illinois, truck and engine maker it is investigating whether 7,600 “transition engines” built in 2009 were properly certified under the Clean Air Act. Each violation carries a fine of up to $37,500.

The letter was first published on a trucking industry blog called Commercial Motor.

“EPA does not comment on ongoing enforcement,” EPA spokeswoman Stacy Kika said.

The so-called transition engines were built at a time when the company was preparing to launch a new line. Navistar has said the company was in constant communication with the EPA during the period the transition engines were built.

“Navistar acknowledges that it has received notice from U.S. EPA related to the use of 2009 transition engines,” Navistar spokesman Jim Spangler said on Thursday. “We firmly believe our 2010 transition was appropriate, and we will continue our discussions and cooperation with the agency on this matter.”

In its letter, the EPA said Navistar partially built the 7,600 engines in 2009, but did not fully complete production until 2010. The agency said this could be a violation of the Clean Air Act because Navistar did not adhere to rules related to the specific model year of the engines.

In a note to clients, Jefferies & Co equities analyst Stephen Volkmann said he expects the transition-engine issue to be addressed with the EPA as part of a larger settlement. He said it is likely that, “any fine would be smaller than worst case” and noted that Navistar has a strong enough balance sheet to shoulder a fine.

Volkmann also said the issue may extend beyond Navistar.

“We believe that this partial assembly of engines has been standard industry practice for years, and that this could likely apply to any number of manufacturers.”

Navistar competitors include Paccar Inc Cummins Inc and AB Volvo.

“We have not received any kind of communication like this,” Cummins spokeswoman Janet Williams said.

She added that because of its model-year policy, her company does not typically face the same issues as Navistar.

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