Caterpillar Inc. (CAT) plans to collaborate with Navistar International Corp. (NAV) on a new 15-liter engine for the truck maker's heavy-duty vehicles, according to sources familiar with the discussions.

Navistar has been seeking a supplier for the large engines amid moves by its existing suppliers - including Caterpillar - to leave the sector or switch emissions technology.

Caterpillar plans to supply the 15-liter engine under Navistar's MaxxForce brand by late 2010, according to the sources.

The heavy-equipment maker has said it plans to quit making engines for the U.S. truck market in 2010 to avoid the cost of complying with new domestic emissions standards. However, Caterpillar, Peoria, Ill., could license its existing large engine for Navistar to produce, or opt to continue making power trains under the Navistar brand.

Both companies declined to comment.

The joint venture, part of a broader truck alliance announced in mid-2008, would allow Navistar to build out its MaxxForce line of medium and heavy-duty engines without the expense of developing a 15-liter unit from scratch.

The pending deal would reduce Navistar's reliance on Cummins Inc. (CMI), which also supplies the truck maker with 15-liter engines.

Caterpillar's plan to exit the U.S. engine business and Cummins' decision to use a different emissions system from Navistar's sent executives from Navistar, Warrenville, Ill., searching for alternatives.

For Caterpillar, "This is a way to participate in the truck engine industry, but not have the exposure of being a direct supplier to it," said Eli Lustgarten, analyst with Ohio-based Longbow Research.

Daniel Ustian, Navistar's chairman and chief executive, told analysts Jan. 5 that a 15-liter engine solution will be unveiled in March during a trade show in Kentucky. "We'll have our own 15-liter," he said.

About a fifth of the 146,285 trucks Navistar built in 2008 were equipped with 15-liter engines, up from 16% in 2007, according to Power Systems Research, a Minnesota-based equipment data service.

Navistar has built more engines in-house in recent years to cut costs.

Caterpillar and Navistar have been working on an alliance since the summer to build Cat-branded construction trucks for the U.S. market beginning in 2010, as well as commercial trucks and engines for overseas markets.

Caterpillar's global dealer network and logistics operations would provide Navistar with the overseas distribution presence it now lacks.

-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com

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